How Much Should You Spend On That??

How much of your income should go toward your mortgage payment? How much for food? What about your car? Everyone has a different opinion, but what are the wise numbers? How much should you spend on that??

Nobody wants to barely scrape by each month and end up with very little in retirement, so let’s dig into these numbers and figure out what amounts are best for you!

How Much Should You Spend on That?

The single biggest purchase for nearly everyone in America is……that’s right, a house. We all start out our lives living in a crummy apartment, dreaming of home ownership. After a couple years at a full-time job, we decide to take the plunge and head to the bank to see how much house we can afford (which is typically our first HUGE mistake in life…).

The bank tells us that our mortgage loan can be 28% of our pre-tax income and our total monthly debt payments can be as high as 36% of our pre-tax income. Without thinking about it, many of us smile excitedly because that means we can buy a wicked nice house!

But do you realize what this equates to in after-tax dollars? 40% mortgage payments and 51% debt payments…. Well that sucks. You earn $3,000 a month and immediately over $1,500 goes toward your debt. Then you still have to pay for utilities, food, clothing, car insurance, gas, and if you have any money left…about $13 worth of fun. Yup, sounds pretty terrible.

Related: Who Owns Your Paycheck?

Instead of groveling to the bank, asking how much money you can borrow, why not use your brain and think for a minute?

Questions You Might Want to Ask Yourself:

First, what’s your current rent? Can you even afford to pay more than that on a new mortgage?

Second, what’s the optimal percentage for your mortgage payment? Instead of using the bank’s ridiculous 40% number, I like to target 25%. If your take-home pay is $3,000 a month, target a house that only costs $750 a month. This lets you have some breathing room in your budget and it still allows you to afford a decent house.

So what about all the other areas of your spending? How much money should you be allocating toward your food? Toward your clothing? Toward everything else? How much should you spend on that?

How Much Do Normal People Spend?

Before we dive into what you should spend, let’s take a look at the Joneses. I want you to understand that yes, they look good with that monster house, that Mercedes Benz, and the yacht, but they are absolutely BROKE. All their money is going toward debt and they are SHACKLED to it. They have very little money for spontaneous fun, and they NEVER build up any money for their retirement.

Here are their typical spend percentages:

How Much Should You Spend on That?

They take home $4,000 each month, which is pretty dang good! Unfortunately for them, they listened to the bank’s advice and loaded up on mortgage debt. They live in a $300,000 home, drive a couple of decent cars (thankfully one of them is paid for), and dine out every Friday.

They look like they’re doing pretty good from the outside. I mean, their house is huge, their cars are sparkly, and they always seem to be eating out at the next new restaurant. BUT, take a look at their savings rate….1%. And the amount of money they give away? Is none. These people are looking good, but are living paycheck to paycheck and miserable.

Do NOT aspire to be this family.

What About You? How Much Should You Spend?

So if the above budget was too lavish, what’s a better approach?

If you’ve poked around on this blog for more than 2 minutes, you already know that’s I’m a no debt kind of guy. I believe in fully paid-for cars and a tight grocery budget. But, I also believe in saving money and giving some of it away. It’s simply the best way to live.

In my opinion, here’s a much better method for allocating your spending:

rich budget

First of all, take a look at the house payment. Instead of a massive payment of $1,600. Shoot for $800 (or 20%-25% of your take-home pay). Think that’s impossible? My first home mortgage payment was $700 a month, and that was on a 15 year note!

Second, since you drive modest paid-for cars, you have no car payment (my wife and I had a combined car value of $4,000, which made it really easy to pay cash for them!).

With just those two actions, you’ve already reduced your monthly payments by $1,200!!

And you know where that money goes if you’re not spending it on your house or your cars? Into your savings and investments! Dang, this is easy isn’t it?? 😉

Are you serious about getting rich someday? Here’s a guideline for your spending:

  • Savings = 20%
  • Tithe = 10%
  • House = 25%
  • Food = 10%
  • Utilities (including phone and cable) = 15%
  • Transportation = 10%
  • Clothing = 5%
  • Other = 5%

Your Turn – How Much Should You Spend?

