How to Use Dave Ramsey Budget Percentages

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    Chances are, if you've heard the term "Better than I deserve!", then you've heard of Dave Ramsey budget percentages.

    Dave Ramsey is a money guru whose budgeting concepts and baby steps are best used by people starting their money journey. Dave has been bankrupt and knows what it's like to struggle with money.

    He's pulled himself out of the trenches and is now estimated to have a whopping net worth of $200 million, which makes him pretty well qualified to help others do the same.

    For beginners, Dave does a beautiful job of dumbing important things down to a level where you can't mess them up. One of the key pieces to his method is budgeting, along with his seven baby steps. For more information on his debt repayment methods, pick up one of his books:

    Dave Ramsey Budget Percentages 2021

    If you're struggling with figuring out what percentage of your monthly income should go to what budget category, you're not alone. Using Dave Ramsey's budgeting percentages can be an easy way to get started with budgeting. His suggested breakdown is as follows:

    This breakdown is based on net income (after taxes, but before 401k contributions or health insurance premiums)

    Dave Ramsey Suggested Budget Categories

    Budget Category Percentage
    Giving 10%
    Saving 10%
    Food 10-15%
    Utilities 5-10%
    Housing 25%
    Transportation 10%
    Health 5-10%
    Insurance 10-25%
    Recreation 5-10%
    Personal Spending 5-10%
    Miscellaneous 5-10%

    Wait...What about Debt?

    You’ll notice that debt repayment - like credit cards - isn’t listed on Dave’s budget percentages. Why is that?

    Dave believes that you can adjust the percentages to put some money towards debt while setting up your budget. He's also a big supporter of working additional hours or extra jobs to pay off debt as quickly as possible.

    Consider getting your $1000 emergency fund saved and then using the Saving category to help tackle debt and improve your financial situation.

    Dave Ramsey Budget Categories Examples

    If you're not sure which expenses should fall into which budget categories, let's go over specifics:


    Budget Category: Giving

    Dave Ramsey is big on tithing and suggests working it into your budget. Ultimately, it's up to you if you chose to make contributions at this time or not. The budget category includes items such as:

    • Community donations
    • Tithing
    • Christmas
    • Service gifts (mail person, garbage person, etc.)
    • Birthdays
    • Anniversaries
    • Weddings, engagement parties, bachelor/bachelorette parties
    • Baby showers
    • Special occasions
    • Charity donations
    • Teacher gifts
    • Political donations
    • Non-cash donations to Goodwill, food pantry, etc.

    Budget Category: Saving

    Most American aren't saving much money for retirement or emergency funds. This category should be about building wealth and saving for the future and includes:

    You'll want to use this savings category wisely. Dave recommends waiting to save for retirement until you have your debt paid off and three months of expenses saved up in an emergency fund. So, think of it this way: $1,000 baby emergency fund; pay off all debt (except for mortgage); build your 3-6 months of expenses emergency fund; then invest 10-15% of your pay into retirement and save for vacations, house updates, and any other big purchases.


    Budget Category: Food

    It's up to you if you want to include eating out in the food budget category or if it makes more sense in the recreation or personal spending budget categories. If you find that you're overspending on groceries, you can learn more about how I used a meal plan to make over my grocery budget here!)

    • Groceries
    • Fast food
    • Coffee shops
    • Restaurants

    Budget Category: Utilities

    These are all the things you need to make a household run. If you find that you're spending more than you'd like, you can use services like Trim or Truebill to help you negotiate your bills to save more on bills like:

    • Phones
    • Cable
    • Internet
    • Water
    • Sewer
    • Electricity
    • Natural Gas
    • Recycling
    • Garbage

    Budget Category: Housing

    Dave Ramsey recommends that 25% of your income should go to housing. Housing is always the most significant percentage in any budget, and for a good reason. When you think about rent or mortgage and add property taxes, HOA fees, and more, it can add up!

    • Mortgage payment or rent
    • Property taxes
    • HOA fees
    • Pest control
    • Landscapers
    • Home maintenance, repairs, or upgrades
    • Home warranty
    • Home security services

    Budget Category: Transportation

    This category should include anything from a car payment to bus passes:

    • Car loan / car payments
    • Maintenance and oil changes
    • Parking fees
    • Gas
    • Tires
    • Repairs or tools
    • Annual DMV fees / registration
    • Public transportation
    • Roadside assistance

    Budget Category: Health

    Healthcare can vary so much from family to family and even person to person. If you know that you have a costly month coming up in this category, adjust it up and then back down as needed to cover the expenses.

