Financial Pyramid offers spending guidelines

Wouldn’t budgeting be simple if there was one formula that fits every person in every situation? Unfortunately, money management is not one-size-fits-all. Of course, there are formulas out there that you can try to follow. For example, here is one commonly accepted way to allocate your spending:

  • Housing (20-35%)
  • Personal Care (2-4%)
  • Food (15-30%)
  • Insurance (4-6%)
  • Personal Debt (20% max)
  • Health (2-8%)
  • Transportation (6-20%)
  • Utilities (4-7%)
  • Clothing (3-10%)
  • Misc. Items (1-4%)
  • Savings (10% min)

If you follow this formula exactly, you might be practicing sound money management techniques.  However, I don’t necessarily recommend that you try to shove your square peg into this round hole—that just isn’t the way life works.

Consider an example from a different (though surprisingly similar in many ways) industry.  In 2005, the USDA replaced their horizontally-orientated Food Pyramid with the MyPyramid food guidance system. The system provides options to help people make smart choices. According to the USDA Website, each person has a unique Pyramid that is right for them based on their situation.

I think the USDA’s approach also works for money management. Consumers need to make their own unique smart choices. For help, they can look to guidelines rather than hard-and-fast rules. And so, I offer you the Financial Pyramid as a guideline on how to allocate your spending.  

You might be wondering what's at the top of the pyramid to make it worth running up all those stairs.  Well, that's up to you too.  What are you working toward?

Kim McGrigg is the former Manager of Community and Media Relations for MMI.

  • 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.