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Creating a budget from scratch can be a challenge especially when you don’t know where to start.
But making a budget that works for you is going to be crucial to your success if you want to get out of debt, start saving money, or if you want to retire.
So how do you which kind of budget to use?
Many experts suggest starting out with budgeting percentages.
Let me show you show this works.
The budget percentages method is when you allocate a certain percent of your money into categories. It’s basically a “done for you” guide
For example, you should spend 5-10% of your income for all utilities. This would mean that you should spend no more than $250 for electric, gas, water, sewer, and trash for a $2,500/mo income.
Let’s take a further look…
Read: The Most Effective Way to Track Your Spending
Dave Ramsey’s Recommended Budgeting Percentages
If you don’t know who Dave Ramsey is, he is a financial guru who has coined the 7 Baby Steps to get out of debt. He has a very popular budgeting course called the Financial Peace University and his book, “The Total Money Makeover” has changed thousands of people’s lives.
I myself have followed some of his baby steps and have read the Total Money Makeover as well as watched some Dave Ramsey YouTube videos to get motivated.
Here is what Dave recommends as far as household budget percentages go:
Giving: 10% $250
This includes money you give to church, charities, or family
Saving: 10% $250
This includes money you put away towards retirement, investing, or other savings goals
Food: 10-15% $$375
This includes groceries and eating out
Utilities: 5-10% $250
This includes all utilities in your budget
Housing: 25% $625
This includes rent, mortgage, and HOA fees
Transportation: 10% $250
This includes vehicle expenses, gas, or bus/ride money
Health: 5-10% $250
This includes medication and health-related expenses not covered by insurance. This can also include money you put toward your HSA or FSA.
Insurance: 10-25% $625
This includes home insurance, auto insurance, life insurance, and other insurances you may have.
Recreation: 5-10% $250
This includes gym memberships, travel expenses, club memberships, and upgrades to current fixed expenses.
Personal Spending: 5-10% $250
Miscellaneous: 5-10% $250
Read: The Frugal Habits of Wealthy Families
First of all, the percentages don’t add up correctly. If you use the max limits on these categories, you’ll be 45% over budget. Not something you need to be doing when trying to get out of debt.
Second, the increases in home value make it almost impossible to stick to this budget as it includes both home and associated fees.
Third, health insurance is really expensive for the common middle-class family. A typical family insurance plan would cost anywhere from $350 to $600 or more. These numbers alone already places someone over budget according to percentages.
As you can see, this is completely unrealistic for someone who makes $2,500 per month. For those that challenge this theory, Dave recommends moving to a cheaper home, selling the second vehicle, or working yourself to death by getting another job or two.
I’m all for making adjustments and figuring out how to save money in all areas that I can, but moving and selling a needed vehicle just isn’t something that I am willing to do nor would I recommend to my readers.
Let’s take a look at another percentage budget for the same income…
The 50/20/30 Percent Budget
This method became popular when Elizabeth Warren wrote it in her book, “All Your Worth: The Ultimate Lifetime Money Plan“.
Basically, your money should be divided up into categories of needs, wants, and savings. 50% of your income will go to needs, 20% should go towards the things you want, and 30% is designated for savings.
Needs
T
Wants
These are the things that make life a little easier and desirable. This includes eating out, entertainment, upgrades from basic packages for cable, internet or phone, extra clothing, fun electronics, and toys. Basically, anything that isn’t part of the “need” category will fall into this one. It’s all the little extra things you buy for joy.
Savings
Saving is a crucial part of life. this category includes savings such as retirement plans (401K, 403b, IRA, Roth IRA, and Traditional Roth IRA). It also includes savings goals such as saving money for your emergency fund, home, car, or other large purchase. You can include investing in your savings category as well.
Read: A Realistic Money Savings Challenge for Tighter Budgets
With a $2,500/mo income, here is what you will spend in each category:
Needs- $1,250
Wants- $750
Savings- $500
The problem with this method is that there is too much room for variability. It isn’t all encompassing, meaning there are some expenses that could be separated depending on how you look at it.
For example, let’s say you have a pet. Do you need a pet or do you want it? technically, it would be a want. But your pet needs food and vet visits, so that expense would fall in the needs category. Do you see how it can become confusing?
Another example is your phone. In this day in age, we need a cell phone. But you don’t need the unlimited data package nor do you need the latest $1,000 phone. So how do you separate the need part of the bill and the want part of the bill?