So what about for you? What are you spending your money on each month? I wanted to make it as simple as possible, so I created an easy Excel tool for you to use. This will show you how broke people would spend your money, how rich people would spend your money, and how you’re currently spending your money.

Wonder how you compare?? Check it out!

Spending Comparison Spreadsheet

Spending Comparison Spreadsheet

Download the spending comparison sheet and take the following steps:

  1. Enter your monthly take-home pay in the upper-middle cell (highlighted in blue)
  2. Enter your current payment amounts for each of the categories
  3. Add any additional funds that you spend money on into the “other” bucket (ie. medical bills, dance classes, etc.)
  4. Make sure all the categories total up to your take-home pay
  5. Study your numbers – where could you improve? How do you compare to the broke and the rich??

If you’re house heavy, it might be time to sell the house. If you have a whack load of car payments, then you’re probably going to want to sell your car and get something super cheap. Granted, none of these options are going to make you look super cool, but at least you’ll be able to breathe again! AND, you’ll be able to save for your future!!

How does your spending look? What would you like to do differently??

Editor’s Note: This article has quickly become popular all over the world! Many are asking me, “What are the next steps? I always advise that you consciously spend less, earn more, and invest heavily.

Earn More: Consider starting a business online. Here’s the step-by-step instructions.

Invest Heavily: I absolutely love Motif Investing. The transactions are cheap, and they actually give you money for just making a few trades!


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64 comments to How Much Should You Spend On That??

  • When we refinanced our house I knew that our payment was taking a higher than recommended portion of our income, but I figured that regular raises would eventually even things out, plus the low interest rate meant that we were really building equity fast. We’re at a point where the equity side of things has worked out swimmingly, but the raises, well just like with a lot of middle class Americans, they have been a little less robust.

    Since rates have actually continued to fall, we’re actually considering another re-fi to take advantage of them, which would also have the benefit of freeing up some additional cash flow and getting our percent of income toward our mortgage at a more nominal level.
    Money Beagle recently posted..Life Insurance – Because Dying Is Not So Abstract Anymore

    • What if you just focused on paying off the house? How fast do you think you could ditch the debt? Then the interest rate wouldn’t matter AND you’d have a ton of cash to do whatever you want with!

  • I like this Rich Budget. We are pretty close to a lot of these spend categories although our mortgage is higher than 25%. 100% agree with the tithe (10%) since this really helps you learn how to live below your means.

  • Totally agree with 0% car payment. I bought a 2nd hand car with cash too. However, things are a bit different here and cars are expensive. It’s costing me about 10% for car maintenance (it’s just a normal 5yr old sedan without much issue). I can’t imagine how much people are paying for new car.

  • Jorge

    Good Article. I give money away to family members instead of churches, so my label is Donation instead of Tithe. I am interested in knowing if the savings are long term or short term savings. I have savings, which is long term, and then I have goals, which are short term savings for say 6 month to a year or more and are used for vacation or buying something or used to pay for fees or maintenance. Also, I notice that there is no laundry cost or home supply cost or shopping and maintenance cost. Are some of the savings money being allocated for maintenance cost or shopping? You can do whatever you want with you savings, I am just wondering what would be a good metric to say that you are doing well and saving enough. For instance, if you save 12K a year, that would be great, but if you spend 7K on vacation then the actual saving is only 5K, which is good because any savings is good. Maybe the 7K spent on vacation was worth more than having the money in your savings account because it was an experience you won’t forget. Anyways, I think a good follow up post would be how much you should spend on vacation.

    • Hi Jorge. Good questions. This comparison wasn’t meant to be an all-inclusive budget – just a quick comparison. My wife and I save 17% of our income toward our 401k and another 30% toward a rental property. Our vacations are paid for out of bonuses and unexpected money. It’s different for everyone and it fully depends on your goals. Hope this helps!

  • I’m looking for medical/dental/prescription/insurance etc etc..and transportation includes insurance/repairs/gas?

    • Hi Shambala. The dollar amount you’re entering is your take-home money. I assume that your medical, dental, and insurance are paid for out of your paycheck. Therefore, there’s no need to put that into a category on the spreadsheet. Thanks for the question!

