How's Your Household Budget?

In this exploration of your household budget, I'd like to do three things. First, let's see where you are. If you're going to get out of debt, or keep from slipping into it, you'll need to know where you stand. Many households stay out of debt because they have a reasonable budget and they keep an eye on their income and expenses - they know where they stand.

To help you know where you are, relative to everyone else, we'll take a look at how Americans generally spend their money. This should be at least somewhat enlightening.

Next, we'll make an assessment of where you are heading. Are you heading for debt, getting deeper into it, simply treading water, or are you climbing to greater financial freedom?

Then, I'll show you what I think family budgeting should look like. Even if you're a "lone ranger", your budget should look similar.

After we get done with these exercises, you should see where there are holes in your financial boat, and where you should strive to make improvements by adjusting what you spend and what you save.

In other words, you'll decide what you'll do about your situation so you'll have greater financial peace of mind and less stress in your life.

Let's dive into a review of your household budget.

Where are You Financially?

You'll need to make a realistic assessment of where you are financially if you're going to have a sense of urgency about getting out of debt or staying out of it in the first place.

Try this exercise to see what your household budget looks like, and how it stacks up when compared with others.

Get a piece of paper, a pencil and a calculator. You'll need to write down money spent in each of the following areas, expressed as a monthly average.

If you know the amounts for each sub-element in the category, then add up the numbers so you have a single figure for each overall category such as income, transportation, food, medical, savings/investment, and other aspects of your household budget.

If you know the value for the overall category, then you don't need to fill in separate amounts for the sub-elements presented.If you don't know the monthly average, then make an educated guess.

Here are the general categories of your household budget and some of the sub-elements within each.


  • regular household take home pay (add pension deductions to this)
  • side jobs and casual work

(I assume that your tax deductions at work or your quarterly tax estimates are well targeted. In other words, you'll essentially owe nothing at the end of the tax year, or you'll get nothing back.)



  • church
  • fund raisers
  • community projects
  • other


  • movie theaters
  • movies purchased
  • concerts
  • nightclubs
  • sporting events

Clothes and footwear:

  • clothes
  • shoes
  • laundry/dry cleaning


  • cleaning supplies
  • housewares
  • home maintenance
  • soap, detergent, shampoo
  • other


  • insurance
  • services
  • medicine


  • gas/propane
  • electric
  • water
  • sewer
  • home phone
  • cell phone
  • cable TV


  • groceries
  • meals out
  • snacks
  • beverages
  • beer, wine and liquor


  • auto insurance
  • car payment
  • fuel and maintenance
  • parking
  • fares


  • savings
  • retirement account (should also be counted as take home pay)
  • college fund

(Special instructions for take home pay and retirement. Add amounts taken out for pensions to your take home pay as these will have to be figured into what you are spending. If you don't add these to your take home pay, the results will look like you're saving too much or you're over budget.)


  • rent or house payment
  • homeowner association dues
  • renter or homeowner insurance
  • real estate taxes

Okay, all those numbers are out on the table in front of you. Now, let's see what they all mean with respect to your general spending patterns.

How Americans Spend Their Money

If you look at various studies that show what Americans spend on things, you'll get a range of numbers that are expressed as a percentage of spending for certain categories. I've taken some of those numbers and massaged them into what I consider to be representative values.

Here are national averages, presented from lowest amount to highest values, each shown as a percentage of take home income, with the decimal equivalent shown in parentheses for convenience:

  • Donations 2% (.02)
  • Entertainment 4% (.04)
  • Clothes and footwear 4% (.04)
  • Miscellaneous 4% (.04)
  • Life insurance and medical 6% (.06)
  • Utilitites 6% (.06)
  • Food 12% (.12)
  • Transportation 16% (.16)
  • Savings/investment/retirement 16% (.16)
  • Housing 30% (.30)

Now, divide each of your expenses and savings/investment numbers by your monthly take home pay to see how closely you match with these percentages derived from national averages. The numbers for your household budget, as shown on your calculator, should be compared with the numbers shown in the parentheses above.

