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Last Updated on December 4, 2019

To serve you effectively, a budget needs to be as accurate as possible. However, because most people hate budgeting, too many of us gloss over our expenses only to find the numbers fail to pencil out each month.

To serve you effectively, a budget needs to be as accurate as possible. However, because most people hate budgeting, too many of us gloss over our expenses only to find the numbers fail to pencil out each month.

This, in turn leads one to conclude budgeting is a waste of time. However, if you make it a point to include these essentials in your budget, you’ll see exactly where your money goes — which can help you figure out how to hold on to more of it.

First Things First: What do You Make?

The starting point for any budget is the cash you have coming in each month. As good as your gross pay figure helps you feel about going to work every day, the number you need here is your net (take home) pay. Include all of your different forms of income when calculating, whether it’s incentives, overtime, bonuses, side jobs, child support, spousal support or whatever else it might be. 

Pay Yourself First

Whatever other expenses you may have, make it a point to save at least 10 percent of your income each month — before you pay anything else. From this will come the cash to establish your emergency fund, participate in your employer-matched savings plan and saving for college for your kids. 

Establish an Emergency Fund

An adequately endowed emergency fund can be the difference between dealing with a job loss and being OK or going into debt. This is also true for unexpected situations such as medical emergencies. Ideally, you should put away at least eight months of your living expenses. 

And yes, we know most experts say three — but times have changed.

It’s better to have more and need less than vice versa. As mentioned above, the cash for this should come from the money you pay yourself first. Once the fund hits the eight months of income mark, you can then divert these funds into other savings goals. 

Home Costs

This will be your single largest budget item. Most experts recommend giving over 35 percent of your income to this line item. Keep in mind, property taxes, homeowner’s insurance, household maintenance and repairs and homeowner association fees should all come out of the 35 percent you allocate to “housing”.

Therefore, you cannot allocate the entire 35 percent to a mortgage payment or rent. Before you get too excited about that great new apartment or that cute little house, plug the numbers into a good budget app, like the one provided by Clarity Money. This will help you figure out exactly what those other costs will be so you can determine the appropriate mortgage payment or rent.

Water, Gas, Electricity, Telephone and Garbage 

These essentials help make a house a home. In most cases, you should expect to see 10 percent of your income go to maintaining these services. Also falling under this category are internet service, cable and streaming services.


You gotta eat, there’s no way around it; but do you really have to eat in restaurants or take out every day? That’s a good way to blow a lot of cash unnecessarily. Cooking at home is less expensive and can be much more nutritious if you learn which foods are best for your body and what ingredients do you harm. This section of your budget should comprise 15 percent or less of your take home pay. 

Health Insurance

The cost of this will vary if you have coverage from your employer. Whatever the situation, you’re better off having it than trying to get by without it. This also includes copays, dental, vision and prescriptions. As you age, you’ll find this category consumes a larger portion of your budget than it did when you were younger, so it’s tricky to predict. The best way to figure it out is to determine what your premium, deductible, copay/coinsurance, and out-of-pocket max are each year. By the way, you should also include burial insurance costs.

Wardrobe/Grooming/Personal Expenses

This category should include clothes, dry cleaning and laundry expenses, as well as shoe repair, gifts, personal hygiene such as haircuts and the like. You’ll want to allocate 15 percent or less of your income to this one too. 

Consumer Debt

If you’ve been wondering when your car note, credit card bills and the like would come into play, here they are. These expenses come pretty far down the line because they are the least essential to a comfortable life — in most cases. If you have a significant commute to work, obviously the car cost should get more priority. 

Whatever else you do though, make it a point to live as free of debt as possible. 

Credit card obligations can spiral out of control to consume more of your budget than is healthy. If you’re starting off in debt, dial back on some of the other areas to get rid of it as soon as you can. Experts recommend keeping this category to 10 percent or less of your income. 

Fun and Games

Here’s the reason most people avoid budgeting. Fun and games always comes in at the bottom of the list — after all other obligations are met. This leaves people feeling as if all they do is work to pay bills. However, if you’re careful up top, you’ll find there’s quite a bit left down here. Ideally, 10 percent or less should go to entertainment pursuits. 

And yes, we know, when you include all of these essentials in your budget at the maximum recommended percentages, you’re looking at 105 percent — without hard numbers for health care. This means you’ll need to make adjustments here and there to make everything pencil out. 

Most importantly though, stick with it when you find a workable formula. Your money will grow, and you’ll eventually find you have more cash to apportion to the bottom of your budget.

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