Sunday, July 14, 2013

Percentages

Our Pagemonth.com Budgeting101 page offers a table of percentages of net income an average family might spend for housing, food, clothing, and other expenses.

Below that table we caution that the percentages are very general and not fixed. that each user has different goals and needs, and that the experts' percentages are intended as guidelines only.

Yet our visitors seek even these general guidelines to help them create their own budgets more than any other concern about our spreadsheet setup or support matters.  People recognize that effective budgeting begins with a good sense of how much they should strive to spend in these areas.

My source for these percentages was the Today Show on NBC that I taped and used for the table, adding the suggested Pagemonth categories that seemed to match best.  I have used these percentages since 1980 as averages that still seem sensible to me.

Here I want to comment on each category in more detail, beginning with 25% for housing and utilities: mortgage or rent, power, water, phones (including cellphones), cable or satellite signal), but also including charges for lawn care and pool maintenance and repairs if applicable, trash pickup, and any other charges related to upkeep of the home and property.  However, The 25% would not include the initial costs of purchasing the home or advance payments required to rent the property and held in escrow or by the landlord to be returned after sale or moving.

Food as 15% would include groceries, meals out, cash for snacks and so forth.  Elsewhere I have recommended using a weekly amount of cash for groceries and adjusting it as experience suggests, but I recognize that many prefer to buy all groceries by credit or debit card, and that's understandable, especially for those who do not want to carry a large amount of cash in pocket or purse.

Clothing as 5% of discretionary income is adjustable depending on need.  It isn't even necessarily a monthly expense.  Some may have clothing supplied as uniforms by enployers that may affect the percentage needed, for example.  Or clothing needed for new jobs.  Or families caring for more than one or two children may spend much more than 5%.  Seasonal spikes like back-to-school can skew it as well.  It is a percentage that should be averaged over several months, if not the entire year, to determine.

Medical costs at 5% include any doctor, nursing, dentist, hospital, and prescription costs not covered by the user's health insurance. 

Transportation at 15% might seem high until one realizes it includes not only bus, train, air or boat transportion on a regular basis but also car payments, car insurance, fuel and oil, and all upkeep and repairs.

Debt payments at 15% also include money needed to pay for credit purchases and fees and all loan payments including interest and lender charges.  Debit card purchases, however, are treated by Pagemonth like checks being cashed, in that they are deducted from the user's checking account at the time of use.  They are not included in the 15% for debt payments.

5% for Savings may be the hardest amount to maintain, because it isn't required to be paid to anyone else.  It is also the easiest to reduce or skip in any given month.  But among all expenses it is perhaps the most necessary to financial health.  It builds future security, equity for credit, solvency against catastrophy and a basis for retirement if set aside religiously.  Pagemonth advises treating it as a Regular Expense--the first to be paid each month, before other needs may make it difficult.

These guideline percentages still leave 15% of discretionary income for miscellaneous purchases and investments at the user's discretion, and for many that's about right.  There is no need to force income into the recommended amounts, but they can provide a useful comparison to the user's actual expenses over several months' time.



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