Budgeting That Works

A woman budgeting with calculator and charts

Have you been trying to put a budget together month after month, but it always feels tight? Or do you keep coming up short at the end of the month?

Budgeting that works allocates spending to different budget categories proportionally. Like other aspects in life, financial success is a matter of balance and focus.

For instance, we know that our days should follow the 8-8-8 Rule: eight hours of work, eight hours of sleep and eight hours to care for ourselves and those we love (grooming, cooking, exercising, socializing, praying, etc.). While some people may work or rest a few hours more or less, this breakdown of our day helps to keep us healthy and balanced. If we work too much and rest too little for too long, eventually we will feel out of balance and illness may ensue.

Similarly, we know that to maintain a healthy diet means having certain portions of different food groups each day, proteins, fruits and vegetables, fibers and carbohydrates, and limiting sugars. We will eventually experience ill health if we have too much of some of these food groups to the exclusion of others, especially the sugars.

Our budgets work in the same way. If we spend too much in one area, we will feel financially imbalanced. Like our diet , we should follow certain proportions for financial health. 

But so many of us are unaware what the proper proportions should be. Despite our good intentions, we’re assigning amounts by feeling — or worse, blindly.  

Here are some suggested proportions to follow that will help you create a budget to  bring balance to your life. I call it The Rule of Proportions.

It prioritizes allocated for what is most important — food, housing, transportation and utilities — and for then for your future goals, retirement first among them. 

These proportions are universal. They don’t depend on where you live. My coaching clients in New York, Boston and Toronto — all expensive housing markets — try to argue that these rules should not apply to them, but they do! Time and time again, clients whose budgets do not reflect these proportions feel stressed about their finances and have a hard time making ends meet. 

Here is The Rule of Proportions**

(All percentages are of take-home pay, except for retirement, which should be 15% of gross income.)*

  • Housing: 25% (includes mortgage or rent, property tax, and home or renter’s insurance):
  • Food: 5%-10%
  • Utilities: 5%-10%
  • Transportation: 5%-10% (includes gas, tolls, parking, maintenance, and car insurance)
  • Retirement: 15%
  • Insurance: 5%-10% (includes all insurance outside of car and home)
  • Personal Care: 5%-10% (includes hair care, clothing, etc.)
  • Lifestyle: 5%-10% (includes restaurants, hobbies, forms of entertainment)
  • Health expenses: 5%-10% (includes co-pays, deductibles, vitamins, etc.)
  • Giving: 10%
  • Miscellaneous: 5%-10% (serves as a monthly contingency for unexpected expenses)

Follow these proportions and see how they work to bring you greater peace and confidence in your finances. 

Want help on how to create a budget that follows The Rule of Proportions, book a call!

*These categories do not represent all possible categories and will change from household to household.

**These proportions are for people who do not carry debt. Different proportions apply for people who carry debt. They should work to reduce their spending overall and allocate funds to pay off their debt as quickly as possible. To find out how financial coaching can help you pay off debt quickly and effectively, book a consultation here. 

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