Budget Categories and Percentages of the Gurus

We get it. You go online looking for help with your household budget and it feels like everyone is telling you something different. That’s why we put together this rundown of the budgeting categories and percentages of the biggest financial gurus around.

Here, you’ll find all their budgeting perspectives in one handy place. That way you can compare and contrast and make the best decisions for your situation.

We’ll also look at examples using ‘average’ American income numbers, as well as real-world numbers (my own income from teaching) to see how these budgets hold up at different pay scales. 

General Budgeting Guidelines

The first thing to keep in mind is that budgeting is a tool. The benefits you get from it will only be as good as your ability to use it. 

Now hold on, I’m not trying to guilt you into using this or that system. Quite the contrary. I don’t believe any of the following breakdowns is the right way to budget.

This is no such thing.

Instead, take each and adapt them to you, to your family, to your situation. Just like there is more than one way to swing a hammer, there is more than one way to make budgeting work for you.

It will take a little experimentation, sure, but stick with it and you will find a system that saves you headaches and arguments as well as money.

(BTW, we’ll show you our own experimentation and the system we use at the end of this article).

Budgeting in General

Before we get into the specifics of the Gurus, let’s talk a moment about what budget is… what it isn’t.

First, what it isn’t:

• Budgeting is not a holy writ. We are about to show you numbers and percentages, sure. But life happens. Please do not guilt trip yourself when your real life doesn’t match these numbers.
• Budgeting should not be painful. Yes, you might have to cut back a little spending here or there, but you should not make your life miserable. The point is to increase your quality of life, not decrease it. (We actually spend more money on fun stuff now than before the budget. We just spend it on things that actually matter).
• Budgeting should not be complicated. But it sure feels that way sometimes. We made this post to try to clear things up a bit. Hopefully, we can simplify it all for you.

And here’s what budgeting is:

• Flexible. Seriously, bend these rules to fit you.
• Freeing. Now that Leslie and I have our budgeting system in place, it takes exactly zero effort from us. It is entirely automatic. 
• Simplifying. If budgeting is causing stress or adding complications to your life, you need to scrap it and do something else. We are here to lower blood pressures, not raise them. 

Alright, let’s move on to the Gurus. First up, probably the most famous budgeter on the list… Dave Ramsey. 

Dave Ramsey’s Household Budgeting Categories

Ramsey is a bestselling author and radio show host. He breaks his recommended budget into 11 distinct categories. 

• Utilities (heating, cooling, electricity, internet, phones)
• Food (what you eat, but not night-out-with-friends eating)
• Health (bills you pay for healthcare but not your insurance premiums)
• Housing costs (rent/mortgage, property taxes, maintenance, homeowners/renter insurance)
• Transportation (Public transportation, car payments, car insurance, fuel, registration fees)
• Insurance (Health Insurance, life insurance, any insurance not mentioned above)
• Recreation (This is where that night-out-with-friends spending would go. If it’s fun, it goes here.)
• Giving (Ramsey advocates that a portion of your income should go to charity)
• Saving (For the emergency fund, big purchases, investing)
• Personal spending (Stuff you don’t need, but aren’t necessarily fun.)
• Miscellaneous (Random surprises that don’t fit neatly into the other household budget categories)

Dave Ramsey’s Family Budget Percentages

For each of these categories, Ramsey has assigned a percentage breakdown.

Keep in mind that these percentages apply to your take-home pay.

That is after the government has taken taxes out of your paycheck. 

• Utilities 5% – 10%
• Food 10%
• Health 5-10%
• Housing costs 25%
• Transportation 10%
• Insurance 10-25%
• Recreation 5-10%
• Giving 10%
• Saving 10%
• Personal spending 5-10%
• Miscellaneous 5-10%

Dave Ramsey’s Budgeting System (Putting It All Together)

Let’s take a look at an average American month as an example:

According to ZipRecruiter, the average American is paid $5,555 per month (at the time of this writing.)

Using a 22% tax bracket (data pulled from nerdwallet) as a rough estimate, after-tax income would be: $4,683

Given that data, the ‘average American’ Ramsey Budget would look like this:

• Utilities: $234 – $468
• Food: $468 – $702
• Health: $234 – $468
• Housing costs: $1,171
• Transportation: $428
• Insurance: $468 – $1,171
• Recreation: $234 – $468
• Giving: $468
• Saving: $468
• Personal spending: $234 – $468
• Miscellaneous: $234 – $468

Sample (Real Life) Ramsey Budget

But what is ‘average’ anyway? Here’s a look at what my budget would be. 

