Budget Percentages: Dave Ramsey vs 50/20/30 Rule

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When it comes the budgeting, the best advice that I can give is to keep it simple. One way to do that is to use recommended budget percentages.

Budgeting by percentages simply means dividing up your income into percentages for each budget category.

It is a great method to use if you are new to budgeting and you aren’t sure what an appropriate amount to spend in each category is. It’s where I started when I first learned to budget.

Though these budget percentage breakdowns are great rules of thumb, they’re just that. Every household budget is unique and you should allocate funds in a way that leads you to financial freedom.

Common Budgeting Methods

There are two widely known and used budgeting percentage breakdowns. Those two are Dave Ramsey’s budget percentages and the 50/20/30 rule for budgeting. I’ll breakdown both of these methods and also share my own personal approach to budgeting.

Remember that each of these methods and recommendations are just starting points for you to create your budget. Use them to get started, then customize your budget to your own needs.

Dave Ramsey Budget Percentages

budget percentages dave ramsey

I believe that Dave Ramsey’s budgeting method is the most thorough.

It is very clear which categories your spending will fall into and how much should be allocated to each.

In fact, his free budgeting template was what I used to build my first budget.

For his budget percentages, Dave Ramsey suggests dividing your expenses into eleven categories. (You can read my post on Dave Ramsey’s budget categories and the expenses that should fall into each of them.)

Giving 10%

Though there is no cap on how much one can give, it is important to plan for it.

Giving is an act of selflessness that not only helps others, but also gives back in ways that can’t be quantified.

Giving a tenth of your income, or a tithe, is a common practice traditionally found within Christianity. Yet, it can be used as a general guideline for anyone.

Whether it be to a church for religious beliefs or for philanthropy, giving should be accounted for in your budget.

Saving 10%

After paying off debt and having a fully funded emergency fund, Dave recommends setting aside 10% of your income to save for big expenses.

These big expenses include saving for a car or other large purchases. At this point in your financial journey, he also recommends putting 15% toward retirement savings.

Food 10-15%

Food is an inevitable expense, however it shouldn’t take up an excessive amount in your budget.

This 10-15% accounts for groceries, dining out, and fast food. If you find yourself unable to stay within this suggested range, consider meal prepping to reduce the cost of dining out.

Utilities 5-10%

Your utilities are a necessary expense that will include electricity, water, gas, and heating costs. It may also include internet, cable, and phone costs.

Set aside 5-10% of your income to cover the costs, noting that these costs can fluctuate throughout the year.

Housing 25%

Your monthly housing costs should fall under a quarter of your monthly take-home income. Anything more could come at the risk of not being able to cover other necessary expenses.

The housing category takes into account your monthly rent or mortgage payment, homeowners association (HOA) dues, property taxes, insurance, and PMI (if applicable).

Transportation 10%

Transportation costs may include fuel, oil changes, and other maintenance, taxes, toll fees, and public transportation costs. Automobile loans may also fall into this category; however, you should allocate extra funds toward paying any car debt off.

Health 5-10%

It’s inevitable that you will incur health-related expenses, so be proactive and plan for it.

Set aside funds for those unexpected trips to the doctor (not covered by insurance), over the counter medicines, and that monthly gym membership.

Insurance 10-25%

Though you may already have funds taken out of your paycheck to cover your employer-subsidized health insurance, there are other coverages that you must have.

Auto insurance, additional health insurance, and life insurance all fall under this category.

Recreation 5-10%

The best fun is budgeted for. Plan to have a percentage of your income to go toward things like movie tickets, concerts, or perhaps a quick staycation.

Personal Spending 5-10%

Sometimes you just want to spend money on things for yourself. This category includes things like clothing, personal care, and other miscellaneous items that you choose to spend on.

Miscellaneous 5-10%

Left it off of the budget? Allocate funds to cover any missed expenses.

50/20/30 Budget Method

50/30/20 budget rule

In comparison to Dave Ramsey’s budgeting percentages, the 50/20/30 rule for budgeting will seem less restrictive and less detailed.

This budgeting breakdown suggests that you allocate 50% of your income to needs, 20% to savings, and 30% to wants.

Needs – 50%

Your needs are those expenses that you will have to survive.

That would include the cost of shelter, transportation, food, utilities, debt repayment, insurance, and health care costs. By this rule, these expenses should not exceed 50% of your income.

Savings – 20%

Based on the 50/20/30 budgeting method, 20% of your income should be reserved for savings.

This portion of your income should be divided between your retirement savings and your emergency fund.

This could also be used to fund other savings, such as your long/short term goals, travel fund, and other specific savings goals. These would be your sinking funds.

Wants – 30%

The balance of your income (30%) should go toward your wants. This is where personal care, entertainment, and spending in excess of your needs will come from.

Though this method suggests allocating 30%, by no means are you obligated to actually spend the total amount.

Budget Percentages Calculator

If you’re interested in knowing how much money your should allocate for either method, I’ve created a budget percentage calculator for you.

This is a Dave Ramsey budget percentages and 50/20/30 calculator based on which method you select.

How We Breakdown our Budget

I believe that our percentage breakdown more closely aligns with the 50/20/30 rule.

In our case, we allocate 10% of our gross income to giving, 15% to retirement savings, and 75% for expenses and additional savings.

Contrary to the 50/20/30 rule, this 75% covers both or wants and needs with no distinct split between the two. We simply allocate money to cover expected expenses and determine what we’ll spend on everything else.

It is important to note that while paying off our debt, these percentages looked much different.

After saving $1,000 for our emergency fund, we allocated 10% to giving, 0% to retirement savings, and 90% toward expenses and paying off debt.

How to Stay within your Budget Percentages

The point of having budget percentages is to help guide your spending.

More importantly, it is to ensure that you don’t exceed your income. In order for this to work, you have to track and review your spending regularly.

We personally track spending using a shared spreadsheet, but there are apps that will track your spending for you. The Every Dollar (Dave Ramsey’s budget app) or Qube apps are both options that can automatically categorize your spending.

These apps also show how much of your budget you’ve spent.

Every Dollar budgeting app picture
Every Dollar Budgeting App

In addition to leveraging these apps, you should do a regular review of your spending.  Review your spending determine if you should increase or reduce the amount of money that you allocate to each area.

Final Thoughts on Budget Percentages

Use the budgeting percentages shared in this post as a starting point for creating your own budget.

By no means are they rules that you must follow. However, they provide a general outline of where your money should be allocated.

Remember that the way you spend your money is a reflection of those things that you find most important.

Although some categories will be inherently higher than others, your spending should align with your financial goals.

For more help with creating a budget, check out my blog post on creating a budget in four easy steps.

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  1. Ms Rae says:

    I just listened to your story on the Clever girls podcast. Thank you so much for sharing! You have re awaken my goals and vision. I’m a single mom of 4, 36k in debt, 13k in student loans, 17k in a car loan (of which continues to breakdown ) and remaining in credit cards and personal loans. After hearing you speak, I am reminded that anything is possible. I’m tightening my bootstraps and going back to war. Blessings to you!

    1. Fo Alexander says:

      So glad I could be an inspiration! Good luck on your journey!! Stay connected.

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