The right amount to spend on every budget category

If you’re new to the concept of money management and budgeting, one of the first things you’ll usually find yourself advised to do is track your spending. For a month or more, you’ll log all of your expenses and then review that information.

Initially, you’ll want to know if you’re spending more than you’re making, which is easy enough to tell. If you’re spending too much, though, the obvious follow-up question should be “Where am I spending too much?” That’s a little trickier.

Tracking your expenses gives you a very broad view of your spending, but doesn’t really give you a comparison point. Did you spend too much on eating out during the month? How would you know?

Ideally, we’d be able to affix firm limits to every budget category. Every category would get an ideal percentage and the whole thing would add up to 100 percent. The trouble with that is that reality doesn’t really allow for it. Housing is going to cost a larger percentage of your budget in New York City than it will in Ellsworth, Maine (sneaky hometown shout-out!). If you’ve got certain dietary restrictions, you will likely spend more on food than someone without dietary restrictions.

That said, there’s still a lot of value in looking at your percentages and seeing where they fall in comparison to national averages.

What’s everyone else spending?

The Bureau of Labor Statistics tracks national trends in spending and costs. The 2013 Consumer Expenditures survey found that the average American family spent $51,100 for the year. Here’s where the average family’s money went:

  • Food - 12.9 percent
  • Housing - 33.6 percent
  • Apparel and services - 3.1 percent
  • Transportation - 17.6 percent
  • Healthcare - 7.1 percent
  • Entertainment - 4.9 percent
  • Cash contributions (charity) - 3.6 percent
  • Personal insurance and pensions - 10.8 percent
  • Other - 6.4 percent

It’s interesting to note that spending overall was down from 2012 to 2013, but spending on housing, transportation, and healthcare was up. That’s an important reminder that even a percentage that works for you now may not work every year, as costs go up in certain areas while income remains flat.

What should you be spending?

The most important point is that everything winds up at 100 percent in the end. Honestly, if you’re covering all of your needs, making progress on your goals, and not violating any laws, the percentages can be whatever you want them to be.

Chances are good, though, that if you’re reading this you’re not in a place financially where spending 20 percent of your budget on clothes is going to work out for you. So consider those national averages as a jumping off point. Where are your outliers? Where are you drastically over and under the norm? It’s not necessarily bad to be over or under, but consider the categories that stand out, especially if you’re spending much more of your budget than average. Why? What changes could you potentially make to bring that percentage down?

The ideal scenario

If you’ve got debt goals and savings goals and you’re working on both simultaneously, aim for a 70/20/10 spending plan. That means 70 percent of your net income is dedicated to living expenses – housing, food, clothing, etc. Twenty percent then goes to debt, specifically credit card balances, car loans, and any other unsecured debt (not your mortgage). The final 10 percent is for savings – you use this amount to build your investments, both long-term savings and short-term emergency savings.

It can be difficult to set aside that 30 percent for debt and savings, but if you’re serious about creating a comfortable financial situation for yourself and your family, it’s a great, accelerated way to get where you want to be.

Jesse Campbell is the Content Manager at MMI. All typos are a stylistic choice, honest.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.