Entrepreneurship University
A Course in Personal Financial Planning

Budget Norms

A reader asks whether there are averages for expenses as a percentage of the total budget to compare to our case. Such values, not always an average but more recommended values, do exist and are called norms.

Our Budget

Taxes 7.0%
Housing 33.0%
Auto (payment, insurance) 19.5%
Savings and Investment 7.0%
Medical and Life Insurance 2.5%
Food 21.0%
Misc. (clothing, toiletries, recreation, gifts, allowances, etc.) 10.0%

After investigating other sources, I discovered that we were similar. We are higher in some categories and lower in others.

Consumer Credit Counseling Service

Housing 20-30%
Utilities 4-7%
Food 15-20%
Transportation 6-20%
Medical 2-8%
Clothing 2-4%
Invest/Savings 5-10%
Debt Payments 15-20%
Misc. 5-10%

Bare Bones Budget from National Fdn for Consumer Credit

Housing 24%
Food 14%
Health 6%
Clothing 6%
Transportation 17%
Entertainment 5%
Personal Insurance 11%
Charity 4%
Savings and Other 13%

Budget Example

Savings 5%
Food 18%
Transportation 12%
Clothing 9%
Medical 6%
Recreation 5%
Housing (including utilities, furniture, and operating expenses) 27%
Other 18%

If every budget example is different, then how do you know what to do. First there are some basic recommendations.

  1. Save or invest at least 5%.
  2. Debt payments shouldn’t exceed 15%.
  3. Mortgage companies want house payment to be no more than 25%. Housing or rent costs should be kept within your means.

There are a few basic steps in order to set up a viable budget.

All budgets should be specific to your needs and goals. There is no set amount that works for everyone. Make sure that you set realistic amounts.

Treat savings used for goals and emergencies as a bill. If you wait to save what’s leftover at the end, there will never be anything left over.

Involve your family members. Spousal cooperation is necessary for any budget plan to succeed. I let my children participate in our budget discussions.

Track, track, track. I truly hate this part and it makes me feel obsessive. But if you don’t track, you won’t know exactly where your money goes and where you need to focus. How you track depends on your personality. Computer programs like Quicken work great for some people, but not us. We need something quick, easy, and accessible to each of us. Therefore we use a notebook with lines for categories. All discretionary expenditures are listed in like categories such as food, recreation, and gas. We total them every day to see where we are. I’ve discovered if I compare budgeting to dishes (daily) instead of spring cleaning (yearly), I have much more success.

Refrain from impulse buying. "Oh sure," you say. If I could do that, I wouldn’t even be reading this. After analyzing this tendency and realizing that I probably can’t overcome the feeling, I’ve brainstormed other ways to feel prettier than buying something. Treating myself to a bubble bath, good book and soft music satisfies the need to feel pampered and pretty without spending money. If you track your expenditures for at least 3 months, you will be able to see your weak spots. Then you can begin to overcome them.

Budgeting requires a commitment to ongoing tracking, analysis and implementation of frugal alternatives. A successful budget doesn’t happen without hard work and time.

Gary Forman of the Dollar Stretcher explains why budgets fail. "When you analyze it, there are really three reasons why people are unsuccessful in budgeting. The most common causes of failure are unrealistic goals, quitting too soon, and misunderstanding what a budget really is."