If you know anything about Dave Ramsey, it’s that he loves a clear set of rules.
His popular “Baby Steps” help people get out of debt, but did you know that he has some guidelines on what you should be spending your money on?
There are budget percentages that Dave Ramsey recommends, for what he thinks you should stick to for your household expenses.
Budget Percentages Dave Ramsey Recommends
Let’s take a look at the different categories and the recommended budgeting percentages to manage your money:
Giving — 10 percent
Saving — 10 percent
Food — 10 to 15 percent
Utilities — 5 to 10 percent
Housing costs — 25 percent
Transportation — 10 percent
Health — 5 to 10 percent
Insurance — 10 to 25 percent
Recreation — 5 to 10 percent
Personal spending — 5 to 10 percent
Miscellaneous — 5 to 10 percent
Budget Percentage Category Explanation
Ok so now we know what the budget percentages are, but what does that actually mean?
We can look at each category and see what Dave means about each one.
Giving — This is an important category for Dave Ramsey, as he believes that you should always give, even when you are in debt. He recommends 10%.
Saving — Dave Ramsey advises that you should be saving 10% of your income towards your retirement. The most common retirement accounts are an IRA or 401(k).
Food budget percentage — Dave says that you should be spending 10 – 15% of your income on your food for the month, including both groceries and eating out. The grocery budget percentage is very important.
Utilities — Utilities are bills for things such as your gas and electricity. The budget percentage recommendations for this category are 5 – 10 % of your budget.
Housing budget percentage — This is a biggie, and one that many people may not be able to do straight off the bat – Dave Ramsey says that this category should make up 25% of your budget.
Transportation — This includes everything that relates to transportation. He suggests that you spend 10% of your income on your transport costs. These costs could be things like gas, insurance, car payments, parking, etc.
Health — This category is for all health-related costs, and he says it should be 5 – 10% of your budget.
Insurance — This should be 10 – 25% of your budget. Insurances include health insurance, life insurance, disability insurance, etc. Generally speaking, this means insurance that relates to your life rather than “extra” insurance such as home or car.
Recreation — This budget category is one that Dave recommends you spend 5 – 10% in. This is your ‘fun’ or ‘entertainment’ category. This is for things like gym memberships, kids sports activities and entertainment like Netflix.
Personal spending — Dave recommends that you spend 5 – 10% of your budget on this category. This will be for things like haircuts, clothes, shoes, etc.
Miscellaneous — It is a good idea to have a miscellaneous category in your budget, as there are always expenses that pop up that you can’t predict. He says to put 5 -10% of your budget in miscellaneous.
Why Use Budget Percentages?
If there’s no one budget for everyone, why is it a good idea to use percentages to create your budget that works?
A good reason to use percentages to create your budget is if you aren’t sure where to start.
A lot of people have never created a budget before and simply don’t know how to allocate their money.
It is handy to have a guideline to work towards and tweak it to fit your personal situation and finances as you go along.
It’s also good because it shows you things in black and white. Your $1000 a month rent payment may not seem that much until you look at the percentage and realize that it’s 50% of your take-home pay.
With that in mind, it is a good way to assess your overall budget and how much of your income you are spending on certain categories and make any changes that you want to.
How Do I Determine the Right Budget Percentages?
You’ve decided that you want to create a budget and figure out the percentages – but how to know what the right budget percentages are for you?
Using Dave Ramsey’s budget percentages is a helpful place to start, as it lists a bunch of categories that you are likely spending in.
You can look at those and decide if you are happy with the percentage amounts that are allocated.
Have a look at your current spending and budget, and see what the differences are.
You may want to ask yourself questions such as:
- Am I happy with spending as much as I am in certain categories?
- Do I want to decrease my spending in some areas?
- Do I want to increase my spending in other areas?
- Are there any categories that I can improve on?
- What do I want to be my biggest outgoing percentage?
Have an honest conversation with yourself (and your partner if you have one) and come to percentages that make the most sense for you.
Sample Household Budget Percentages
To show you how this works in real life, let’s have a look at an example. Everyone has a different income, but just for the sake of this example let’s imagine that your income is $2000 per month.
We can look at housing budget percentages for you.
