As we discussed in this post, a budget is a spending plan which can help you become more organized. The purpose of this is meeting your expenses, your personal goals and tracking your income. Starting and maintaining a budgeting plan takes a lot of self-control and discipline which can be managed through organizing your money and being consistent.  But is there such a thing as an “ideal” budget?  Well, we think there is!

Creating your ideal budget

An ideal budget tries to align your spending to what is normal or considered typical for an American household.  For example, does it seem “normal” to spend 75% of your monthly income on housing?  We don’t think so either!  So an ideal budget will try and align the spending of your income along the following categories:

• Savings – This should actually be the first category in which you put money in. This is because it is important to be prepared and have an emergency fund. Think about it like choosing to pay yourself first and then everyone else last. Having this money can provide ease to your mind and will avoid things falling through the cracks when they seem to go a little downhill. And doin this first ensures that you do save, versus paying everyone else first and then having nothing left for you.
• Housing – This category will be the biggest taking up at least 30-35%. This category is subject to change depending on where you live. Each state/county has different rates for mortgages, rent, food, utilities, and other essential items.
• Installment Debt – Installment payments should take up about 15%. This can include any monthly payments like car loans, student loans, personal credit cards, etc.
• Transportation – This category will take up about 10% as it will include car maintenance, gas, repairs, and anything that involves spending on your form of transportation.
• Charity – It is important to keep your values even in tough times which is why we have included charity. It might seem that you are on a very tight budget but it does not take much to cut back on unnecessary things to give back to your church, someone in need, or even a friend or relative that you feel needs or deserves it.
• Insurance – Insurance takes up about 5% of your total income. This can include all your car, home and life insurance as well.
• Entertainment – Remember to stay sane when making sacrifices! Separate about 5% of your income to pay for anything you want to do to distract yourself. Remember to take care of yourself too – it’s always okay to “not” be okay.
• Personal Care – Personal Care will take up 5% which can include clothes, hygiene products, makeup, and much more.
• Investments – Invest in yourself and your future by putting your income to work for yourself. Take 5% of your income to put into stocks, bonds, savings account or any form of investment. Look for the option you think fits you best based on your goals and desires.

Now after knowing what an ideal budgeting plan looks like, go out and find all your sources of income. This can include your salary, investments (such as savings account, money market account, or mutual fund), passive income (such as rent income), and retirement income. After determining your total income divide it into the previous categories and start looking to see if the numbers seem reasonable and achievable. Something that can help determine this is looking at your money habits. See what habits you are starting with and determine what needs improvement.

Summary

Creating the budget will require you to analyze everything very deeply. You must determine what you need to get to your goals and make changes according to that. This might take some sacrifice but will reward you with a lot of progress. If you need some tips and a deeper look at this budgeting plan, see our video on the subject: What Is A (Ideal) Budget?.