Leslie and I are private school teachers and we are paid well below average. Let’s look at just one of our incomes for Ramsey’s household budget:

My after-tax income for teaching is around $2,100 per month.

• Utilities: $105 – $210
• Food: $210 – $315
• Health: $105 – $210
• Housing costs: $525
• Transportation: $210
• Insurance: $210 – $525
• Recreation: $105 – $210
• Giving: $210
• Saving: $210
• Personal spending: $105 – $210
• Miscellaneous: $105 – $210

Thoughts on Dave Ramsey’s Household Budget

So what would I do if I followed Ramsey’s budget?

Let’s have a look:

• Utilities: $105 – $210 FAIL Winter heating alone costs more than this. Thank you oil furnace and northern winters…
• Food: $210 – $315 PASS But only because of Aldi’s (we feed a family of three for less than $50 per week) IF I had to shop at the other groceries stores in my town I would fail this category.
• Health: $105 – $210 PASS I’m lucky to have good private healthcare (not from my employer) that has 0 copays and prescriptions are cheap. On my employer’s plan, this would be a failure as well. 
• Housing costs: $525 FAIL I can’t even imagine what $500 rent or mortgage would buy you in my area. We bought a totaled HUD home and our monthly payment is still over $700.
• Transportation: $210 FAIL (AND our car is paid off. Just the insurance and gas alone put us over this line)
• Insurance: $210 – $525 PASS (Barely) My life and health insurance combined are just over $500. This one is too close for comfort. 
• Recreation: $105 – $210 PASS Although $210 does buy you much recreation around here…
• Giving: $210 PASS
• Saving: $210 PASS
• Personal spending: $105 – $210 PASS
• Miscellaneous: $105 – $210 PASS

So What are my thoughts? Dave Ramsey’s family budget is all well and good, but I think it falls apart as income decreases.

I think it would work well for an ‘average’ American, which is probably who Ramsey designed it for anyway. 

Don’t get me wrong, I’m not trying to discredit Ramsey. The man is a genuine financial guru. His books are worth reading. He is worth listening to. 

But.

I think there are many people out there who read his stuff and then end up guilt-tripping themselves because, at some income levels, the percentages just don’t work.

If that’s you, it’s not your fault. Take what works, and throw out the rest. Besides, this is why we made this post. To help you find the best option for your situation. 

Further Reading (The Best Dave Ramsey Books)

• The Total Money Makeover (There is also a workbook)
• Smart Money Smart Kids
• The Complete Guide To Money

Elizabeth Warren’s Family Budgeting Categories

Senator Elizabeth popularized this household budget in a book she wrote with her daughter. 

Their goal was to create something dead simple that anyone could follow regardless of income level or time constraint.

How did that work out?

Let’s find out:

The Categories are…

• The Vital Needs – Everything you need to survive. Think housing costs, utilities, transportation costs, and groceries. If you lose it and cannot carry on a normal life, it is a vital need.
• The Wants – The fun stuff. Unnecessary shopping, recreation, that latte everyone annoyingly tells you to skip… 
• Savings – Any and all savings you want to work on including retirement or major purchases, emergency funds, or education.

Compared to Ramsey’s 11 categories, this almost feels too simple, right?

Well…That’s the whole point.

Remember this was designed to make budgeting as accessible as possible. 

So what are the percentages then?

Elizabeth Warren’s Household Budgeting Percentages

Remember these are after-tax dollars. Meaning, you want to take your total take-home pay, then multiply by these amounts:

• The Vital Needs: 50%
• The Wants: 30%
• Savings: 20%

Simple, easy to remember.

But is it too simple?

Elizabeth Warren’s Budgeting System (Putting It All Together)

Let’s take a look using the ‘average’ American income from above. Remember data comes from ZipRecruiter and nerdwallet.

Average income: $4,683

So Warren’s budget would look like this:

• The Vital Needs: $2,342
• The Wants: $1,405
• Savings: $937

Sample (Real Life) Elizabeth Warren’s Budget

Ok, fine. But how would it do with my income of $2,100 per month?

