Personal Budgeting Calculator
Dave Ramsey suggested the following estimates in his Financial Peace book, published in 1997. These percents can change dramatically for families with high or low incomes. These are only rough recommended percentages and if you are doing well in a particular area then perhaps you can save more aggressively.
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Household Budgeting - Creating a Plan that Works for You
Successful personal financial management mirrors business accomplishments in many ways, sharing mutual goals like growth, investment and profitability. And the public sector is also concerned with responsibly managing money, so the government stays in the black using some of the same financial tactics adopted by individuals and corporations. Observers quickly learn: Whether juggling multimillion dollar deals or accounting for household cash flow, the key to financial achievement is a well-crafted budget.
Newscasts follow balanced budget debates, tracking politicians' attempts to spend judiciously. While elected leaders don't always succeed, individuals have little choice but to find personal financial balance. Budgeting helps create consistency; formalizing the ways money moves through a household. By creating and maintaining budget discipline, individuals remain up-to-date handling financial obligations and can endure cash flow difficulties when they arise.
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Who Needs a Budget?
Spending is the basis for budgets. Unfortunately, it can be driven by passion and preference, rather than need and necessity. To maintain balance between income and outgoing cash flow, families turn to basic budgeting. The process highlights where money comes from and where it goes, answering important financial questions for consumers.
- Status Update - It's hard to improve your financial fortunes without first knowing precisely where you stand. The budgeting process puts household spending under scrutiny, in order to create a snapshot of financial flow. Once a baseline budget has been constructed, meaningful adjustments can be made over time, to maintain realistic household spending levels.
- Each Budget is Unique - Each individual prioritizes his or her spending preferences, so no two budgets are alike. To make the most of your household income, it is essential to do the math for yourself, simultaneously accounting for personal tastes and available resources. One family, for example, may find added value in entertainment, spending a larger share of household income on recreation; while another clan chooses home-based fun in a larger, more expensive house.
- Back on Track - Budgeting helps support overall financial health, keeping tabs on household cash flow and guiding prudent spending. While it has consistent, anytime benefits, budgeting is particularly useful during periods of financial distress. Under normal circumstances, a successful household budget balances incoming resources with outgoing expenses. When cash flow problems do arise, a well-crafted budget illuminates shortcomings, so you can take the best corrective measures.
- Account for Changes - Life continually evolves, so budgets must also adapt to keep pace. Active budgeting keeps household spending on-track, monitors income, and responds to financial changes that take place at home. Growing families, for example, account for the cost of new members. And those sending kids to college also adjust to accommodate special expenses. Budgets also reflect income changes, including salary hikes that impact financial planning.
- Highlight Waste - Creating a formal budget takes a closer look at daily financial life than is normally sought. As a result, the process yields surprises for some families, who didn't previously monitor spending. In particular, budgeting reveals waste, which can lead to substantial savings for those who turn things around. In addition to its other benefits, proactive budgeting is a legitimate money-saving strategy.
- Goal Oriented - Long-term financial success unfolds over the course of a lifetime, so each financial concern is related to the next. Budgeting not only accounts for short-term needs, but it also provides opportunities for extended planning. By establishing goals and benchmarks, a well-executed budget acts like a financial blueprint, including actionable steps for reaching specific monetary goals.
Budgeting is an essential feature of effective money management - at all levels. And though your budget may be smaller, personal financial success relies on the same principles as a prosperous corporation or well-managed city. People who do not plan ahead are frequently hit with unforeseen overdraft fees, poor credit scores, and a wide array of additional expenses.
Proven Practices Keep Cash Flow on Track
Each budget is unique, addressing individual financial concerns. And although the numbers and other particulars are distinctive, most budgets are crafted with common building blocks. Fine-tuning a workable budget takes time, but proven tactics ensure success for families dedicated to the process.
- Establish Categories - Household cash flow accounts for several distinct spending categories. Food and housing, for example, are two of the most substantial costs faced by families, so each of these warrants its own budget column. Entertainment, transportation, and household spending are additional budget categories, which could be broken-down further into domestic classifications like utility payments and home repairs. Isolating different types of spending enables families to see how income is allocated across particular categories. And since each monthly entry adds to running totals, spending trends quickly show up as data builds.
- Track Spending - Budgets account for income as well as outgoing spending. To establish a budget baseline, the first step is to monitor cash flow during a designated period. This comprehensive snapshot represents the state of family finances at any given time. Various electronic tools are available to assist the process, which is essentially an old-fashioned ledger system capable of logging spending over time.Because the initial spending record serves as a budgeting foundation, accuracy is especially important during this information gathering period. Tracking payments, for example, includes attention to recurring withdrawals made automatically from bank accounts, as well as annual payments, which are easy to overlook while assembling spending records. Breaking budgets into calendar months typically makes the most sense, unless you are creating a special seasonal budget or looking for a particularly wide-angle view. Since most billing cycles and contracts carry monthly terms, 12 periods per year is a common standard, which also coincides with employer pay periods.
- Respond to Trends - One key to reliable budgeting is gathering a representative sample - typically three to six months' worth of spending data. Once established, the process shows trends in the way money moves through your home. Budgeting really begins to pay off when you put that knowledge to work, saving money and streamlining household finances. It's true, successful budgeting may lead to spending cuts and sacrifices, but the security and financial consistency created by sound family budgeting are not worth compromising.
