What Are Personal Budgeting Percentages
March 21, 2011 2:20 PM   Subscribe

What are the basic percentages in a personal budget?

Back story.....

My partner left her body last year. I left work to care for her. Went on unemployment. After she left I took the rest of the year off to grieve, reorient and help wrap up her estate. I've moved into a new space that I love. I was given the bulk of her estate, took care of debts, put the bulk of money in a 6 month CD so I could get my head clear as to what to do with it. I put aside some to help with the living expenses until I got on my feet again.

Unemployment is ending soon. What I've set side is running low. I really would like to stay out of the rest of the money. Work is coming to cover expenses yet I still want to begin a budget. I feel like my lover is now a "silent partner" with me and I want to do her (and the material wealth she left me) right.

I've got the Google budget software. I just am unsure of what the basic percentages are. Any help?

Also, a little encouragement would be cool and appreciated.
posted by anonymous to Work & Money (9 answers total) 15 users marked this as a favorite
I would assume (without knowing your partner) that allowing you to live a comfortable life, one where you don't pinch every penny, would be something they'd be happy with. If not having enough money is a stress for you, your partner would likely be very happy with making you less stressed.

In terms of %, it would be helpful to know your income and basic expenditures, like rent and utilities.
posted by dflemingecon at 2:42 PM on March 21, 2011

First - my condolences. That sounds like a really painful year, and it's great you gave yourself time. So many people don't.

For a really basic place to start, I particularly like the 50/30/20 model suggested by Elizabeth Warren and Amelia Warren Tyagi in their All Your Worth. It doesn't work as well for low income levels (or situations where income is complicated: I'm currently unemployed, and ignoring the 'long term savings' parts until that changes.) But it does give me a framework for figuring out what a basic necessity is, what something I want is, and how that fits into the larger budget.

There's a fairly detailed summary at The Simple Dollar, but I recommend getting the book (library, bookstore) as it's got a lot more detail and specific suggestions.

You might also find the information at YNAB (You Need A Budget) helpful: they design software that focuses on making those rules easier to follow (which is what I use for my budget), but the actual information is really helpful, too. The forums have good, clear, thoughtful commentary on a wide range of different budget and finance issues, too: I learn a lot reading there.

Another piece of advice I've seen regularly is to spend money for a session with a financial planner (go for someone who does fee-for-service, not commission). They can help you sort out what some of your options are (especially if you want to keep the some of the estate in investments) and could also probably suggest some other resources.
posted by modernhypatia at 2:47 PM on March 21, 2011

A good rule of thumb to guide personal household budgets is 50% needs, 30% wants and 20% future.

The needs are the basic living expenses like housing, utilities, food, clothing.

There are a few categories that can go in either depending on your lifestyle like transportation (for instance bike vs car vs mass transit) and others depending on your desires. For me and my wife anymore than one car is defintely a want, and in a pinch even one car could be a want. I hate to say it but if you are young and healthy health insurance can be a want if things are really tight. Home insurance is not if you own a home.

Wants are stuff like cable, fancy foods (this changes for different people), eating out, pets (getting them, once you accept them into your home they become a need), and just generally luxuries.

Future is retirement plans, investments, emergency funds and the like

There are two really good personal finance websites i would recommend for more info- The simple dollar and get rich slowly.

Good luck.
posted by bartonlong at 2:48 PM on March 21, 2011 [1 favorite]

From Dave Ramsey:

Charity – 10-15%
Saving – 5 – 10%
Housing – 25-35%
Utilities – 5 – 10%
Food – 5 – 15%
Transportation – 10-15%
Clothing – 2 – 7%
Medical/Health – 5-10%
Personal – 5 – 10%
Recreation – 5 – 10%
Debts – 5 – 10%

There is always wiggle room to do what you wish with these percentages. It's your money, make it work for you!
posted by ohohcyte at 3:22 PM on March 21, 2011 [5 favorites]

I think it depends very much on what your priorities are in life.

For example: I enjoy learning new things. So, some years I have happily spent 10% of my income on this.

Someone else I know likes travelling. The thing she most wants to do is go places and see things - so she spends a frightening amount on travel. What else is money for but for doing the things that are important to you in life?

Yet another friend deliberately allocates a large part of income to having a very shiny car.

On the other side of things, I would particularly like to "retire" early, that is, to be able to comfortably work a minimum wage and/or part time job, run a lifestyle business, or something like that. So for a while I paid 50% of my income into my mortgage, which I paid off in about 7 years, and now I'm paying a lot into my pension, at the expense of a great deal of holidays and nice cars.

I suggest answering the following questions for yourself (not necessarily for us):

What would your ideal life be like? What would it take for you to be able to do that?

When would you like to retire? How much money would you need in retirement? How much would you have to save now to make that happen?

Do you want to buy a house? What kind of house? When? How much money will you need to be able to do that?

Is there anything your partner would really have liked to do that you feel you could or should do in her memory? What would you need to do to make that happen?
posted by emilyw at 5:38 PM on March 21, 2011 [1 favorite]

I'm a big fan of this book and their ratios which are basically as follows:

50% needs (things you would continue to pay no matter what...rent, staple food, toiletries, household maintenance, utilities, insurance, car payment, bus pass, gas, etc.)

30% wants (entertainment, non-staple food, shopping, fun, vacations, etc.)

20% savings (extra payments on debt that is charging interest, retirement, emergency fund, etc.)

The goal is to be able to live on 50% of what you make (or less), enjoy life on 30% of what you make, and if you can drop your needs below 50%, put the extra in savings.

I know that it's not feasible for everyone...I struggle to keep my needs under 50% of my income. But it was a good place to start for me and I like the insistence that I spend 30% towards things I enjoy. I needed that.

Of course, you will need to customize somewhat to fit your lifestyle. Food was difficult for me but i picked $180/mo for groceries and $120/month for eating out. Those were somewhat arbitrary and I'm a single person in a rather affordable city (Austin, TX) so YMMV.

Also, good for you that you are honoring your partner this way. I "wasted" a small inheritance some time ago and even though I've improved my spendthrift ways, I still wish I was able to say that I did something constructive with my grandfather's legacy to me.
posted by screamingnotlaughing at 2:07 PM on March 22, 2011

apologies as I see that bartonlong posted something very similar.
posted by screamingnotlaughing at 2:08 PM on March 22, 2011

I just want to give you encouragement. I am teaching myself about personal finance and it's hard to know what to do sometimes (most of the time!). That said, I think you are doing a great job: I thought it was a good choice to leave work to care for your partner and a good choice to park the estate in a CD while you grieved and sorted things out. I have no doubt that you will tackle the budget issue next!
posted by kellygreen at 5:22 PM on March 22, 2011

Thanks, everyone! It means a lot.
posted by goalyeehah at 9:08 AM on March 24, 2011

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