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This is more of a hypothetical question I have been curious about. I am looking for a general answer for the average person, not a specific answer tailored to my exact situation. So I will not be including information about myself.
I would like to know what is a normal amount to spend on various expenses.
For example: Is 20% of my income too much for housing?
My answer will provide a general guideline, which is what I believe you are asking for. You must keep in mind, a budget is not a one size fits all type of deal and should be personalized.
With that said; lets begin. All my numbers will be based on your 'take home' cash, meaning the money you get after taxes, 401k contribution, or any other amount withdrawn by your employer. I also assume you have no revolving debt.
If you spend less on one category you can always transfer that amount onto another. So for example, if you take public transportation and your cost is less then 15% you can allocate the remaining amount between whichever categories you like. Your savings budget will also depend on your age, investment returns, and other various risk factors you might be exposed to. If your employer does not provide you with a 401k or contribute to any retirement plan I suggest you consider raising the amount in the savings category.
The most important thing is to stay within your budget and realizing that you should spend money in this order: Necessities, Savings, Luxuries. You have a 2% margin of error for any times you may go over budget. Cutting into that 2% should be a warning sign that tells you; "hey, I'm going over budget I need to cut back on something". So don't make a habit of it, otherwise you may find yourself quickly going past that 2% line and falling into debt.
A note on medical expenses: The 5% I suggested may vary depending on where you live, your current state of health, your income, and what options your employer offers for healthcare. You may find yourself spending less or more. Your health is considered a necessity, so if you find yourself spending more you should adjust your budget accordingly.
Another budget is the 50/30/20 rule.
In this budget you start with your after-tax income not your 'take home' cash. So do not deduct any 401k contributions or any other amount withdrawn by your employer.
The breakdown:
There are many different budget planing systems available: Example A, Example B, Example C. The problem with giving a hard set of numbers is that many vary by location and your age. For example if you have dependents your medical costs and life insurance costs will be completely different from somebody without kids or a senior citizen.
Big categories such as telecommunications expenses fall into both a necessity and entertainment. A basic phone cell phone plan is a necessity, the latest 4G phone with unlimited minutes and data is not a necessity. These split categories make it difficult to say somebodies spending in one category is too big. These split categories also allow a rationalization to occur. I need a phone vs I need that cool phone.
Savings is very important, but you have to look at general savings vs retirement vs savings for college. Some items such as student loans, once you commit to them, move from a want to a necessity.
So how to begin:
Note: In the US 20% for housing is well within norms.
There are many budgeting rules like 50/30/20 rule or 60/20/20 rule which helps you to split your income into Needs, Wants and Savings & Investments.
As you rightly said, different person have different financial situation. Depending on your needs and wants you can change the formula and create your own too.
You can start with a Monthly Budget Planner and allocate your monthly expenses of current monthly. Later you can budget for the coming month and match with the actual expenses. The difference can be noted and worked upon.