• The Vital Needs: $1,050 FAIL 
• The Wants: $630 PASS
• Savings: $420 PASS 

I would definitely need to pull some money out of The Wants to cover my Vital Needs. (Actually, I would have to pull almost all of the money The Wants to meet my Vital needs. eek.)

The good news is, I would have enough for Savings.

The bad news is, If I only saved $420 per month, I’d never retire, let alone send my kid to college. 

So far this experiment is making me extremely thankful that Leslie and I have the other business that we run during our three-month summer vacations (and even more importantly the passive investments they have allowed us to buy).

Without that income who knows where we’d be?

Further Reading

• All Your Worth (Warning, this book is over ten years old. It feels outdated. But the advice is not. It is still worth the read/)

Oprah Winfrey’s Household Budgeting Categories

Oprah Winfrey has also weighed in on the budgeting percentage discussion. She published this breakdown as part of her ‘Debt Diet Plan’ on her website. 

She doesn’t specify if these percentages are after-tax or not, but for the sake of continuity for this post, we will be using after-tax dollars in our examples.

So what are the budgeting categories that Oprah sees as most important?

• Housing (mortgage/rent, repairs, taxes, utilities, insurance)
• Debt (student loans, credit cards, personal loans)
• Transportation (car payments, gas, insurance, repairs, parking/tolls, train/bus fare)
• Savings
• Other Living Expenses (eating out, vacations, entertainment, clothing)

Oprah Winfrey’s Household Budgeting Percentages

Alright, so far I like that Oprah’s categories feel a little more real than Ramsey’s. And there might be a little less ambiguity when compared to Warren’s.

So let’s take a look at these household budget percentage breakdowns:

• Housing 35%
• Debt 15%
• Transportation 15%
• Saving 10%
• Other Living Expenses 25%

Oprah Winfrey’s Budgeting System (Putting It All Together)

Here’s how that budget breakdown would look using that ‘average’ after-tax income number (remember data comes from ZipRecruiter and nerdwallet.)

Average income: $4,683

Oprah’s recommended budget would look like this:

• Housing $1,639
• Debt $703
• Transportation $703
• Saving $468
• Other Living Expenses $1,170

Sample (Real Life) Oprah Winfrey Budget

And how would Oprah’s budget pan out with my actual after-tax income of $2,100?

• Housing: $735 PASS (This is almost exactly what my mortgage payment is. So even at half the average income, Winfrey’s budgeting seems realistic).
• Debt $315 PASS and FAIL (My personal student loan payment fails by a mile, even on an income-based plan. But the average American pays about $390 per month, so it’s pretty close).
• Transportation is $315 PASS(But only because our car is paid off. I think most people would have a hard time passing at this income level)
• Saving $210 PASS
• Other Living Expenses $525 PASS

So far, Oprah’s budget seems to be the best for people with below-average income levels.

Why does it work so well?

It doesn’t try to micromanage. The categories are broad and flexible, yet realistic. I like this breakdown very much. If I had any complaints it would be that the ‘savings’ percentage is too low, but then again, this was designed to help pay down debt. And once that debt is gone, the savings rate could be increased. 

Further Reading

Oprah.com has a lot of info in its personal finance section.

Ramit Sethi’s Household Budgeting Categories

Ramit Sethi is the author of I Will Teach You To Be Rich and the companion blog iwillteachyoutoberich.com.

When Ramit talks about budgeting, he follows a less concrete methodology than what we have seen so far. 

In fact, there are only two concrete categories that he advocates for everyone (you need to decide the rest for your own situation.

Although this might be a little frustrating to someone just looking for a cookie-cutter budget to follow, I admire this approach and think it is the better choice long term. 

Here are Ramit Sethi’s two categories:

• Savings (Emergency fund, large purchases, pre-planned trips…)
• Investing (retirement and accumulation of wealth)

So what about everything else? Up to you. 

Build what you need to build, but remember the goal (according to Sethi): Increase your savings, decrease your debt, and allow for some guilt-free spending. 

Ramit Sethi’s Household Budgeting Percentages

So what percentages does Sethi recommend?

• Savings 10%
• Investing 20%

Ramit Sethi’s Budgeting System (Putting It All Together)

Instead of a traditional household or family budget, Ramit Sethi instead offers a list of Money Rules/Goals.

