Use These Expert Expense Guidelines to Improve Your Budget
Posted by : Premraj | Posted on : Thursday, February 2, 2017
DELICIOUS
SU
REDDITCreating a household budget is something that can benefit any family. It’s the essential tool for financial management whether you’re a complete novice or professional accountant. But as simple as it seems, creating a reasonable monthly budget comes with a lot of uncertainties.
Budgeting is much more effective when you have a good idea of how much you should be spending in each expense category. Let’s take a look at the most common household expenses and the income percentages financial experts recommend for each.
Telecommunication Expenses
Recommended Income Percentage: 5-8%
This is an interesting expense category because some will see it as a luxury while others will see it as a necessity. Telecommunication expenses generally include cable or satellite TV, landline phone, cellphone and Internet service. Since nearly a quarter of the U.S. workforce works entirely or partially from home, Internet is definitely considered the most important of those four by most people.
Providers like DIRECTV offer cost-saving packages that bundle services together and make account management a little easier. You can also opt to just get a single service so you aren’t allocating your budget to an unnecessary expense. Of course, some people also consider their television service to be a utility or entertainment expense so it could be shifted to one of those categories to stay within the recommended guidelines.
House Payment/Rent
Recommended Income Percentage: 25-30%
Does the home of your dreams fit your monthly budget? Many real estate professionals have stated that the monthly mortgage or rent for housing shouldn’t exceed 30% of take-home pay. Financial guru Dave Ramsey is even more conservative, though. He recommends that homebuyers pay no more than 25% of their monthly income on their mortgage repayment, taxes and home insurance. This gives you a cushion in case your taxes or insurance rates increase.
That’s why finding the best mortgage lender possible is so important. Lowering the interest rate by even a fraction of a percent can mean the difference between staying within a comfortable spending level and going beyond the 30% threshold. If you find yourself teetering on 30% you may want to consider refinancing or possibly adjusting your insurance plan.
Utilities
Recommended Income Percentage: 5-8%
Another expense involved with housing is utilities. They are a necessity that can easily eat into your budget. Utilities are particularly tricky because the rates might be fixed but the overall cost fluctuates from month to month.
The biggest variable here is where you live. For starters, the local climate will largely dictate how much the heating and air conditioning system gets used, which is the largest portion of most utility bills. In some areas like Southern California, the weather is so temperate many homes don’t even have central air and heating. The rates for electricity, gas and water also vary from region to region. Some areas are what’s called deregulated. This means consumers can choose from a number of providers who offer their own rates.
Your energy habits will also come into play. You can get closer to the low end of the recommended range by reducing energy use and taking steps to make your home more energy efficient.
Transportation Costs
Recommended Income Percentage: 10-15%
Getting around comes at an expense, even if you don’t have to make a car payment each month. Gas, insurance, maintenance, and repairs also get factored into transportation costs. Without or without a vehicle payment, financial experts recommend that families keep this expense below 15%.
Food
Recommended Income Percentage: 5-15%
The range here is pretty wide for good reason. There are two things that are going to have the biggest influence on this part of your budget: family size and cooking habits. Eating out is significantly more expensive than cooking at home no matter how many people are in your family.
The Bureau of Labor Statistics notes that the average family spends 12.9% of monthly income on food. If your family is average size and spending more than that it’s time to put your grocery list on a diet.
Recreation/Entertainment
Recommended Income Percentage: 5-10%
Life can’t be all about making money and paying bills. It’s important to spend time with your loved ones relaxing and having fun. If money gets really tight this expense category can also act like a backup, allowing you to shift a portion of your income as needed.
Investment/Savings/Emergency Funds
Recommended Income Percentage: 10%
With approximately half of Americans living paycheck to paycheck, saving money can seem like an impossible task for many households. A survey by the Federal Reserve Board found that even an unexpected expense of just $400 would be impossible for 47% of people to pay.
It’s critical for your financial security to save and invest as much as possible. How are families supposed to do this if they can barely cover the expenses above? The answer is to cut out all discretionary spending. Until you have at least $1,000 saved forgo the entertainment for a few months. Brew coffee at home instead of going by Starbucks. Eat a few more meals at home rather than going out.
Bottom line: if it isn’t an essential purchase, pocket the money instead of spending it.
