Playing the Percentages

I stumbled into a conversation at work the other day where we started discussing how much of ones income is supposed to be directed toward necessities like rent/mortgage, food, etc. This was based on an article my co-worker had read, which stated that Rhode Islanders pay far too large a percentage of their income toward housing. The article warned that the high cost was not sustainable and that RI is heading for a crash. Except the percentage they quoted was 30%, which I thought was standard.

So how much is supposed to go toward what? Obviously this is different for each person, but there are some standards out there. Personal finance guru Dave Ramsay says housing should be 25-35 percent of your budget, and others seem to agree with him. Personally, I've never actually sat down and looked at these percentages because I was always making so little money that I knew half of it would go toward rent--so why bother?

So let's see how I'm doing, using guidelines I found on about.com.

I have six main budget categories: Food, Alcohol, Misc, Clothing, Gas and Bills. Misc is a catch-all category where I put everything that I pay for infrequently, or that doesn't fit in anywhere else i.e. car insurance, entertainment, household items etc. I don't have a set limit in this category since it tends to fluctuate wildly, and last month, when I started trying to set a limit of $300, I promptly got a car repair bill of $600. I'm going to base my misc numbers on the average spent in that column last year.

Also, I put a significant chunk of my income toward savings and a little toward student loans, I'm going to average those and include them in the percentages too.

Food: 8% of income

Alcohol: 2% of income

Misc: 20% of income

Gas: 4% of income

Clothing: 4% of income

Bills: 32% of income

Savings: 28% of income

Student Loans: 12% of income

So those number actually add up to 112%, but I think it's still pretty accurate considering the way things change month-to-month. I'm actually pretty surprised and pleased that my precentage spent on food is so low. Most other lists show the average for money spent on food per month to be around 15% of income. Granted, I only pay for half of the food consumed in my house, but if I factored in the other income and cost, the percentage would be about the same.

My bills are about as low as they can get--rent is low for the area I live in, and I've employed cost-saving measures toward my utilities such as switching to CFLs, keeping the heat low, turning down the temperature on the water heater and unplugging my laptop overnight (which also saves my battery). I have to say, I think I'm doing pretty well.

Pat on the back.