Easy Budget Breakdown

by Mary Ann Romans | More from this Blogger

11 May 2009 04:55 PM

Wondering what you should be spending in each category of your budget? Here is an easy breakdown that makes budgeting a breeze. It is just a matter of putting the following percentages into each category.

Total up your available income after taxes (take home pay) and then divide it up as follows. One thing that is nice about this method is that you don't have to agonize over little things, and you can shuffle money around as needed for unexpected expenses or gains.

Here are the recommendations inspired by M.P Dunleavey, who writes a column for MSN Money.

Ten percent of your income should go for retirement. Sometimes we put off retirement because it doesn't seem like an immediate need. Most people save up to two or three percent in this category. Dunleavey recommends that you inch this number up as much as you can until you get to that ten percent. This will make a big difference in your life down the road.

For the next two categories, Dunleavey recommends allocating between five and ten percent of your income. I tend to be conservative, so I like to allocate the full ten percent, but this will vary with your needs and the rest of your bills. By using the larger number, any excess money can be invested to increase your net worth.

Ten percent can go for long-term expenses. Some long term expenses might be upgrading or fixing your home, buying a new car, paying for child care or college tuition, starting a home-based business, going to Disney, or anything that you might have as a long term goal.

Another ten percent should be allocated for upcoming out of the normal bills, such as an increase in your insurance or property tax, upgrading a cell phone or paying for the repair to your washing machine.

Finally, five percent is allocated for free spending on all of the little things that we consider fun, from new videos to a stop at the coffee shop. This is one area that can get away from you quickly. Adding a book or magazine to your normal grocery bill does count as your "fun" money.

This leaves you with a remaining 65 percent that we haven't accounted. Mortgage, car payments, utilities and other monthly expenses should eat most of this up. But if you can, reduce this number by practicing frugal living. Dunleavey recommends keeping your spending to 65 or 75% of your income, total.

Mary Ann Romans writes about everything related to saving money in the Frugal Blog, creating a home in the Home Blog, caring for little ones in the Baby Blog and now relationships in the Marriage Blog. You can read more of her articles by clicking here or subscribe to the blog using the subscription box on the right.

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Learn more about Mary Ann Romans

Mary Ann Romans is a freelance writer, wife and mother of three children. She lives in Pennsylvania with her husband, the kids and a 16-pound cat.

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