When you look at the numbers, remember this is a rough national average, and it doesn't necessarily represent the ideal. If you're within 10% of these numbers, then you're probably doing okay. I suggest that no single element of your household budget be higher than 15% of these averages.

Here is the easy way to figure how far away you are from these average household budget figures. Take the percentage that you spend in each category, expressed as a decimal, and divide into that the decimal associated with the category.

Example, let's say you spend 34.5% (.345) of your budget on housing. Divide .345 by .30 (the suggested average) and that gives you 1.15 (115%) as a result. That means you are spending 115% of the national average.

In other words, you are spending 15% more than the national average.

If your math gives you .80 (80%) as a result, then that means you are spending 20% less than the national average.

At any rate, doing what the average American does isn't necessarily an indicator that you're okay. It should be an indicator that you're following the average American, and when you think about it, that might not be exactly what you want to do - be average that is.

My Suggested Household Budget

Here are my suggested percentages for a household budget. As you might expect, they are more frugal in nature and more aggressive in savings.

  • Donations 2% (.02)
  • Entertainment 5% (.05)
  • Clothes and footwear 3% (.03)
  • Miscellaneous 6% (.06)
  • Life insurance and medical 6% (.06)
  • Utilitites 6% (.06)
  • Food 10% (.10)
  • Transportation 14% (.14)
  • Savings/investment/retirement 20% (.20)
  • Housing 28% (.28)

I recognize that some of these numbers can be reduced and redistributed. The first three elements of donations, entertainment and clothes are 10% of the budget and in many cases are discretionary, so those are the first categories that I would zero out if needs be.

Also, keep in mind that many factors influence how much you spend in each category of the household budget and the percentage distribution that you have for yours. Don't panic if you tip the scales in one category or another. Think about it and see if you can identify why you're heavy in one area or another, and what you might be able to do about it.

So, now you know where you are in relationship to others around the country. How do you feel about your household budget now? I hope you're feeling good about it.

Let's look at debt and see if that changes your outlook for the better or worse.

Where are You Headed Financially?

Where you are financially can now be tempered by where you are headed. Debt is a big factor - it's a ball and chain around your neck. If you're in a deep hole, are you making it deeper, or are you climbing out? You need to know so you can take appropriate action.

You've purchased or financed something and you're enjoying it, but now you have to pay for it over time - a long time for many people. As time passes, the value of what you financed may diminish, but the burden of debt will surely increase the stress on you and your household budget.

To see where you are headed, first identify every loan and credit card balance that has no fixed end date for payment. In other words, you can make minimum payments forever, and no one would care - except you and your beleaguered household budget.

Next, for each loan or credit card balance, figure what the monthly payment would be if you were to pay off the loan in 3 years. Use a credit card calculator to figure this amount. Use the quotient as a monthly figure that you'll add into your monthly budget.

I'm suggesting 3 years as a target. I'm not entirely comfortable with having credit card debt hang out there for 3 years, but many will find it difficult to pay it off sooner. Remember, the longer you let it hang out there, the longer it will needlessly consume your income.

If you don't get debt under control within a few years, it most certainly will become a long term way for you to transfer your wealth to others, and that's not a good thing to do.

Then, figure in all the monthly payments for alimony, child support, mortgage, student loans and the like that have a fixed end date.

Now ask yourself:

  • Can I "swing" the debt and still put 10% into savings? If no, then you have a challenge to address. If yes, then you are in good shape and are building wealth.
  • Can I handle the debt if I stop saving and put those monthly amounts toward the debt? If yes, then you're in okay shape. You can keep yourself in a holding pattern for a while as you pay down the debt. If not, then you have a problem to solve by reducing other expenditures.
  • Can I manage the debt if I eliminate savings and cut back on non-essentials in multiple areas of my household budget? If yes, then you've identified a way to address your problem, but understand that you're in a tight spot and you'll have to be a real penny pincher. If not, then you're in over your head, and you'll need to start thinking of serious ways to get out of the hole you've put yourself in.

