In this post, I’m going to show you how to use the Dave Ramsey budget percentages in your budget. In fact, these are the exact percentages that I used to go from being deep in debt to accumulating wealth.
Let’s get started by looking at the benefits of a budget.
The Benefits Of A Budget
A budget is a written plan for your money over a set timeframe. It gives you an in-depth understanding of what you can afford to spend your money on, taking into account your financial limitations.
Without one, you will toss money at every shiny, object that catches your eye. Having a budget will help you think carefully about the trade-offs you are willing to make.
Budgeting will provide you with a host of benefits to your financial health.
Do some research, and you will realize that most wealthy families acquire and grow their wealth by faithfully sticking to a budget.
You should be budgeting if you are:
- Planning an early retirement.
- You are working on limited finances.
- A home renovation is in your future.
- You are paying off credit card bills or high-interest student loans.
- You’re trying to use your money the right way.
- You are working towards reaching your financial goals.
According to Forbes, when you vividly describe or put down your goals in writing, you’re 1.4 times more likely to achieve them.
Ten good reasons why you should create and stick to a budget
1. Gives You 100 Percent Control Over Your Money
A budget allows you to be intentional about how you spend and save your hard-earned money.
You’ll be the one telling your money where to go instead of wondering where it went.
You will be able to decide if you want to forego short term spendings such as daily coffee visits to Starbucks for a long-term benefit such as a new car or vacation.
2. Keeps You Focused on Your Money Goals
Budgeting will give you an accurate picture of your family’s financial health. By mapping out your goals, you avoid spending carelessly.
When you know how much money is coming in, how fast it goes out, and what you spend it on, you will stay on track.
Budgeting will allow you to plan your short-term and long-term goals and make the path towards them.
3. Enables You to Engage With Your Partner About Money
Here’s the bitter truth: Money is such a stressful part of marriage. Money fights are the leading cause of divorce, second only to infidelity.
If you share your money with your significant other, it can be hard to be on the same financial page.
Open and honest communication always wins in marriage. A budget will enable you to identify discrepancies, and you can talk about how you use money together.
4. Helps You Organize Savings and Spending
Far too many folks spend money they don’t have—and we owe it all to credit cards! The age of plastic has got people living beyond their means.
According to A recent finding by ValuePenguin, the median credit card debt per American household as of October 2019 is $2,300.
By dividing your finances into categories of savings and expenditure, you will have a visual representation of your financial situation. This way, you’ll know which category takes which portion.
A budget can also be a reference for organizing your receipts, bills, and financial statements.
5. Creates Margin
By paying your debts quickly and living within your means, you will get used to living within your monthly budget.
When you spend less money, extra income becomes available. The excess income is considered a financial margin.
It is up to you to choose where to apply the extra money to build longstanding financial security.
6. Develops A New Habit
Committing to staying within your budget will let you have a closer look at your spending habits. If you find yourself spending carelessly, you will rethink your spending habits.
Do you need 20 designer handbags? How many channels do you watch on your costly extended cable plan?
Asking yourself such questions can change your mindset towards money and allow you to re-focus your financial goals.
A budget will help you develop new spending habits that you can maintain over time. After practicing the positive habits a while, you will start seeing real progress.
7. Enables You to Create a Cushion for Emergencies
Life is full of surprises, and things can change in the blink of an eye. When you thought you had climbed out of your financial quagmire, random events happen and push you back to square one.
For some reason, the unexpected expenses all tend to come up at once at the worst possible time. You are getting home from a trip to the hospital to be welcomed by your utensils swimming on the kitchen floor. That’s why you need an emergency fund.
A budget is a living document. Your budget needs updating when changes occur in your life. Such changes can increase household spending. Without my safety net, I would probably have never been able to pull myself out of debt.
8. Allows You to Pay Down Debt Quickly
Do you wish you were debt-free? Well, it’s possible, and it all begins with a budget! Understanding your debt is very important!
There are two types of debt: good debt and bad debt. Meaning that taking a debt like a mortgage isn’t necessarily a bad idea if you can afford it.
So how will a budget help you?
First, a budget will show you the amount of debt you can afford. Then, by growing savings, you will have less stress over money as you will be able to pay down your debt quickly.
9. Get to Have Fun Without Guilt
Maybe you can relate to this scenario; doing “some” online shopping only to wake up the next day with regret.
With a budget, you will no longer have to wonder if you can afford a vacation or a big purchase. It will allow you to budget for fun.
