Budgeting can be a tall task! Whether you’re starting out on your own or working towards bigger financial goals, creating and sticking to a budget is key. The question is, how do you know if your budget is working well for you?How much and where should you be spending your money?Where should you be cutting back? This is where a spending ratio can come in handy really help you put your spending habits into perspective.
Essentially, a spending ratio will show how much you are spending across different categories as a percentage of your total income. This information can then be used to help you build a budget that fits within your financial situation.
The 5 main categories include housing, living expenses, transportation, debt, and savings and they each carry their own ratio base line. Here’s a closer look:
This includes costs like mortgage and rent payments, taxes, and hydro. You should aim to keep this below 35%.
This includes food, clothing, entertainment, and other miscellaneous costs. These should be less than 20%.
This includes costs like your car loan, lease payments, bus pass, gas, and insurance. This should stay below 20%.
This includes all other debt like credit cards and student loans. This should be lower than 15%.
After all your bills are covered, ideally, you are able to allot 10% of your budget to savings.
To determine your own ratio simply add up your monthly expenses for each category and divide each category’s total by your monthly take-home income. If you find you’re way over in a category, look for areas where you can cut back. This can include eating out less, skipping the fancy cable package, getting a cheaper vehicle, or contacting your insurance company for a discount. If you take the time to review your expenses for each category, there are many ways that you can decrease your spending.
You may find this exact ratio does not work for you and you might want to allocate a little more or less to a certain category. That’s ok! There are different types of spending ratios available such as the 50/30/20 ratio which entails allotting 50% to necessities like housing, utilities, food, and transportation; 20% to repaying debt and savings; and 30% to entertainment and other personal expenses like your cell phone and gym membership. Whichever way you choose to work it out, you will probably want to make adjustments so it’s more tailored to your unique situation.
While this is only a guideline, it will give you a base line to start looking at your bigger picture now so you can create a realistic budget that is going to work for you over the long term.
https://momentumcu.ca/wp-content/uploads/2018/10/momentumcu.ca-spending-ratio.jpg6671000Lysandre Dunsmuir/wp-content/uploads/2018/02/mcu-id-header.pngLysandre Dunsmuir2018-10-19 13:19:262018-10-23 11:14:15Basics of a Spending Ratio