Here they are:

1. Always have one year’s worth of expenses in cash (emergency fund).
2. Save at least 10% and invest at least 20% of pre-tax pay.
3. Pay cash for large expenses (and always put at least 20% down on the house).
4. Never question spending money on certain things (like books, your own health, or donating to charity).
5. Always use business class on flights over 4 hours
6. Don’t limit spending on your own health or education.
7. Buy high-end products that will last a very long time.
8. Earn enough money that you only work with people you like and trust.
9. Marry the right person.
10. Prioritize time outside the spreadsheet.

Sample (Real World) Ramit Sethi Budget

So how feasible is it to follow Sethi’s 10 money rules on my $2,100 per month income?

Let’s see:

1. Always have one year’s worth of expenses in cash (emergency fund). PASS It took a while (like several years) but I have managed to build this emergency fund. 
2. Save at least 10% and invest at least 20% of pre-tax pay. PASS I do manage to save and invest at least this much each month.
3. Pay cash for large expenses (and always put at least 20% down on the house). PASS (BUT… we bought an unlivable house for a steep discount. I’m not sure we could have feasibly managed this buying a house ready to move into)
4. Never question spending money on certain things (like books, your own health, or donating to charity).PASS (but this is harder than it sounds. I still have a hard time letting go of money, but I’m getting better).
5. Always use business class on flights over 4 hours. No Comment (I’ve never flown for business.)
6. Don’t limit spending on your own health or education. PASS (But again, it’s hard)
7. Buy high-end products that will last a very long time. PASS (This has been a habit of mine since before my introduction to Sethi. And it does really help. You start to get weirded out by how often other people replace things).
8. Earn enough money that you only work with people you like and trust. PASS (This has been one of the things I am most thankful for. We chose our lower incomes for this reason and it has been money well ‘spent’).
9. Marry the right person. PASS (Leslie is my best friend. We teach together. We run two businesses together. We do everything together. This is only possible because she is the right person. It is better to be alone than with the wrong person.)
10. Prioritize time outside the spreadsheet. PASS (The whole reason we chose our teaching careers and our businesses is to minimize the time we spend working. Family, life, experiences… these things matter more than your job).

Now we’re getting somewhere. I mean, I know it’s not your typical budget. But it is solid money advice.

One thing I’ve learned from working on this post is that tight rules and details are too rigid for anyone outside the ‘average’ range. 

So I like Sethi’s money advice. I think it fits more people and more situations. 

Further Reading

I Will Teach You To Be Rich by Ramit Sethi. This is one of the best books for getting your financial ducks in a row. It’s the book I most frequently recommend to friends and family. 

The Ben And Leslie Budget Plan

Just kidding. We don’t have a trademarked budget plan and we’ve never been on Oprah.

But we do have a budget that works for us. It might not work for you and that’s ok.

We just wanted to share it here because something in it might help you out. 

Remember, together we make about half the ‘average’ American income. We developed this budget when that was all we had to live on. (We now make significantly more with our 6-figure side hustles, but this budget is built around an after-tax monthly income of $4,200 dollars.)

We also built this budget by bringing together several other personal finance concepts. 

The Envelope System

The Envelope system is an ancient budgeting technique. You mark a series of envelopes with your spending categories (housing, food, whatever), and then each payday you divide your money among those envelopes. 

We updated the envelope system to make it more automatic by using prepaid digital debit cards. We never use physical cards, though. It is purely to make it easier to transfer money between our ‘envelopes’. We have one card for each spending category. 

Pay Yourself First / Profit First

‘Pay yourself first’ is another ancient piece of financial advice and for a good reason. It leverages something called Parkinson’s law to curtail your spending. 

Basically, your expenses expand to gobble up the cash you have available. So, as soon as you get paid you move the money you want to keep out of your normal account and put it somewhere else where it is hard to spend it. 

The best approach to ‘pay yourself first’ we have ever encountered is Profit First by Mike Michalowicz.

It’s technically meant for business (and we read it for our businesses) but we have since used exactly the same methods he describes in our personal finances as well as our businesses. 

The short version of how we do is this:

Describe some amount that you want to be ‘profit’. Then once each pay period, pull that amount out first and then make your expenses fit what is left. 

Your ‘profit’ is the money you want for yourself. 

Doing this really brings your spending into focus. We eliminated more than half of our expenses by doing this. 