Imagine attending concerts, going out with friends, or doing a little splurging without wondering how you will pay the credit card bill at the end of the month.
Awesome, right? A budget will let you have fun without feeling guilty.
10. Find and Make Extra Cash
When you identify and get rid of unnecessary spendings like interests, penalties, and late fees, the money saved can add up quickly.
When you’re aware of your expenses and spending, instead of ignoring your situation, keeping more of your money will be easier.
The above life-enhancing benefits are just the tip of the iceberg. Countless other advantages will have a lasting impact on your finances, and help you be at peace with your money.
So don’t wait! Time to start budgeting!
Dave Ramsey’s Recommended Budget Percentages By Category
- Giving — 10 %
- Saving — 10 %
- Food — 10 to 15 %
- Utilities — 5 to 10 %
- Housing Costs — 25 %
- Transportation — 10 %
- Health — 5 to 10 %
- Insurance — 10 to 25 %
- Recreation — 5 to 10 %
- Personal spending — 5 to 10 %
- Miscellaneous — 5 to 10 %
Dave Ramsey Budget Categories
Like every other skill, money management is something you learn. Knowing where your money goes every month is a proven way to be successful with your money.
Splitting your budget percentages by category will give you a better picture. With this kind of clarity, you will be able to make smart decisions with your money.
Dave Ramsey came up with this precise and effective technique for budget percentages. Ramsey may not be everyone’s cup of tea, but his budget categories are practical, easy to understand, and easy to follow.
You need to divide your budget into 11 descriptive groups. It might seem overwhelming at first, but after you’ve tweaked it to fit your needs, things will be easy-peasy.
Of course, we are all different, just like our budgets. Personal finance is, well, …personal.
Lots of factors are involved in budgeting. Despite the differences, following this budget strategy will help you attain financial independence.
Ramsey advocates giving 10% of your income. Finding opportunities to give back is a great way to better yourself.
You can do this with your time or money. Even if there’s no cap for how much you can give, it helps to plan for it.
You can donate a portion of your income to a charity, church, animal shelter, or worthy cause of your choice every month.
If you haven’t found an organization or cause to donate to, consider increasing the amount you tip Uber drivers, waiters, parking attendants, etc.
You can put away some money for emergencies like getting laid off, towards investment, early retirement, or other saving goals.
Food is an inevitable expense, and often the area in your budget where things start to go downhill.
I keep an eye on food expenses every month so that it doesn’t get out of control. Food can be broken down into two main categories: grocery shopping and eating out.
Consider meal prepping if you find unable to stay within the suggested range to minimize the cost of dining out. Learn more about how to save massive money on groceries here.
New budgeters often overlook this category. This category includes all the necessary expenses in your budget, including cable, electricity, gas, cell phone plan, and internet.
Note that these costs can fluctuate throughout the year. Are you hooked on cable? Here are six alternatives to cable TV.
5. Housing Costs
Property taxes, insurance, rent/mortgage, Private Mortgage Insurance (PMI), and Homeowners Association (HOA) fees should fall under housing costs.
This category accounts for a quarter of your monthly take-home pay.
All types of transportation, private or public, with vehicle registration, fuel, oil changes, safety, maintenance, bus/ride money, parking, toll fees, are all included in the transportation category.
If the car expenses overwhelm you, you can keep your vehicle parked and opt for public transit, ride a bike or walk to your destination.
You will save money and reduce your carbon footprint. All great reasons to leave your car at home!
No one plans to make a trip to the emergency room, but at some point, you will incur medical bills and health-related expenses not covered by insurance.
It helps to be proactive and plan for it. You will have peace of mind knowing that you are covered if you ever need medical attention.
This category can also include money you put toward your FSA and HSA.
Insurance is another budget category where you pay for hoping you’ll never use it.
Depending on your current life position,
- auto insurance,
- health insurance,
- life insurance,
- and other insurance/s,
fall under this category.
This category includes entertainment like:
- sporting/movie tickets and concerts,
- lifestyle expenses like kids’ activities or gym/club memberships,
- or hobby-related costs like music classes.
10. Personal Spending
Sometimes, you want to spend your guilt-free discretionary money on
- home décor and furnishings,
- hair care,
- and other personal items.
This category has got you covered for such expenses.
The miscellaneous category is where you put money away for anything you might have forgotten in your budget.
There’s always stuff you overlook. This category ensures you have accounted for every expense.
