If you are new to the world of budgeting it can feel like this super intimidating thing and you just don’t know where to start. A very popular name within the budgeting world is Dave Ramsey. He has been a huge influence on how to budget because his method works! He has hands down, the best way to budget your paycheck that will make sense for your life.
It’s important to keep in mind, your budget will always be changing and adapting to your life, but the amount of money you spend in certain areas of your life should always stay within a certain range.
The best way to budget your paycheck is based on how much of your paycheck each month is being spent in certain areas. This has been broken down into different budget categories of expenses and percentages of your total income you should be spending in each category.
To get started:
Step 1 is taking the Money Spending Assessment to see where your money is going and set you up for budgeting success!
Step 2 is identifying all the categories you spend money in. Get the FREE Budget Categories Checklist here to get all of your categories organized!
Step 3 is setting up your budget. You can follow along here to just set it up on a piece of paper, OR you can sign up here to instantly download my pretty budgeting sheets and use our Basic Budget Setup.
As you are working through your Money Spending Assessment and budget setup, you will become aware of how much you are spending in each budget category. Dave Ramsey’s recommendations for how much you should spend in a given income are not set in stone, but you should try to closely adhere to them (he knows what he’s talking about).
When we talk about the categories and how much to spend within each one, I am talking about what percentage of the money you should be taking from your monthly income and spending it in a certain category of expense.
What are the recommended percentages for your monthly income per category of expense?
This is your giving for the month. If you belong to a church, this is your tithe (or one-tenth of your income). If you do not belong to a church, you should still be giving 10-15% of your income to charity or a worthy cause.
Giving keeps you from making your money an idol and letting it control you. Giving will keep you from becoming obsessed with money. Plus, the whole point of being awesome with money is to become wealthy so you can help others. Right?
This category includes saving for an emergency fund, retirement, your kids’ college, etc. Anything you need to save for goes in this category. As your life changes, your focus will change too and you may be solely working on retirement at some point. The percentage of your income you throw at that endeavor will reflect your goals.
This one is a very big deal. Banks are pretty stupid and will loan you more money than you should be loaned. Nobody wants to be house poor (meaning all of your income is paying for a home you can’t afford to furnish), but something happens when we go house shopping and we lose all sense. Know your budget for a home and stick to it. If you can live with something below budget, even better!
You do not want your mortgage to control all of your income. Especially if suddenly the market goes away, you are upside down on your mortgage and now you are trapped in a home with a huge monthly payment and you can’t sell it. That sounds STRESSFUL!
Living below your means, especially when it comes to your home will keep the rest of your lifestyle in a manageable spot. Don’t spend all of your money every single month on the place you can’t really afford. It isn’t worth it.
This category includes your gas, electric, water, trash, phone, internet, cable, etc. If you are looking for awesome ways to save on your internet, phone and cable, check this out! Changing your phone service could save you up to $2,000 a year!
Look for ways to save on utilities and keep this category as low as possible.
Food, what is also known as, the budget buster! This category tends to be the one that is overspent on every month. This includes groceries and eating out.
If your percentage is really high in this category you need to do a few things:
Use our stupid easy monthly meal plan for beginners (includes a free monthly calendar ALREADY FILLED OUT & a pre-made shopping list). You can access the plan by signing up below. And it’s completely FREE!
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Your food budget will always be a work in progress, but there are tons of ways to cut down your costs.
This is the recommended amount to spend on clothing per month. This seems like a huge amount to me, but I just came off of a 2-year clothing spending freeze. Clothing can be a wasteful category, as well as an opportunity to be saving tons of money.
If you are spending more than this recommended amount on clothes, you need to check this out and see if a clothing spending freeze may be right for you. It could save you $4,000-$5,000!
This category includes your gas, oil, repairs, license, registration, taxes, etc. Depending on your situation you may be above or below this. You may find yourself limited on opportunities to save on these expenses if you commute to work. If you don’t have a lot of wiggle room in your transportation budget, here are some helpful hints to save money on car repairs.
Things to keep in mind are vehicles with decent gas mileage, can you go down to a one-car family?, are you saving for your annual expenses year round? The last thing you want to do is have an expected expense (your yearly registration fees) become an unexpected expense because you forgot about it.
If your gas expenses are out of control, you may have to adjust your driving habits. Look for ways to consolidate trips you are making for errands, doctor appointments, etc.
This one can be a bit tough, especially if you have kids. It can be really challenging to anticipate medical bills if you or your child becomes sick unexpectedly. Do your best to prepare for what you can, knowing you will see the dentist every 6-12 months, the eye doctor every 12 months and/or you may have prescriptions you pick up monthly.
This includes everything. This is your life insurance, health insurance, homeowner or renter insurance, car(s), disability. Any insurance you have goes under this category. If you are new to life insurance and feel completely overwhelmed at the mere thought of it, go here to learn more!
It is kind of a pain to constantly shop around for insurance, but do not have company loyalty. You can save a lot of money just by shopping for new car insurance every year. If you have had the same policy for a few years, chances are, there is a better deal out there for you.
This category can get a bit out of control if you let it. This includes childcare (depending on the number of kids you have, where you live and the type of child care, this can totally blow your budget), toiletries, cosmetics, gifts, baby supplies, pet supplies, subscriptions, gym membership and anything else you may have going on.
Take a good look at the personal “extras” you have and see if you can cut anything out to get you to the recommended percentage for this category.
This is your entertainment and vacation category. If you are really trying to cut expenses, this is the category to cut….completely. If you are trying to pay off debt or save for a home, you probably don’t need to be going on a vacation.
These are all of your debts. Anything you owe money on (besides your home) goes in this category. Whatever total percent you have, it is what it is, but ultimately 0% should be your goal (become debt free!).
This is the simplest way to budget your paycheck every month. These are just recommended guidelines, but if you try to stick as closely to these as possible, you will be that much closer to accomplishing your goals. Nothing is ever set in stone, and these can change as your life changes, but if you keep close to these percentages, it will safeguard you from blowing your budget in one area.
If you have no idea where you are even at with your spending, you need to take the Money Spending Assessment.
It will show you how much you are spending in each category.
It will identify weak areas in your budget where you could be saving tons of money.
It is loaded with some of my best money saving tips with you for each category!
Sign up now to gain instant access to the Money Spending Assessment!
Could you use an extra $7,000/year?
Of course you could! It’s crazy the amount of money people can actually save.
Download this money spending assessment and I’ll show you how to:
+ Find your biggest opportunities for saving TONS of money within your current budget!
+ Start implementing very simple & proven tips to save you thousands. (NO joke)
+ Set super easy and achievable budgeting goals to take control of your finances & increase the digits at the end of the month in your bank account.
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