It seems most people are unaware of basic budgeting techniques. When these guidelines are followed, they can help individuals create a good system for making financial decisions and build financial stability.

There are two types of spending categories: non-discretionary (you cannot change or control, these are financial commitments and required living expenses) and discretionary (you can control and are not required for living). The discretionary category is usually what gets people into trouble with overspending; but housing — as a non-discretionary category — has had its fair share of overconsumption in recent years as people may not have been aware of how much they could comfortably borrow. A good rule of thumb is for your housing payments to not exceed 25 percent of your income, and your mortgage and other debt payments to not exceed 36 percent of your income.

It may be worth noting that the younger generation has not been able to establish the same financial systems as prior generations, mainly due to student loan debt; so a category specifically for debt has been included in this type of spending plan.


Non-discretionary Recommended Percentage of Income
Debt payments 10%
Housing (rent/mortgage, insurance, utilities) 25%
Food (groceries, dining out) 10%
Health insurance, co-pays 5-10%
Savings (for short-term goals such as buying a home and long-term goals such as retirement) 10%
Taxes (Social Security, Medicare and federal/state) 7.65-42%



Discretionary Recommended Percentage of Income
Clothing 5%
Transportation (car loan/lease, gas, insurance, public transportation)  10%
Charity 5-10%
Entertainment/vacation 5-10%


For Example:


Salary $40,000
Less FICA/Medicare 7.65% ($3,060)
Less single person taxation 25% ($10,000)
Net take home $26,940 (roughly $2245 per month)



Debt payments 10% $224
Housing 25% $561
Food 10% $225
Health insurance/co-pays 10% $225
Savings 10% $225 *Note: contributions to a pre-tax savings program like a 401(k) will decrease your taxes
Transportation 15% $336
Charity 10% $225 *Note: charitable contributions may be tax deductible
Clothing 5% $112
Entertainment/vacations 5% $112


Other financial programs that may be appropriate, such as life and disability insurance, would also need to be accommodated into one’s budget.

Making decisions that will help you manage your financial resources in both the short- and long-term will go a long way in helping you create financial security.

FPA member Amy Jo Lauber, CFP®, is President of Lauber Financial Planning in West Seneca, NY.


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