- Account for Income - Spending is a primary budget focus, but the other half of the equation is household income. Like monitoring spending, accounting for income is essential for creating an accurate budget. In addition to income earned from employers, some households generate extra cash from other means. Thrift sales, side businesses, and other revenue streams contribute to household cash flow, so they must be named in your budget.
After completing these budgeting basics, you have the tools you need to create a custom budget blueprint. Using your spending record, start by designating monthly targets for each spending category. Be realistic, but also challenge yourself to trim waste and cut unnecessary costs. Once you've noted spending goals, continue tracking each category to see how actual spending measures-up to targets.
Budgeting for Debt Balances
The most effective budgets account for various spending commitments, including personal debt repayment. Understanding how debt impacts budgeting is particularly important, because debt obligations typically require ongoing payments, which must be worked in each month.
Installment Debt creates predetermined monthly payments, used to repay loans and other balances. Fixed, installment debt serves as the cornerstone of financial planning, because payments are relatively consistent and represent large chunks of what most families owe each month.
- Mortgage Payments - Housing costs consume the largest share of family income, in many cases, so the house payment should be one of the first money matters accounted for each month.
- Student Financing - Though flexible repayment schedules are available, student loan debt ultimately leads to monthly installment payments, which must be recognized by household budgets.
- Car Loans - Typically shorter than mortgage payoffs, car loan repayment adds another monthly installment to each family budget.
- Equity Loans - Homeowners with accumulated equity have access to secured financing, which uses a home's value as collateral for financing. Equity loans are like mortgages, requiring installment payments until satisfied.
Each budget is fully customized, depending upon what is owed and how income resources are allocated within a particular household. Installment payments represent a family's fixed costs, which are easily anticipated for budgeting purposes. A mortgage, for example, outlines a precise payment schedule on the front end, so there are no surprises during the course of repayment.
Revolving Debt is harder to budget for than regular installment payments, because revolving balances ebb and flow with ongoing spending. At the same time, purchases made with revolving credit are usually discretionary, so learning to keep balances in-line is a major benefit of effective budgeting.
- Credit Cards - Cash has taken a back seat to credit cards in all manner of spending, whether in-person or through virtual channels. But while the convenience factor is high, so is the tendency to overspend when using credit cards. High credit card balances quickly undermine family budgets, so credit limits imposed by providers are not sufficient to govern spending. In practice, your own level of debt tolerance is likely reached well before cards reach maximum spending limits.
- Store Cards - Like major credit cards, store cards extend revolving spending options, which consumers use to fund everything from clothing to household appliances. When used for big-ticket items, store cards should be managed almost like installment loans, so that balances are paid down timely and interest charges are kept under control.
- Equity Lines of Credit - Like equity loans, lines of credit use property value to secure funding. But while loans are paid back in regular installments, lines of credit revolve like traditional credit card accounts. Equity lines furnish fast access to large sums, but must be budgeted with discretion to avoid difficulties.
Unlike regular installments, revolving charges rise and fall according to spending. As a result, monthly payments on revolving accounts can be difficult to reconcile when budgeting. When in doubt, use a monthly average to resolve revolving payments. And when cash flow slows, tighten-up revolving accounts first to find fast savings.
Stay True to Budget Limits
Budgets function in several ways, keeping tabs on cash flow and helping families make the most of their household income. While setting a budget is an important first step, its effectiveness depends upon follow-through and commitment.
- Eliminate Waste - Once identified, waste is a prime target for tightening-up family budgets. In the kitchen, for instance, savings opportunities present in the form of spoiled food and poorly executed menus. And wasted energy drains reserves on the road and at home, through inefficient fuel use and poor utilities management.
- Set Goals - For many, budgeting is a conservation exercise designed to ease spending pressure. To maximize the effort, it helps to set benchmarks for measuring progress. By incorporating milestones into long-term budgeting goals, cash-conscious families keep attainable aims in sight.
- Make Adjustments - Budgeting is a fluid process, so flexibility is integral to long-term success. Especially during the first months following conception, budgets need refining, to best reflect actual household needs and realistic spending levels. Even time-tested plans shift alongside household changes, so periodic budget reviews ensure accuracy. Establishing an emergency fund goes a long way to compensate for unexpected expenses.
- Reward Yourself - Determination and resolve keep family finances in order, but budgets also account for life's rewards. Vacation savings, for example, designates a formal category with recreation in mind, but flexible budgets should also hold room for spontaneous leisure spending.
Budgets furnish spending guidelines and balance resources. Whether drawn-up for major corporations or individual families, effective versions share common features. Cash flow, for example, is central to budgeting, accounting for income and outgoing obligations. And well-defined categories also reinforce budgeting success, enabling families and organizations to precisely track spending.
Maintaining a meaningful household budget relies on proven practices, like setting spending limits and managing debt. And though budgeting requires discipline, the benefits of sticking to a domestic budget are widespread. In addition to saving money, for example, well-executed budgets help families reach financial goals and make the most of household income.
Homeowners May Want to Refinance While Rates Are Low
US 10-year Treasury rates have recently fallen to all-time record lows due to the spread of coronavirus driving a risk off sentiment, with other financial rates falling in tandem. Homeowners who buy or refinance at today's low rates may benefit from recent rate volatility.
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