Automatic Millionaire / IWTY

Both Automatic Millionaire and I Will Teach You To Be Rich advocate automating your expenses. 

So we did. And it was one of the best moves we’ve made. 

Listen, you’ve got too much going on in your life already. Give yourself a break and automate your finances. Both of these books will show you how. 

The Exact System We Use (Putting it all together)

Profit First

We pay ourselves first. 

And we think of our personal finances like a business. (In other posts we often refer to this as Business Zero. It’s the income source that has fielded the building of Business One and Business Two).

We have a Profit goal and we pull that amount out first each month. We raise the amount we pull out by 1.25% each month (because we have a yearly goal of increasing our profits by 15% per year. See our Income Reports for details)

This forces us to:

1. Find ways to reduce our spending 

Or…

2. Find ways to increase our earnings from Business Zero, One, or Two (or some new future business idea)

For everything else there’s…

Akimbo Cards

We set up a handful of prepaid debit cards with Akimbo (run by Mastercard). These function as ‘envelopes’ from the Envelope Budget System. 

These are just digital cards (we have no physical card, though you can order one). 

You can connect your bank and then move money freely to and from each card. 

As long as you don’t use these to actually pay for things, and as long as you either move money to or from each month, there are no fees involved. Because we set up automatic distributions monthly and because we have no physical card, we can never be charged a fee. Nice!

Akimbo Categories

We made one card for each of these categories:

• Entertainment (Specifically movie nights and eating out)
• Groceries
• Big Purchases (Planned future expenses like new phones/tablets, laptops

Akimbo Budget “Percentages”

Actually, we have stopped using percentages altogether. We noticed that the problem with every budgeting system we tried came from the fact that other (often very rich) people were making guesses about how I should spend my money. 

And that’s fine.

But using flat rates has worked far better for us. 

So instead of percentages, we decided to set flat rates. We did this by looking at our average spending, then choosing an amount that would keep us from breaking the bank… but also let us not be miserable. 

Here are those rates. These have not changed in the five-plus years we’ve been doing this:

• Entertainment: $50 per week.
• Groceries: $50 per week.
• Big Purchases: $100 per month. 

This might not seem like much money at first, but we found that with a little planning, it is plenty. (This is of course subject to location).

With a little practice, we usually spend under our limit and let the extra build for special treats.

[Shout out to Aldi’s: With a little meal planning, we (three of us) easily eat a very healthy balanced diet of whole unprocessed foods for $50 per week]

Automatic Expenses

Our house payment, health insurance, car insurance, and utilities are scheduled as well. We set them to come out of the bank as early in the month as possible.

We routinely look for ways to trim these expenses back as well.

[Shout out to Geico: If you are a shareholder of Berkshire Hathaway, you can get a discount on auto insurance (I think 8%)]

Because we have put our expenses under constant pressure (from our ever-increasing profit goal) and are always looking for ways to save. 

This has worked so well for us because it draws a very clear line in the sand.

On This Side (profit) is every fun or long-wished-for-thing we want to spend money on. This side brings us happiness and enjoyment and great family experiences.

On the Other Side (Expenses) is everything we have to pay but get no joy from. 

For a long time, we spent money on things we did not need because we were confused about which side of the line they fell on. 

Now our spending is much more focused and we get much more out of each dollar.

(For a great primer to this way of thinking try Your Money Or Your Life by Vickie Robin. It really opened my eyes.)

Final Thoughts

There you have it: the budget breakdowns of some of the biggest personal finance gurus out there, as well as our own system. 

Remember, there are no one-size-fits-all solutions. Try them out, and see what works for you and what doesn’t. 

It took us years to figure out what works for us and we just hope that this post can help you get there faster than we did!

Further Reading

Leslie and I created this site to help others build million-dollar home-based businesses. 

We now have two businesses. Both are run from our home and can be run in three months per year (we built and now run them over our summer vacations).

We built this site to help you create your own businesses so you can enjoy more free time while truly getting to enjoy the fruits of your labor.

To dig deeper into how to create your own 3MM-style business (that is a home-based business that can be run in less than two hours per day or three months per year) check out these other posts:

• Our Ultimate Guide to Building a Business
• Our Ultimate Productivity Guide
• Our Ultimate Guide to Investing
• Our Income Reports

Thanks for taking the time to read this. Good luck out there!