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Budgeting for a Household Made Simple

05 May 2016, by Design A House Sign How to budget a household

Budgeting can be a daunting task at first; however we all benefit from it. It offers greater freedom with your finances than initially thought, offering greater understanding on how much to spend on certain things, although it does mean restrictions on your spending. But these are not strict limits, more guidelines to help you live by. Below we have produced some popular categories and rough percentages to live by for each.

 Housing – 35%

 Each month housing is our biggest expense. It is recommended allocating a third of your monthly income towards housing. Location can impact on this figure, as if you’re living in a city like London where housing is very expensive, one third of your income may not cover it, therefore you may want to consider the location you’re living in if it becomes a real struggle, maybe settle for a less mainstream and trendy area. If you really struggle to hit 35% then simply cut back in other areas of living to allow yourself to make up the difference.

Utilities – 5%

Utilities include those unavoidable and essential costs, with electricity, water, gas, internet and television services; they all need to be factored into your monthly budget. Though these expenses will fluctuate across the year, it’s better if you consider the expenses each month, this way when you’re setting your budget you can prepare for the worst. However, if your monthly expenses fall below your allocated total, then the leftovers can go into your savings to keep for a rainy day!

Transportation – 10%

Transportation cannot be overlooked, as it can easily catch you out. For instance if you drive to work then one fill up can set you back; the distance you travel can be a factor, impacting the amount you’ll spend on fuel. For this reason you need to be aware and consider these expenses; even parking offers daily costs. Not to mention the maintenance of your vehicle and insurance.  When travelling by public transport, you will need to factor in the weekly cost for tickets and consider prices for travel. If you are able to walk to work then you have an advantage. You will not have any additional costs for transport, meaning you could put more of your income into another category.

Medical – 5%

Health is something you must include within your budget, as you just never know what's around the corner. You will predominantly have three separate costs for healthcare, these will include your fixed costs (Likely to be an amount you pay each month for medical insurance), you have routine costs (prescriptions etc.) and finally you have unexpected costs (These will be emergency appointments). Although we don't like to think about our health too often, and we hope you wouldn't suddenly fall ill, there can be lots of smaller costs that add up. So you must set aside a budget for these instances.

Food – 20% 

Budgeting for food can be tricky, you need to ensure you are able to supply your weekly shop for food supplies. With food, it is important to find a balance between how much you need to spend, be it at home, going out for dinner or grabbing the quick McDonalds or Starbucks here and there. They all add up and you need to be able to find stability between them, budgeting for you to be able to comfortably eat. 

Debt Repayment – 10% 

Trying to calculate your debt repayment can be a nightmare, with fluctuating interest rates, stuttered payment schedules it can be a real struggle. By placing 10% into your budget it’s a good start for you; it gives you a small figure of your income each month that goes towards debt, enabling you to begin to pay off the amount. If you have outstanding student loans or credit card debt, then you may want to form an aggressive repayment plan as soon as you can, allowing yourself the best chance to pay it off.

Savings – 10%

It’s recommended to place 10% of your monthly income into your savings. If you do not have a savings account, retirement plan, or emergency plan then it is best to arrange yourself. Whether you do this by setting up a direct deposit, routinely withdrawing retirement funds from each paycheque you receive, or even producing a small account just for emergencies; both will benefit you further down the line. It is vital not to mix up these accounts and payments, as each of them have their own unique purpose that will help you. For instance your savings will pay for major life expenses, such as cars, your retirement plan is for when you pack up the 9-5 hours and the emergency fund is for quite simply, emergencies.

Personal – 5%

You must have room in your budget for yourself, though, this can easily overlap into other groups of your budget, like food; like taking your partner for a meal or going out with a group of friends. Ensure you leave enough to make yourself happy, doing what you like. So if you like music, go to concerts, if you enjoy the cinema then see a film. Just be smart about it and remember there are other factors besides entertainment, including clothing, haircuts and toiletries etc.

Planning your budget can be a real eye-opener; you can see what you’re spending your money on and select essentials for your life. You can then decide what you need to cut back on. Our guide doesn’t need to be followed strictly, the percentages given can be altered as planning a budget is all about suiting your needs and doing what fits you best, but hopefully, it’s shown how and why you should budget.  

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