Budget Breakdown 📋
Channel: The Financial Literacy Course
Date: 14/01/2021

Would it surprise you to learn that your financial success will largely depend upon your ability to make and keep a budget? By following a well-thought-out budget, you can reach your financial goals, build wealth, and live a comfortable life within your means. In this lesson, we will examine the average person's budget breakdown, giving you a good starting point for creating and customizing your future budget.

We all have similar basic needs like food, shelter, and transportation, but how much should we spend on them? Although everyone will be different, we can get a good idea by looking at the average person's budget breakdown.

The first worry on most people's minds is housing and with good reason. It's almost always our highest expense. The average person spends nearly a third of their income on their mortgage or rent, and any taxes or homeowners association fees. If you can find a good set of roommates, you may be able to slash your housing expenses and use that money to accelerate your financial goals. Don't forget to set aside about 10% of your budget for utilities!

Next up is your transportation. If your life requires anything more than walking, it's best to allocate about 10-13% of your income to ensure you can get to work and keep bringing home that paycheck.

Budgeting for food and toiletries can be tricky and is one of the areas of our budget that we need to monitor the closest. Budgeting 15% for food is a great starting place.

Once your basic needs are taken care of, it's time to take care of those financial commitments. Setting aside 10% of your budget is a great starting point, but if 10% doesn't cover your financial obligations, you need to look at how you can either increase your income or decrease your expenses in other areas. If you have become debt-free, you can use this money to accelerate your financial goals.

While we are paying others, let's not forget to pay ourselves. Wealth is often defined as the amount of time we can live on our resources without working before going broke. In other words, wealth is measured in days and years, not dollars. Our end goal should be to have our savings and investments eventually produce as much money each month as we need, thus having endless wealth. By saving at least 10% of our income, we are paying ourselves and building wealth for the future.

There are always other things that come up. The last 12% of our budget goes to those other expenses. This could be clothing, child care, charity, or other miscellaneous expenses that creep in each month. When we add some wiggle room, it's far less likely that we will go over our budget.

Now that you have an idea of where to begin, you can take from one category and add it to another until you've found a good breakdown that fits your specific needs. Since no two people are the same, most people will need to customize their budget.

What would you change in your budget breakdown?