A Guideline Budget – How Do You Compare?
I am currently reading The World’s Easiest Guide To Finances. So far, it’s a good read especially for those that really have no idea where to start. But there is also some great ideas and perspectives for the more “seasoned” personal finance gurus. One of the more interesting items in the book is a guideline budget that is proposed by the authors. I’ll first present the guideline budget and then provide my perspective on it.
The Guideline Budget
The guideline budget basically breaks your expenses into 12 categories and provides a suggested percentage of your income to be allocated to the category. Here is the guideline budget from the book:
My Perspective on the Guideline Budget
While I agree with what Mr. Burkett is doing here (providing a baseline starting point), I don’t agree with the percentage guidelines. If you have debt, a much larger percentage needs to be allocated. I would say somewhere in the 15-50% range. If you have debt, savings (except a $1000-$2000 emergency fund) should be stopped. Investments, including retirement should also be stopped. All other expenses should be reduced to the bare minimums.
If you aren’t in debt, than investments should be 15% and saving should be maxed out until you have a 3-6 month emergency fund.
The guideline budget shows that housing should be 25-38%. Don’t be confused by this. Housing includes your house payment, insurance, property taxes, utilities, and maintenance. Your mortgage payment, taxes, and insurance should be 20-25% of your income, the remaining percentage should account for utilities and maintenance. If your mortgage payment, taxes, and insurance are more than 25%-30% of your income, you really need to take a hard look at your home, as you have too much house.
The guideline budget also recommends that Auto(s) should be 12-15%. This number is pretty accurate. I always recommend you pay cash for a car and not finance, but if you can’t these are good rule of thumb percentages to use. Remember though, this isn’t just your car payment(s). The Auto(s) category includes insurance, gas, and maintenance.
Comparing my budget to the guideline budget
I wanted to see how by budget stacked up so I pulled up my budget and determined my percentages:
|Category||Guideline %||Our %|
Housing Budget – My housing is well within the low range. We live in a home where the mortgage is well below 20% and our utility costs, while not as low as I would like them, really aren’t high at all.
Food Budget – We are 8% above what is recommended. There are two reasons for this: 1) We eat out too much, and with 6-kids it’s expensive. This is a focus area for us to cut back in. 2) We have 6 kids and they eat like there is no tomorrow. With 6 kids, we expect this percentage to be higher than normal.
Auto Budget – While I wish this category could be 0%, at 12% we are at the bottom of the guideline range. This is due to us both driving used vehicles. One has a low monthly payment, the other is paid for. Our low percentage also reflects the area of the country we live in, as insurance rates are very low in the Southeastern US.
Insurance Budget – Again, well below the budget guideline here. This is due to having most of my life insurance with the company I work for, and having the remainder with an insurance company I’ve been with a long time. My insurance company plan is a 30-year fixed rate term plan that can be adjusted if needed. I have 10x my annual salary in life insurance.
Debt Budget - The 18% is for one month. This percentage varies greatly as we snowball our debt payments along with snowflaking them as well. This number is seldom less than 15%, and frequently 25% or more.
Clothing Budget - We actually spend very little here. We shop pretty frugally for clothes and try to keep our costs down. This % varies month to month as we see we’ll need clothes or not.
Saving Budget - Since we are working hard to get out of debt, we aren’t really saving. We have a $2000.00 emergency fund. The remainder of our savings is money put aside monthly for Christmas and our year-end property taxes. This money is automatically pulled out of our account monthly.
Medical Budget - I was surprised to see our medical expenses come in so low, as I require monthly medication and one of my son’s is diabetic. Our monthly prescription costs are fairly high, even though we’ve switch to generics for the most part. I did not factor in the cost of my health insurance, which might account for this. I did however remove this from my income.
Miscellaneous Budget - This is a category we manage very closely as it can be easily abused. This category is for expenses that are difficult to plan in advance. Not emergencies, but everyday kinds of items or maybe even small luxuries that come up. we manage this well, and are in the low number of the guideline.
Entertainment/Investing/Day Care -We don’t allocate any money to these categories. We really don’t do a great deal of entertainment that costs money and when we do it comes out of the Misc. category. Investing is on-hold while we get out of debt. Day Care isn’t required as my wife is a full-time stay at home mom.
In upcoming articles, I’ll dive into more detail on each of these 12 categories and discuss in more detail what should go where and how to use these categories more effectively.
How do you measure up? Any thoughts on the guideline percentages provided? Add your thoughts and perspective by commenting below!