Read: How to Create a Zero-Based Budget that Works for You
Pros to Budgeting by Percentages
- It tells you exactly how to divvy up your money so you don’t have to spend the time to figure it out on your own
- It’s done for you
- Feels less restrictive than other budgeting methods
- Sounds pretty simple 50/20/30
Cons of Budgeting by Percentages
- Can be confusing when deciding which expense goes into what category
- Doesn’t take into account the increased mortgages and rent
- Savings percent is just too unrealistic, especially when trying to catch up on payments or paying off debt
- It’s not tailored to you. It’s a straight forward budget that leaves too much variability leaving more room for mistakes and money unaccounted for
- Doesn’t work for smaller budgets
- You will have to do extra calculations to figure out the percentages
Read: How Moms Can Make Quick Money Easily
Should You Use Budget Percentages?
As you can see, using budget percentages offers some advantages like “done for you” budgeting and giving you the feeling of an unrestrictive budget.
But following this method of budgeting just isn’t realistic for many people. The savings rate is extremely high for beginner budgeters and increased home values just don’t fit in. Finding a cheaper home by moving isn’t something that many people will do, especially families with kids in a good school system with good resources.
In addition, food prices can vary greatly depending on where you live. While 10-15% of the money for food on a $2,500 budget will work for let’s say someone in Ohio, it won’t work for someone living in California. Sorry, but I’m not moving to Ohio to make my food budget work.
Read: The One Thing Your Budget is Missing
Alternatives to the Percent Budget Method
I use a mix of the zero-based budget system, reverse budgeting, calendar method, and budget by paycheck.
The Zero-Based Budget
The zero-based budget gives you the ultimate control of your money. You tell every single dollar where to go and at the end of the budget, you should reach zero. When actively paying off debt, I highly recommend you use this method.
The Reverse or Backwards Budget
Reverse budgeting is when you pay yourself first. While this doesn’t tell what to do with the rest of your money, it does tell you what to do first. That is, to pay yourself first. You can either put it into retirement, savings, or investments.
The Calendar Method of Budgeting
The calendar method of budgeting is when you use a calendar to visualize your expenses. For me, it’s difficult to see my expenses in a list format. I like to use my Happy Planner to visualize when I make my budget so that I can anticipate other activities and due dates that will fall in that time frame.
The Budget by Paycheck Method
The budget by paycheck method is when you make a budget for each paycheck. This means that every night before I get paid, I make a plan for that paycheck. I decide what I will pay and when with the money that comes from that paycheck only. I don’t sit down once a month and pay all my bills in one sitting, it just isn’t effective for me. B
This system works very well for me and surprisingly doesn’t take much time.
Key Takeaways from Using the Budget Percentages
- Remember that these are recommendations and you will need to make adjustments if you want this to work for you
- You will have to take another step to figure out categories and their respective percentages each time you budget
- This does not work for everyone
My Take on Using Budgeting Percentages
I don’t create my budget using these percentages, but I won’t say that I completely write them off either.
I use an app called Personal Capital which creates my categories for me. It can quickly show me how much of my budget is spent in a particular area. I do find that I have to “teach” it to remember my transactions because sometimes, the category will be off.
It’s nice to have a quick view of the percentages, especially when something is way out of whack. But it’s not something I look at every paycheck.

We have read Dave Ramsey and over the years found not everything makes he says works for us. For the longest time we rented beci it seemed to be the more affordable option until we needed a realistic living space for our growing family (modest yet livable.) In our area it is cheaper to own than rent so we bought a house even though we still have a student loan. (Still paying that of at a slower rate, but wouldn’t be able to if we rented)
Same for cars, we paid cash for junkers so we didn’t have a car payment but always had to buy a new old car every two years. Finally we decided to buy a newer used car with a minimal payment we paid off in 1 year, but we’ve been driving it for the last 4 years and still have more years to go. We are able to build saving for a car over a longer pet of time instead.of having to dip into savings.to buy again, more frequent car repairs and tax title and license fees.
So a lot of his ideas sounds good on paper but doesn’t always work when lived out.
Hi Liz,
I totally agree. There are many ways to do one thing. Dave Ramsey’s principles are strong but not all of them will work for everyone, including myself. You have a very valid point on buying junker cars. It really depends on the resources you have, a little bit of knowledge, and luck to find a decent junk car that isn’t a money pit. It’s rare. I chose to keep my newer (financed car) while paying off debt. I plan to keep it until it dies but I never regret the purchase.
I am glad to see that I am not the only one that feels this way.
Marissa