  • D C

    Thanks for the great article . Is there any rule of thumbs for the percentage you use in your guideline? And also how do we budget for a couple or a whole family? since I don’t think every spending should increase proportionately with the head count, right?

    • Hi DC. Great questions. My next freebie material is going to be a budget worksheet with a guide of how much you should spend on each category. When I help couples with their budget, I always start with the mortgage expense since it’s the biggest. This should be no more than 25% of your take-home pay.

      When your family size increases, you’ll see your food expense increase (typically by about $75/month for each child) along with the cost of education (for tuition, supplies, clothing, etc.). Everything else remains pretty constant.

      Great conversation! I’ll get started on those budget sheets soon!

  • Greg Lipton

    is this budget based on a family of say, 4?

    Well let’s see…Child support, Life Insurance, general debt repayment, school costs (not college…field trips and supplies and jerseys, and uniforms, and field hockey sticks, pads, mouth guards, shin guards) clothes for a family ’cause $50 ain’t for a family of 4 or three or even 2 ( a pair of new sneakers, on sale, are $50).

    $4000 is great if that is AFTER medical expenses. That is my Take home BEFORE medical (which is $589/month) because many places don’t have an employee plan.

    In other words this budget is fantasy compared to real world expenses.

    • Hi Greg. The $4,000 is just a placeholder. It’s marked blue so you can put in YOUR take-home income. Sure, you can think it’s fantasy, or you can do something to make your situation better. I’m sorry to say it, but is sounds like you have the broke mentality. Get rid of that Greg! Think about what would be possible if you got rid of all your debt!!

  • Nat

    Yeah, this is all fine if you make $4000 an hour and can find a place for $800/mo. Let’s face it – if it were that easy, everyone would be doing it. And TITHE?!

    • Nat. Successful people do what no one else will do. That’s how they become rich. There are always opportunities out there to increase your income or lower your rent. You just need to pursue it.

      By the way, the $4,000 a month is just a placeholder. They key is to put your take-home pay in the blanks to see how a broke person would spend your money and how a wealthy person would spend your money. Are you broke or are you rich? If you’re broke, then what are you going to do to change?

      The tithe is very common among my friends and family. It’s not always easy to give, but when I do I’m far happier than if I were to hoard all my money and keep it to myself. Often times, those who are the most generous with their money attract even more of it. It’s a crazy principle, but I’ve seen it work again and again in my life and in the lives of others.

  • Julie

    To achieve any decent take home pay we must pay for daycare for one child and an after school program for another. Any recommendations on how to phase that into this budget?

    • Hi Julie. For this comparison sheet, just put both of those items in the “Other” bucket. These are short-term expenses that will naturally go away over time as your kids age. In the meantime though, you might want to look into an FSA dependent care program. This allows you to put pre-tax money into a savings account to pay for daycare and after school care. This way, you’ll never have to pay the income tax on that money, and (since the money is taken out of your paycheck) you won’t need to list this as a take-home pay item in the comparison spreadsheet. Make sense?

  • Lina K

    Are yiu rich already? Just curious to see if your budget works

    • Hi Lina. The budget absolutely works! I started dumping debt about four years ago. Since then, I’ve paid off $22k in consumer debt, paid off the remaining $54k of my mortgage, paid $81k for a rental property with cash, and we’re now getting ready to buy another property – again, with cash!

      If you want to get rich, get rid of all your payments and start applying that same money toward investments! In just a few years, you’ll be on the road to riches too!

  • InezH

    In your mortgage/ rent are you including property taxes? I have those included in my monthly payment along with the house insurance. Which brings up the percentage.

  • Rachel C.