In terms of Dave Ramsey’s budget percentages, this is how it would look, roughly:
Giving — (10%) $200
Saving — (10%) $200
Food — (10 – 15%) $200
Utilities — (5 – 10%) $100
Housing costs — (25%) $500
Transportation — (10%) $200
Health — (5 – 10%) $100
Insurance — (10 – 25%) $200
Recreation — (5 – 10%) $100
Personal spending — (5 – 10%) $100
Miscellaneous — (5 – 10%) $100
What if I Have Debt?
If you have debt, you may have noticed that there isn’t a category for debt in Dave’s recommended percentages.
This does seem a little strange when you consider how he is all about paying off debt, but that may be for a good reason.
Dave always advises that you should get a second job or extra income coming in, and should also reduce spending in other areas so that you can throw as much as possible towards your debt.
It’s worth noting that this is a guideline for people to work off, not one-size-fits-all.
How Do I Make a Budget That Works?
The best way to make a budget that works is to make one that is realistic for you and your family.
Looking at the percentages, it may be really tempting to try and drastically change them to fit how you want them to look.
However, this may not be the best action to take. Any changes that you make will need to be slow and over time as you adjust to something new.
The best way to find out what is realistic for you is to look at what you are spending now and work from that.
You will want to make a plan for every dollar, making sure that your bills are paid and your goals are covered.
What Budgeting Method Options Are There?
There are a lot of other budgeting methods that are out there – you don’t just have to go with this one if you don’t want to.
There are also sites where you can find budget percentage calculators to work it out for you.
Some good budgeting methods that you could try out include:
- 50-20-30 method
- Cash envelope system
- Reverse budgeting method
This is another method for percentage-based budgeting, and you may find this more useful as it isn’t broken down into lots of different categories.
The method breaks down the budget categories like this:
- 50% – necessary expenses such as housing budget percentage and transportation
- 20% – your financial goals such as savings, retirement, debt payments
- 30% – this is for your personal spending
Cash Envelope System
Dave Ramsey preaches using cash envelope system for good reason. It works!
It helps you to save a lot of money because you have the cash in front of you, which is a lot harder to spend than swiping a card.
To use this system, you will work out how much your budget categories are, then withdraw cash for each envelope per category.
Reverse Budgeting Method
Have you come across the term “paying yourself first?” This is what this budgeting method is all about.
What you will do is pay yourself first before you do anything else – meaning, you give yourself money for your goals before you spend any.
You will obviously need to make sure that your bills are covered, but any money left over you can spend on whatever you like.
Best Budgeting Apps To Consider
In order to help you get started and stay on track with your budgeting, there are some apps out there that are designed just for that.
Printable Budget Templates
There are printable budget templates out there that you can get printed on your home printer!
We have templates that you can use that we personally created, for you to fill out your family budget.
When it comes to looking for a platform that will help you with your budgeting, Mint is one of the best out there.
You can see an overview of your finances, and Mint has tools on there to help you, such as budgeting, spending analysis, bill pay reminders, and credit monitoring.
You can check things within your Personal Capital account such as net worth, investable cash, cash flow, budgeting, portfolio balance, and retirement savings.
This is a simple budgeting app will help you to set up a basic financial plan.
It’s free but keep in mind that if you want to add financial tracking and to link your bank, you’ll have to upgrade to the premium account for $99 a year.
This is one of the most popular budgeting apps out there, known either by the name YNAB or You Need a Budget. This also comes with a subscription fee.
You can connect your bank accounts to this app, but please note that you can’t do any detailed financial analysis – this is purely a budgeting app.
Excel or Google Sheets
Another great way to set up a budget is to use Excel or Google Sheets.
If you know about formulas that definitely helps, but if not, you can still input your income and expenses and make a basic budget that way.
This is a digital equivalent of the cash envelope system which allows you to use virtual ‘envelopes’. It offers multiple paid subscription levels
The best part about using this cash envelope method is that you can link your bank accounts so that you can keep up to date with your finances.
Final Thoughts on Budget Percentages
You may not decide that you like Dave Ramsey’s budget percentages – and that’s ok.
It is meant as a guideline to help you see if you are overspending in any categories, and help to create the categories in the first place.
Regardless of if you want to use budget percentages or not, it is always a good idea to create a budget and figure out a way that works best for you.
To create your ideal household budget, you will need to look at your spending and create a realistic budget from your numbers.