How to Budget for Your Household the Dave Ramsey Way

There are 11 budget categories that Ramsey recommends for budgeting for your household. The 11 categories are essential in ensuring that we know where our money goes in our households. These categories are perfect for doing an audit on how much we spend on things in our homes.

The 11 household budget categories breakdown everything we spend our money on in our homes by percentage. The categories can always be tweaked based on preferences but overall they provide a great starting point towards budgeting for your household.

It is noteworthy to mention that these 11 categories are a recommendation and not everything will fit into these household budget categories. There is an expectation that the list is customizable to fit anyone’s household expenses.

Additionally if you have followed these steps towards financial freedom then you have little to no debt (non-mortgage debt) which means that you have more to spend on these categories verses someone who has debt. It could also be a goal that you are working towards.

The 11 household budget categories include the pinnable guide below:

Based on this guideline personal application would mean that:

GIVING – 10%

Intentionally giving 10% of our income to worthwhile causes. Giving away 10% of our income can be difficult. That’s why it important to pick organizations or causes that are important to us personally. It is rewarding to contribute to these organizations that make a difference. Don’t forget that donations and charitable contributions are tax deductible expenses.

SAVING – 10%

Saving towards retirement is critical and Ramsey encourages everyone to get in the habit of saving at least 10% of their income. The power of compounding interest as seen in this article makes retirement saving very attractive. Don’t wait too long to start saving. Set it up to come out of your job if you work for a company that offers it and get whatever they match you for. It’s essentially free money.

FOOD – 10 – 15%

Ramsey recommends budgeting your food needs at 10 – 15%. Groceries are expensive y’all and I feel the pain every time I shop at the local grocery store. Isn’t it interesting how good food is expensive? Eating healthy meals can sadly turn into an expensive lifestyle. Eating out as well is expensive and unnecessary. If you can cut out that expense it could lead to big savings.  

UTILITIES – 5 -10%

Utilities should be 5 – 10% of your income. This is your phone, gas, electricity, cable and internet and depending on where you live it may not be in your control. Gas, water and electricity costs may be beyond our control. We can control usage to save money and we can optimize on things like phone plans, internet and cable. Shop around and you may be able to find more affordable or cheaper options. Alternatively, you could even get rid of cable and shop for alternatives like Hulu, Prime and Netflix. 

HOUSING – 25%

Housing costs make up to 25% of your budget. It’s our biggest household expense. For this category think of rent, mortgage, property tax, insurance, PMI and HOA fees. Plan on spending 25% of your income on these expenses.

I would caution that it is important to plan ahead as Ramsey recommends. The general rule is saving up to 6 months of your monthly expenses. Anything could happen; a layoff, sickness or unplanned event meaning that you should have your rent or mortgage taken care of for 6 months.

TRANSPORTATION – 10%

Transportation will make up 10% of your budget. This would be public transportation, car payment, gas, maintenance, and parking. I’ve always insisted on not over extending yourself. Driving a car within your budget is important. Luxury vehicles are often more expensive to fuel, maintain and pay for.

A practical way of applying this guide is say you make $4,000 per month your transport expenses should not be more than $400 per month. This being a guide I can already see where this would be difficult if you live in a big city.

HEALTH EXPENSE – 5 -10%

Health expenses are recommended to be between 5 – 10%. These include medical and health care bills excluding health insurance premiums. It’s a good idea to put some money away incase you got the flu, broke your leg or even had a surgical procedure that would require some out of pocket expenses towards medicine or your deductible. I have used a health savings account that’s provided through my job and it has been a life saver. Remember that contributions to a health savings account are pre-tax so definitely look at those options.

INSURANCE – 10 – 25%

Insurance at 10 – 25% is a big expense item but also a necessary one. This includes health insurance which anyone can attest is quite expensive, life insurance and auto insurance. Health insurance is typically taken out of our paychecks through our jobs so we don’t have to worry about it unless you get your own insurance. Premiums for life insurance and auto insurance are more likely to factor into this line.

RECREATION, PERSONAL SPEND AND MISCELLANEOUS EXPENSES – 5 – 10%

Recreation, personal spending and miscellaneous expenses make up 5 – 10% of your budget. This would be gym memberships, summer camp for the kids, vacations, clothes, shows, home goods and any other items that don’t fit into the categories above. This is a good amount of money for each category because using the above example of $4,000 per month this could be anywhere from $200 to $1,200 for all three. If you are frugal there are opportunities to save more, spread the money to other categories such as transport to make your money go the furthest for you.

An example of a budget for someone who makes $4,000:

Based on the example above there are opportunities to change up the categories and also you have a solid starting point for budgeting for your home.