    My one question is that with MAJOR credit & medical debt, which I am assuming would go into the “other” category, and at only paying 3% to the entire category, how would we pay that off super quick? Right now our house payment is pretty low (we are in a situation where we’re not accruing interest, so we need to focus on paying off debts that have interest), so that would be a lower percentage for us currently. We also currently have no car payments… but… we HAVE to get a new (to us) one soon since we only have one vehicle capable of carrying children, it’s on its very last leg, and I am about to have another baby. I’m not sure how we can afford it, but we live in a rural area, with no other form of transportation to get to the store, appointments, etc., which the closest store – a small Dollar General – is 5 miles away), so it is absolutely necessary. Any insight or advice on these things? I don’t necessarily want to be “rich”, just completely debt-free, and then living comfortably.

    • Hi Rachel. Great questions, and I love that you want to get out of debt completely! It’s a great feeling and I would recommend it to everyone!

      First, set aside $1,000 into an emergency fund. If you think you think your car is about to die, set aside an additional $1,000. Fortunately for you, minivans are EXTREMELY reasonable. You can buy a pretty decent one for $3,000 or less. In the meantime, aggressively pay down your debt. I have an article coming out on Monday that will help you do just that. Stay tuned! 🙂

  • Meriel Romero

    I don’t tithe, but I do give to various charitable organizations and I take savings off the top before anything else is paid. Interesting that there is no credit card placeholder in this budget. Who doesn’t have a credit card or owe on it?

  • David

    I’m glad you never get sick and have medical expenses beyond your medical insurance premiums! For the rest of us, we have to pay up to the deductible amount every year. That is a significant number, especially as medical insurance under ObamaCare has gotten more expensive for employers and they have started to cut their expenses by raising the deductibles employees have to pay.

    • Whew. Talk about a pity party! Keep up that self-talk and you’ll be nothing for the rest of your life!

      Medical bills typically come 2 months after something happens. The bill is inevitable – we just don’t always know the exact amount. Take your best guess and include it in your next month’s budget. To make the payment, you might just need to cut out your entertainment budget for that month. Make sense?

  • Caitlim

    Why can’t I download the spreadsheet?

  • Jessica

    I can’t download does it not work for Apple devices?

    • Hi Jessica. It definitely should! I downloaded it on my Apple iPhone without an issue. You just need to have Excel and then it should work fine. Let me know if you have any other issues.

  • Sharon

    My husband and I have a mortgage that is just about what it was 20 years ago, about $200,000. Unfortunately. We also ended up getting a home equity line of credit. We have borrowed about $35,000. At least the value of the home is double or more of what we owe. We are paying most of the expenses for our colleges age kids. The reason for the home equity line of credit. Our goal is they won’t have college debt. They are almost done. How do we start paying off the HELOC and finally get back ahead.

    • Hi Sharon. The good news is, you have some pretty decent equity in your home. The bad news is, that’s quite a lot of debt that I’m sure you don’t want to take into your retirement! If I were in your shoes Sharon, I would cut back on expenses, try my best to raise my income and work to pay down that loan by at least $2,000 a month, which means it could be gone in a year and a half. Want some more clear direction? Check out today’s post: “How to Save Hundreds of Dollars (Free Budget Tool Included!)“.

  • Megan

    Hi Derek,
    I love your budget plan … do you have any suggestions for someone whose spouse is not on board AT ALL with a budget? My husband is a financial disaster (his parents are the same way; he is used to thinking he can have whatever he wants without consequences). He makes a decent salary but we have zero savings and are usually scrambling to get the bills paid every month. I know we need to change our mindsets but I’m at a loss because he sees nothing wrong with living paycheck to paycheck. Do you have anything to suggest?

    • Hi Megan. I’ve heard this question many times before, and quite honestly it’s one of the most difficult to answer.

      He basically sees that his parents are still getting along just fine, so why do anything differently? BUT, he needs to consider what life will be like in 20 years. His parents will be either sick or unable to work, and financially strapped. They’ll look to their trusting son (and his wonderful wife..acchhmm – you) for help. You two will have to figure out how to support them financially, and you’ll be mad while doing it because they should have just fricken taken care of their money when they were younger and not left it up to you two to take care of them.

      The path you two are on….is the same. And if it continues, you’ll be putting your kids in the exact same position – expecting them to take care of you. Is that what your husband wants for his children???

      Maybe this will spark something in him, maybe it won’t.

