HOW MUCH SHOULD I SPEND EACH MONTH?
So what do you do when you have a ton of debt and no extra money each month? Or when you have more bills than income? Or when you have big dreams and goals for your life and no clue how to make your money work for you?
It’s overwhelming. We get it.
It’s frustrating to watch your friends or your neighbors seem to effortlessly pull all of this off without a hitch. They have new cars and live in well maintained houses. Meanwhile, you stuck deciding whether to pay the gas bill or buy food this pay period.
Learning to build wealth and pay down debt with the income you already have is not something people talk about very often. Truthfully, it takes time. It’s not a quick fix.
William Throroau once said
One of the quickest ways to decrease your spending is by paying attention to how much you are actually spending each month. It sounds too simple, but it works.
Your biggest wealth building tool might be the income you already have. Creating a simple household budget based off percentages of your income is a great way to curb your spending and build wealth. And once you believe this to be true - big things will happen with your money.
We made some big decision to use the income we had to pay down our debt. It seemed impossible at the time, but we cut our expenses and saw some traction. Eighteen months later we paid off $18,000 in debt! Crazy, right?
How did we do this?
We paid attention to how much we spending and we used spending guidelines. Do you know how much you spend each month on a car? Or how much you spend each month on rent or mortgage? How much do you spend each month on groceries?
Percentage spending guidelines can help you evaluate your spending and get you organized. It is a fabulous tool to help you reduce expenses and reach your goals.
WHAT PERCENTAGE OF INCOME SHOULD GO TO BILLS?
Your spending will vary depending on where you live, the size of your income, and your family. We will talk about all this in a minute, but these guidelines can help anyone become aware of what areas they need to work on.
You'll find I'm not prescriptive on many things when it comes to money. We all come from different backgrounds and have different family situations.
When it comes to spending guidelines, do what works for YOUR family. Some families spend MORE on clothes and less on food. Other families spend more on eating out and less on activities.
If one area of your budget is above one of these percentages, try lowering it for a month or two. If it is no big deal, GREAT! If it doesn't' work, that's okay. Get creative and keep working at it.
YOU DO YOU.
HOW MUCH SHOULD WE SPEND EACH MONTH?
Below is a breakdown of spending guidelines by budget category. You will notice each category has a percentage range for your monthly income after taxes and giving. When you are creating a monthly budget, take your total salary per month times these percentages and see where you fall.
For example, try to keep you housing expenses to be within 25 - 38 % of your income. You may want to keep your food expenses within 10 to 15 % of your income.
You can see other living expenses below.
PERCENTAGE GUIDELINES FOR SPENDING
If you are new to a monthly budget and have no idea what you are spending, take one month and write down everything you spent. Don’t create a budget or do anything but observe your spending. Total up all your living expenses by the categories above.
How did you do?
Don’t panic or get frustrated. Don’t beat yourself up if your spending is high.
Decide on one or 2 areas of this chart and work on it for a month or two. Maybe you take 15% of your next paycheck out in cash and only use that cash to buy food.
Did you have enough? Or did you spend it all in a few days? Work on the one area for a few months. Don’t over do it.
If you find one area of your spending is high, we encourage you not to give up! Get creative! Figure out how to reduce spending in another area to make up for higher expenses. With a little hard work and ingenuity, you will be surprised what you can do.
I think the hardest part about managing your money can be getting organized. Try to figure out where you need to reign in your spending and create a system that works for your family. Remember, every family is different. Do what works for you.
Try using a cash envelope system for areas you tend to overspend in. We highly recommend using cash for food and miscellaneous expenses (think kids lunch money or target runs).
Related: The Best Cash Envelope System
HOW TO BUDGET YOUR MONEY
When we first started looking at these household budget percentages, we knew we need to cut our food costs to pay down our debt. I started shopping at Aldi and learned everything I could about Aldi shopping and meal planning.
For a year, we didn't invest. We followed the baby steps. We only had a $1,000 in a savings account. We didn't have any fun money or child care costs. We adjusted our work schedules so we could both work and take turns caring for our small kids. We took everything we could and paid off our debt.
Housing is generally inexpensive in our area. Compared to people living on the coast or other populated areas, our housing expenses have always been within 25% to 30% of our monthly income.
On the other hand, our food expenses have gone up sharply in the last few years. We have three kids, two of them are teenagers.. I expect our food bill to be more than 15% of our monthly income soon. I'm okay with that.
I am already looking at ways to decrease spending in other areas to accommodate this expense. It is only for a season and I don't want to stress about. We can get creative and do what needs to be done!
It is important to recognize seasons. Especially when you have kids, you won't always be spending hundreds of dollars a month on diapers. Seasons change and so do your expenses. Some expenses go down (like diapers and child care) and some expenses go up (like food!).
We currently don't have any consumer debt but are aggressively working on paying off our mortgage. Any extra money we can find goes to our mortgage balance!
MONTHLY EXPENSES AS A PERCENTAGE OF INCOME
Let's look at how these spending guidelines play out with different income levels. We broke down a $3,000, $5,000, and $10,000 monthly income so you could get a glimpse of what these percentages might look like for a typical family.
Remember, this is an example. Do what works for your family.
NOTE: In all three of these breakdowns, I tried to use the lower end of the percentage guidelines.
$3,000 MONTHLY INCOME
$5,000 MONTHLY INCOME
$10,000 MONTHLY INCOME
Remember, we are all a work in progress in this area. We all mess up from time to time. This is a reality. This is life. Try not to give into failure. Take a deep breath and try something new. Keep working at reducing and controlling your spending.
Your income is your biggest wealth building tool. This is important work.
Go slow, use cash in overspending areas, and be patient. This is not a race. Getting control of your spending takes time!
What is one are YOU could reduce spending in this month?