A Guide to Creating Your Ideal Household Budget


A primer on how much you should allocate for your home, transportation, food and unplanned expenses.

Targeting specific spending areas is a great way to shape your budget. (iStockPhoto)

Summer is the perfect time to take a look at your finances and create a household budget. Considering all the spending your household will likely endure over the next few months, including travel, barbecuing and back-to-school supplies, it’s a good time to take out the calculator and create a budget plan.

But making a budget is no easy task. So if you’d like some pointers, here are some areas experts say you should be paying special attention to as you create a home budget.

Your Home

Most experts suggest keeping your housing costs, including mortgage or rent as well as homeowners insurance and taxes, to no more than 30 percent of your budget, and many suggest 25 percent.

Of course, you have other costs to factor in, from utilities to kitchen cleaning products, which is why many financial experts suggest adopting the 50/30/20 rule for budgeting your after-tax income. It focuses on three areas of spending: living needs, flexible expenses and long-term goals.

  • Allocate 50 percent of your income for living needs. If you adopt this budget rule, half of your income goes to expenses that help you run your house, including utilities, food and transportation, including car payments and gas expenses. If you have day care payments, add that under this category as well.
  • Allot 30 percent of your income for flexible spending. This spending category includes things you want but don’t really need, such as birthday gifts, movie tickets, a gym membership, an expensive coffee fix and so on.
  • Designate 20 percent of your income for long-term financial goals. You should set aside this income for emergency funds, retirement accounts, college savings accounts for your children and repaying student loans and credit card debt.

Keep in mind, applying the 50/30/20 budget plan is no easy feat. You’ll want to try to keep your home costs manageable, which can be hard if you live in a part of the country where the cost of living is high. The most your mortgage or rent should cost is 35 percent of your income, and ideally, 25 percent, says Kristine Stevenson Seale, a financial coach and owner of Advocate Financial Coaching in Temple, Texas. “Where you live should be a blessing, not a burden,” Seale adds.

Transportation Costs

This isn’t just your car payment, but your gas and repairs, too. Or, if you don’t own a car, this encompasses commuting costs, such as train tickets and bus fare, as well. If you adhere by the 50/30/20 rule, ensure your car costs are accounted for in the 50 percent of your income allocated for living needs. Specifically, it’s a wise idea for transportation costs to comprise roughly 10 to 15 percent of your take-home pay, says Joshua Schumm, a financial coach who owns Kansas Financial Coaching in Hutchinson, Kansas.

“This includes gas, repairs, tires, oil, license and registration and taxes and a car replacement fund,” Schumm says. He strongly recommends a savings fund for your next vehicle. That way, you can keep your transportation costs even lower in the future, particularly if an expensive initial down payment can lessen your loan and interest costs over time.

When you do replace your car, Drew Feutz, a financial planner with Market Street Wealth Management Advisors in Indianapolis, suggests prioritizing buying a vehicle that’s reliable and affordable. “Sure, we would all love to have a really nice car to show off, but does it really provide you with that much value?” Feutz asks, pointing out that: “Unless you’re a salesman or travel often for your job, your vehicle is likely parked 90 percent of the time.”


“Groceries should be kept to 10 to 15 percent of total take-home pay,” Seale says.

Want to drill down your food expenses even further? Caden Rhoton, a Provo, Utah-based marketing manager for the customer review site BestCompany.com, and the founder of the personal finance website DimeDad.com, recommends allocating 8 percent of your take-home pay to groceries and 4 percent to eating out. Alternatively, you could allocate 9 to 12 percent of your take-home pay for supermarket expenses and zero percent for dining out at restaurants.

“Not only is it dramatically cheaper to prepare food at home, but it’s also healthier,” Rhoton says. “You can control the portions and ingredients rather than trying to find a healthy option from a menu.”

Retirement Savings

Don’t forget about setting aside money for retirement. “Your retirement savings should be 15 percent of your gross pay,” Schumm says. “But if you have debt, I recommend pausing any retirement savings so that you pay off all of your non-mortgage debts as quickly as possible. This will free up your cash flow so that putting 15 percent toward retirement is realistic,” he adds.

Use these strategies to make your financial disagreements constructive, not destructive.

Unexpected Costs

It seems like there are endless things to budget for, since after housing, utilities, transportation and food, you likely need to budget for health care, debt, insurance, clothing and entertainment. But it’s the unplanned costs that trip up the rest of the budget for many people.

That’s where an emergency fund can come in handy, Schumm says. “I recommend that everyone has an additional savings goal of six months of their expenses, not income, in an emergency fund. This protects you in the case of a job loss, medical emergency, family emergency, etc. It also keeps you on track for retirement by preventing you from having to dip into retirement savings if something happens.”

As for how much you should put away to go toward six months’ of expenses, most experts will tell you that it’s simply an aspirational goal. You won’t reach six months’ of expenses overnight. You may not reach it in a year. But if within a year, you have a month or two of expenses saved up, that’s obviously better than having no savings available.

But much of budgeting involves evaluating not only what you plan to put money toward, but also assessing your past expenses and spending patterns. “I suggest you take an hour or two at the beginning of every month and sit down – with your spouse if you’re married – and go through all of the previous month’s expenses. That way you’ll know exactly where your money went and be better equipped to tell it where to go next month,” Rhoton says.

He also recommends looking ahead and setting a budget for the next month and consider everything, including birthday gifts or doctor’s copays. “There will be different expenses each month and it’s important to plan for those differences each month to help minimize surprises in your spending,” Rhoton says. With practice, you’ll get better at sticking to your budget “because you see at the end of each month how the little daily expenses add up over time,” he adds.

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