The only rule you have to stick to when creating a personal budget is not allocating or spending more money than you make. Not having any rules can complicate the process, however, particularly if you have no idea where to start, so allocation guidelines can come in very handy. Just keep in mind that your budget is personal and should be customized for your needs.
Your personal spending history can provide great insight into your current budget allocation needs. Gather as much data as you can -- three to 12 months of previous bills, receipts and credit card statements, if possible -- to create working estimates.
If you don't have personal spending history to use as a starting guideline, try using American household averages instead. Most Americans spend 30 to 35 percent of their take-home pay on household expenses, including rent, utilities and furnishings, and about 15 to 20 percent on food, according to U.S. Department of Labor data. Transportation, including insurance, accounts for 17 to 19 percent; clothing and services account for 5 to 7 percent; health care, including insurance, accounts for 5 to 9 percent; entertainment accounts for 3 to 6 percent; savings, including retirement, accounts for 2 to 10 percent; and everything else accounts for 7 to 12 percent.
Your personal financial goals and priorities may vary from the American average, of course, so make adjustments to your allocations that are most comfortable for you. For instance, if your take-home pay is $2,500 and you feel that $250, or 10 percent, is plenty for food each month, then adjust your budget allocations accordingly.
Financial expert Dave Ramsey strongly recommends that you allocate some portion of your income for emergencies. Unplanned events can ruin budgets instantly. If your car breaks down and you don't have emergency funds set aside to pay for the repairs, you may find yourself having to sacrifice food or forgo paying a bill to cover it. And that can start a spiral that has you robbing other budget categories for months to come.
- New Mexico State University: Managing Your Money -- U.S. Department of Labor Data
- "The Total Money Makeover: A Proven Plan for Financial Fitness"; Dave Ramsey; 2007