      The tough part is, nobody can make anyone else do anything – even if they are your spouse. They are going to have to be moved by something in order to change. There’s a great quote that’s coming to mind — “When staying the same becomes more painful than the pain of change, you’ll change.”

      I don’t know if that helped you Megan. I just said a short prayer for you and your husband as well (I’m pulling out all the stops for you here! ;)). Best of luck to you and your hubby.

  • Victor

    Derek,

    As for the tithing of 10%, do you mean you only give when you have money? Are you a Christian?

    • Hi Victor. Yes, I am a Christian. My wife and I give 10% of our income away each month – either to our church or to worthwhile organizations in our area. It’s not easy to give money (especially for me, an extreme saver!), but there’s something about helping people that makes life fulfilling. 🙂

  • Jaimie

    This is a great budget if you are single and live in a home with zero updates ever needed. You really should specify this budget only applies to people who are single, do not have a family and live in a maintenance free home. Not “normal people”. What about child care? What about expenses for children? Their fees for sports teams, music classes, every day needs beyond food? What about a monthly budget to fix all the little (or big) items around the house that go wrong? What about doctors bills for those children or for a young family who is having children and has to visit a doctor on a monthly basis either for the child or for the mother giving birth to the child? Any young couple in the process of growing their family will have at least two years of those monthly bills per child from inception to 1 year old – that are billed either ahead of the appointment or within two weeks after the appointment. As the child gets older you have to account for braces and other medical needs that are of the same regularity. By my calculations, your budget is leaving out at least $1,000 worth of required expenses for my family of four per month. Perhaps you need to update your spreadsheet to give options for how those who have to budget those things in should calculate those costs. Most people in need of such a spreadsheet aren’t living a single life or a life with no kids and a no maintenance home or no maintenance health because honestly those people more than the single ones need the assistance.

    • Hi Jamie. Thanks for the comment. This spreadsheet wasn’t made for people to set up a budget (if you want that, check out this post). It was made so you could quickly compare your financial set-up to a person on a broke path vs. a person on a wealthy path. Which will you choose?

      • Jaimie

        How can I accurately compare my financial set up when it doesn’t acccount for regular major monthly expenses? That’s not an accurate way to compare. How can I be on a wealthy path when I’m not accounting for $1,000 worth of expenses? Not accounting for all expenses is sure to send me on a broke path.

  • […] How Much Should You Spend On That? [Life and My Finances via Rockstar Finance] […]

  • Justin

    What about things like home and contents insurance? Health insurance? Yearly or twice vehicle servicing and vehicle registration? A lot of necessary items that add up pretty quickly.

    • Home insurance should be covered within the “Home” budget. Health insurance is paid out of your paycheck and is therefore not included in the breakout of your take-home pay. Anything vehicle related should be put within the “Car” bucket. Good questions.

      Try not to get overly analytical on what’s included or not included. Just think about where the majority of your money is going. And is that making you wealthy? Or is that keeping you broke?

  • Markus Hartley

    What about healthcare, vacation fund? Also, miscellaneous expenses.

    • Healthcare insurance should be paid via your paycheck, and any expenses should come out of an HSA account (tax free) that you should be contributing to out of each paycheck as well (that’s how my wife and I do it anyway – it’s sooo easy and makes getting medical bills way less stressful). Vacation can come out of your savings. Thanks for reaching out, Markus!

  • Laurie

    Now to find work that pulls me out of the low income bracket,about impossible in my area

  • Rosie

    Is the 34% savings portion before or after contributing to your 401k? Generally your 401k is taken directly from your paycheck so it wouldn’t be counted as take-home pay.

  • David

    One look at the spreadsheet and I knew you were a Dave Ramsey disciple.

  • Scott

    Really? You reply to every comment or do you just delete the ones you don’t like? And stop saying rich every sentence.

    • Hi Scott. I typically reply to every single comment. I enjoy it! I don’t often delete comments – only if they have absolutely no backing or offend other readers.

