1. Money

Q. How can we know how much money we should be budgeting for each expense category?

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A. There are really no hard and fast rules for how much to spend in each budget category, for several reasons, including:

  • No two families are alike
  • Spending varies by income level
  • Costs vary widely by region
  • Costs vary widely by family size
  • There are too many other factors to make general assumptions in many categories

One major point to keep in mind is this: many Americans carry excessive debt, which indicates that they are overspending in some categories, so using their spending as a guideline makes little sense.

It's not important whether you fit into a cookie-cutter scenario of the "average" family, which wouldn't be very helpful for most people. The important thing is to start where you are and work from there to reduce expenses. Instead of trying to use other people's spending as a guideline, I recommend the following approach, which has been proven to be effective:

  • Start out by tracking your expenses for a month or two
  • Enter all your expenditures into a personal finance software program like Quicken or MS Money (or set up a simple Excel spreadsheet or even use paper and pencil)
  • Review each category every month and brainstorm for ways to cut your expenses in each category
  • Read articles online and in magazines about cost-cutting tips and advice and apply as many as possible to your own situation

It's interesting to see how much people spend in various categories, but I would be very cautious about using this data to develop your own budget. That said, here are percentages of major spending categories from the latest US Bureau of Labor Statistics (2003) Consumer Expenditure Survey.

Note: Subtotals for Transportation and Food are in bold letters to indicate that they should not be included in the totals if the individual accounts are already included (for example, if you break out transportation into the three subcategories shown below, don't add in the subtotal "Other Transportation."

  • Food at home 7.7%
  • Food away from home 5.4%
  • Alcoholic beverages 1.0%
  • Total food and drink 14.1%
  • Housing 32.9%
  • Apparel and services 4.0%
  • Vehicles 9.1%
  • Gasoline and motor oil 3.3%
  • Other transportation 6.7%
  • TotalTransportation 19.1%
  • Healthcare 5.9%
  • Entertainment 5.0%
  • Personal care products and services 1.3%
  • Reading .3%
  • Education 1.9%
  • Tobacco products and smoking supplies .7%
  • Miscellaneous 1.5%
  • Cash contributions 3.4%
  • Personal insurance and pensions 9.9%

Remember, the most important thing is that you're managing your money in such a way that you're able to invest and save significant amounts of money to meet financial goals and prepare for your future.

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