What About Debt
Debt is not a category in the Dave Ramsey budget percentages categories. However, Ramsey suggests putting as much as possible towards your non-mortgage debt, such as credit cards or student loans.
A budget is a valuable asset that will enable you to pay off debt quickly.
How to Create Your Monthly Budget
The budget categories we shared above are just one of the several ways you can decide to structure your budget.
You may have different budgeting categories you wouldn’t want to omit. To create your monthly budget, take the categories we listed, and use them as a blueprint to analyze your current budget.
You can ask yourself questions like which areas of your budget are within/outside the recommended guidelines — will any categories increase/decrease in the future.
Dave Ramsey’s Budgeting Method
If you don’t want to use A spreadsheet, you can use the EveryDollar app to get started.
The app relies on Ramsey’s money principles and his debt snowball repayment technique.
After registering, you’ll be asked to choose one or more money goals and to answer a few personalized questions.
You will then enter your income, expenses, giving, and debt figures.
Additional Budgeting Methods
There’s no denying that the Dave Ramsey method is useful, but it’s far from being your only option.
If you’ve made it this far and you still don’t know where you should begin, here are three other popular budgeting techniques:
The 50/20/30 Budget
If the Dave Ramsey budget percentages seem like too much work, worry not. The 50/20/30 rule is a clear strategy that lets you divide your current finances into three budget categories:
- and savings.
Necessities – 50%
Necessities include bills you need to pay to live a decent life. Things like:
- housing (mortgage/rent),
- and utilities.
Saving – 20%
Saving 20 percent will ensure your financial security for the future. This category includes savings such as:
- retirement plans (Roth IRA, 401K, 403b, etc.),
- saving for your emergency fund,
- and big-ticket purchases.
Nonessentials – 30%
In no circumstance should you compromise this percentage for savings or nonessentials
Nonessentials are things that make life a little easier and desirable. They should take 30 percent of your money and include:
- eating out,
- digital subscriptions,
- and other recreational activities.
The only problem with a 50/20/30 rule for budgeting is that there’s too much room for variability.
Reverse or backward budgeting is when you figure out how much you need to save and pay your savings account first.
This method allows you to spend the rest of the money any way you please as long as you follow the first step and pay yourself first.
Because you focus on saving, you can’t spend what you don’t have. When you increase the amount of money you save, it naturally decreases the amount you spend, and it also makes you prioritize your expenses.
Most people find that gradually saving more forces them to cut spending on things that they don’t really need.
Zero Based Budget
A zero-based budget means assigning every dollar a job. With this type of budget, technically, you shouldn’t have any unassigned money in your possession.
All your funds should be allocated down to zero. It gives you the ultimate control of your money.
Don’t get it twisted; a zero-based budget does not mean you have no money left. Instead, you need to budget every dollar until you reach zero dollars left to budget.
Fun things like shopping and going on vacation can also be included in your budget. This way, you can ensure that every single dollar is working for you.
Whether you opt for the Dave Ramsey budget percentages or go for a more upfront 50/20/30 budget, implementing one of these systems will help you make better decisions about your money.
Remember that each of the above budgeting methods is just a starting point for you to create your personalized budget.
You don’t have to follow them if they don’t make sense for your family. Use them to get started, then modify your budget to your own needs
Budget Breakdown Template
There are a few products that I recommend to help you create a budget and stick to it. If you’re working on setting up your budget, feel free to use the Online Budget Worksheet as a starting point.
It will help you create your budget and give you easy control over it. To use it, input your sources of income and projected expenses into the worksheet.
You can conveniently add/delete rows to your liking to reflect your personal finances. Budgeting apps make tracking and categorizing expenses easy.
They will save you time, and if used correctly, save you money. There are several budgeting apps available for both Android and iOS devices.
It will give you a place to lay out all your income and expenses. This way, you can see where your money is going.
Summary Of Dave Ramsey Budget Percentages
If you’ve been scrutinizing your bank account and pay stubs and questioning where all your money goes, learning to use Dave Ramsey’s budget percentages is for you!
Budgeting is the fundamental and single most effective tool for managing your money. Don’t look at budgeting as additional work and a tool that will stop you from enjoying stuff.
Budgeting will show you how you allocate your money and, based on your limitations, provide you the choices on what things to enjoy.
Remember this; budgeting doesn’t save you from careless spending habits. It only provides a goal and reference to help you stay on course.