      What? You don’t like the word, “rich”? 😉

  • Hi Derek
    This is a great budget. However, I have 4 people in my household, and live on daily wage. My total income allows me to live comfortably, though I pretty much live from budget to budget. My kids will soon start daycare school and I’m not sure how I will manage. How can I tailor this budget to allow me to save some money for the unforeseen future?

    • Hi Robert. There are only two sides to the personal finance equation: Income and Expenses. Either you’re going to have to figure out how to increase your income to make some room for those additional daycare expenses, or you’ll have to cut something out of your budget. If you have a car payment, I would suggest dumping that and starting to drive a quality used Honda that you pay cash for. Beyond this, you could always cut your cable or reduce your food budget.

      Without knowing your exact situation, it’s hard for me to direct you one way or the other, but I hope my recommendations help you with your best route.

      Thanks for reaching out Robert!

  • Carol Cyr

    The person writing this blog must not live in any of the big metropolitan areas of the U.S. Do you have any idea how much even small, modest houses or condos cost in the San Francisco Bay Area, for example? We live in a suburb in the Bay Area and our small house of 1,079 sq.ft. cost us $335,000, and that was at the BOTTOM of the housing slump, in 2012. If we had to buy it now, since prices have increased, we’d be looking at paying, according to Zillow, $786,000. The point I’m making is that not everyone has a lot of choice in how much they spend on housing. In places like here, where they routinely pay the Facebook and Google employees $400,000 a year (or so I’ve heard), housing prices have gotten outrageous. Basic, no-frills, one-bedroom apartments in my area rent for $1,746 to $2,000 per month, plus utilities. And I’m fairly far from the job centers like SF itself and the Peninsula, so commuting costs often have to be added also.

    In case you might advise people to move to a less expensive area, it’s always possible but uprooting yourself from everyone and everything you’ve ever known is not easy, nor is it always the best solution. We would know no one, wherever we moved. And no guarantee of finding a job within the career area. Having a good job in hand and family and friends nearby is something the value of which can’t be measured in dollars.

    All I’m asking is that you have an understanding that housing costs can vary widely in different areas, even for modest little homes. And moving to a lower-cost area is not always the wisest choice. You don’t seem to get that, from what I’ve read.

    • It’s not about how much your mortgage costs, it’s what percentage of your net income it should be. If it’s more than 25%, you can’t afford it. And, if you can’t afford it, then maybe you should move somewhere else (like out of that expensive city). You make it sound like you don’t have a choice! Don’t be a victim, Carol. Success can never find it’s way into a victim mentality.

  • Carol Cyr

    Of course I have a choice, but what kind of life would we have, living hours away from everyone we know? And we’d have to get new jobs – who knows if we’d even be able to find jobs in our fields in a new place? I think you’re being simplistic and you don’t seem to understand the reality of many people’s lives. It doesn’t bother me too much, but I hate to think that you might be making some of your other readers feel bad about their choices, when in reality, people’s ability to have GOOD choices to make is often much less than you seem to think. The fact is that people are affected by the society they live in and they don’t have total choice over their lives. As a person who’s done a lot of reading in the field of Sociology I get that; you don’t seem to.

    • Hi Carol. I used to live in Boca Raton, FL, one of the more expensive cities in America. I could have just thrown my hands up in the air and said, “Oh well, this city’s expensive. I guess I have no choice but to buy a condo for $350k.” But no, I rented a small apartment 15 minutes outside of the city for $800 a month so I could get ahead in life.

      I’m not mad at you Carol. I agree that these decisions aren’t simply based on money. But please don’t blame your lack of financial success on where you live. That’s totally up to you, regardless of where your friends and family are.

  • FM

    Hi Derek,

    I want to thank you for putting this budget example online. I’m 30 and I’m living on my own for the first time after a long relationship ended last year. I never ever made a budget before but this helped me see where I was putting too much money, mainly clothing, food, car expenses but I also saw where I wasn’t putting enough money, savings.

    This also motivated me to sell a few things I had laying around to pay back my line of credit faster, I had accumulated this debt from buying stuff and going out too much.

    I started getting used to taking public transportation, walking much more than before. I’m currently using my car once a week so I’m going to sell it around spring time.

    Thanks again for for putting this out there!

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