What are You Going to Do?

Here is where the rubber meets the road. You have to decide what it is you're going to do about your household budget to improve your financial situation. Is it a time to hold, cut back, or bail out?

All options are on the table. You have to decide what you're going to do. What you do will depend on how severe you see your problem (if you have one at all), and your sense of urgency.

Here is what I would consider doing to address the problem of debt, and the order in which I would do it:

  1. Realize that most likely this is your fault, whether you've done it to yourself or allowed someone else to do it to you. In some way, you are likely the one to blame. Therefore, you're the one that needs to change. Make a commitment to change your life.Even if you have no blame in the mess, it's still your mess and it's in your best interest to get out of it. You're on your own, so you have to get with it.
  2. Change your attitude and understanding about money and debt. Money is a valuable resource that promote freedom of choice and peace of mind. Debt enslaves you. Decide in favor of freedom instead of enslavement.
  3. Make certain you have a safety net of some sort - money you can fall back on if needs be. A couple thousand dollars is probably sufficient. Anything is better than nothing. This is money you don't touch unless you have an unforeseen emergency that demands spending cash to make it to the other side and get back on your feet.
  4. Stop incurring more debt with credit cards. Keep them for emergencies only, or destroy them if you can't leave your hands off of them.
  5. Reduce the size of your largest expense - housing. Can you live with someone else? Can you rent something cheaper? Can you downsize your home for something that costs less to own and operate?
  6. Reduce your second largest expense - transportation. Can you do without a car? Can you ride share? Can you get along with a bicycle or on foot?
  7. Reduce your third largest expense - food. Basic food has always been reasonable in cost. Can you eliminate meals out? Buy what's on sale. Buy whole and unprocessed foods. Buy in bulk.
  8. Eliminate all non-essential spending from your household budget - gifts, donations, tobacco, alcohol, entertainment, meals out, miscellaneous and discretionary spending. If it doesn't keep you housed, fed or at work, I would delay spending until you are out of the woods.
  9. Increase your income - second job, better job, more overtime, others in the household working too. This is essentially bailing water out of your sinking boat while you plug the holes by being much more frugal.
  10. If you have children and can't afford to take good care of them, see if there is a relative who can take care of them (part time or full time) while you get your act together. You may need to focus on your finances so intensely at times that you might not be the good caretaker that your children deserve. Leaving nothing to chance, I should add stop making more children that you can't afford to care for.
  11. If your financial situation is because of someone you are in a relationship with, and they won't change their reckless attitude towards money, then you'll need to find a way to get out of the relationship so you can plug the leaks without having to worry about that person drilling more holes in your boat (because they will, or you'll allow them to).
  12. Contact creditors and let them know of your situation. Try to get the interest payments reduced or eliminated so you can avoid bankruptcy. Remember, they're playing the money game, so they want to get your money. If you file for bankruptcy, they probably won't get anything, so you may have to give them a choice between getting the principal that you owe (and perhaps a little interest) or "sucking wind" altogether.
  13. As a last resort file bankruptcy to get a fresh start. If you haven't changed your attitude about money and established much more conservative ways, then bankruptcy won't help you. In any event, seek professional counsel to determine how to go about filing for bankruptcy protection.

To get your household budget under control, you might ask others how they do it and learn from practical example. Ask people that appear to be successful at managing a household budget. Don't ask others that are having financial troubles.

In any event, you're probably a little wiser now with respect to where you are with your household budget, and where you are heading. This is the main point of the discussion - awareness. Frugal living is a bit like debt; it doesn't just happen to you, you make it happen. Have a reasonable household budget that reflects a focus on responsible use of financial resources, and you'll be glad you did.

Done with Household Budget - take me back to Paying Off Debt