Since I started exploring the world of Personal Finance, this seems to be the most common question, “How should I be spending in each category of my budget? What should I be spending per month on food, clothes, and gas? Is it excessive to spend more than $700 on food?” I could go on and on. Within this article, I hope to give you a better method for getting out of debt as well as proper debt management.
If we attempted to use dollar amounts within this article it would be a waste of time. Everyone has their unique income and some may even fluctuate from month to month. For this reason, we will be focusing on the percentages of net income. Within Dave Ramsey’s workbook, “Financial Peace University”, he provides a table of recommended percentages that the average family should utilize for their expenses. Keep in mind that if a family is living in poverty, their living expense percent may be much higher because that is their definite necessity, whereas a rich family may have a very low percent for housing expense because of their unusually large income. If you are one of these special cases, you may adjust the percentages accordingly, but for the rest of us, we can utilize the table as it is provided.
This table pretty much says it all. Housing will obviously have the largest percent because it is usually the largest purchase made within a person’s entire life! All of the other categories are fairly equal and hover between 5% and 10%. If you find that you are overspending in one area, fix it! Or, perhaps you could spend a little less in another category.
Based on my personal experience, I think the most difficult categories are food and clothes. It’s not cool to eat at home anymore. We are well past the days of inviting an acquaintance into our abode for a home-cooked meal. People want to go out! They want to experience the excitement of trying something new and enjoying the atmosphere! This does come with a price tag, often a very large one. Instead of staying within 5-15% of our gross income, it sharply ramps up to 30-40%. And quite honestly, it’s not that difficult. If my wife and I went out to eat 3 times a week and spent $50 each time (which isn’t hard to do), we would spend $600 for the month, and that’s not counting all the groceries to get through the rest of the days. The monthly expenses on food will easily top $1,000. And, do I really have to go into detail on my comment about clothes? Women (and I suppose sometimes men) love to shop! It’s very easy for a woman to purchase a few outfits and find herself with $300 in receipts. But, if we’re all going to get out of debt, we have to be smart and plan for our expenses. Yes yes, I’m boring you again, but if we don’t have a plan we will never be financially victorious, and will never achieve our financial goals.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.