    • Copays
    • Dental
    • Medical bills
    • Over the counter medications
    • Prescriptions
    • Medical devices / medical expenses
    • Eyecare
    • Pharmacy
    • Vitamins / supplements
    • HSA / FSA
    • First aid items
    • Chiropractor
    • Counseling or therapy

    Budget Category: Insurance

    Insurance is a necessary evil, unfortunately. Check to see if your workplace offers discounts on different types of insurance. For example, we have medical, dental, and vision through my husband's employer. But they offer car and home insurance as well, and we receive a hefty discount by utilizing this insurance company. There are many different types of insurance to consider, such as:

    • Medical
    • Dental
    • Vision
    • Long-term care
    • Pet insurance
    • Homeowner's / Renters insurance
    • Umbrella policy
    • Auto insurance
    • Life insurance
    • Disability insurance
    • Identity theft

    Budget Category: Recreation

    These are your lifestyle and entertainment items and are one of the most straightforward categories to cut back on if you're having trouble balancing your budget. Remember, it doesn't have to be for forever, but just until you get your personal finances squared away:

    • Pets
    • Travel
    • Kids activities and sports
    • Hobbies

    Budget Category: Personal spending

    This category is your money to spend as you want - whether it's getting your hair done or a new pair of shoes. Some common ways to spend this money are:

    • Clothing
    • Personal care
    • Hobbies

    Budget Category: Miscellaneous

    The miscellaneous category can be the catch-all for anything left that doesn't fit into the other categories. It will cover items like:

    • Household items/ supplies
    • Education
    • Pets
    • Professional Services
    • Bank fees

    An Example Household Budget Percentage Breakdown

    The median household income for 2021 is $56,602, according to WorldPopulationReview.com. Let's use this to see how this sample budget percentage breakdown would look if you had $4716.83 to spend for the month:

    Please note: I'm not breaking this down by pay period, in which case the budget plan would look much different. For simplicity, let's look at it in as a month of pay:

    Budget Category & Percentage Dollar Amount
    Giving (10%) $471.68
    Saving (10%) $471.68
    Food (10%) $471.68
    Utilities (5%) $235.84
    Housing (25%) $1,179.21
    Transportation (10%) $471.68
    Health (10%) $471.86
    Insurance (10%) $471.68
    Recreation + Personal Spending (5%) $235.84
    Miscellaneous (5%) $235.84
    Total $4,716.83

    If you have debt, that feels like too much going towards giving and saving and not enough for debt payments or food.

    But here's the beauty of using Dave's percentages: it's a range, and nothing's written in stone. You can edit or adjust as you see fit to make this budget work for you.

    How to Make these Budget Percentages Work for You

    If you have trouble with overspending, some simple questions might help you to balance your budget better:

    • Which categories are you overspending?
    • Which categories are underspending? Can you move some percentage of the budget from this one to the overspending category?

    Once you identify your problems areas, set goals for the next month. Not too many at once - one or two is enough to keep the needle moving forward without getting overwhelmed and quitting.

    Try setting goals like:

    • I will lower my food spending by 10% next month.
    • I will invest 15% of my paycheck into retirement next month.
    • I will find ways to trim my transportation budget by 10%.

    The Pros and Cons of Dave Ramsey Budget Percentages

    So are the Dave Ramsey budget percentages a great way for you to break down your spending? Well, it depends on several factors.

    Your income, cost of living, and spending habits will either make or break this budgeting method for you. If you can't adjust any of these to make this budget work, then chances are you won't be successful with it.

    However, there are some pros and cons to this budgeting method that make it worthwhile:

    Pros

    • The categories have flexible percentages, so you have a range to work within. Plus, you can adjust them monthly as needed to be able to cover all of your expenses.
    • These budget categories aren't written in stone and are just a rule of thumb. You can always decide to include or remove any as needed.
    • Not everyone is on board with the Dave Ramsey giving percentage, and that's their choice. If you feel like you can't afford to give now, or don't want to, remove that line item in your budget. Another idea is to consider donating your time and energy as a volunteer instead.

    Cons

    • If you live in a high cost of living (HCOL) area, 25% of your income will not work. You'll have to adjust as needed, depending on where you live.
    • This budget doesn't consider several other expenses, like childcare, a considerable chunk of money for families.  The average cost of child care in the US is $771 to $991 a month, depending upon the child's age. In the example budget above, there's no place for childcare to fit. In this case, the household budget percentages feel off and will need to be adjusted.

    Other budget percentage systems

    Luckily, if you're struggling with Dave Ramsey's budget percentages, there are several other budgeting methods and tools you can use to help you get your budget into place.

    • The 70/20/10 Budget
    • The 50/20/30 Budget

    What is the 70 20 10 Rule for money?

    The 70/20/10 budget (or rule) is as follows:

    • 70% of your income goes to living expenses
    • 20% of your income goes to investments or bank accounts
    • 10% of your income is donated

    While it's similar to Dave Ramsey budget percentages, it is much more simplified. Everything that you spend, whether it's a want or need, falls into that 70%.

    What is the 50 20 30 budget rule?

    The 50/20/30 budget is similar to the 70/20/10.

    • 50% of your income goes to needs like housing, transportation, food, etc.
    • 20% of your income goes to building wealth, savings, and debt repayment
    • 30% of your income goes to wants, like eating out, entertainment, and other non-essentials

    The 50/20/30 budget differs because it's based on needs, wants, and savings, unlike Dave Ramsey's or the 70/21/10 rule.

    And don't forget that giving every dollar a job - no matter which budgeting method you pick - is the best way to make sure that none of them accidentally get spent. This type of budgeting is called a zero-based budget - where all money has a job, resulting in zero left.

    Budgeting Tools

    Now that you understand budgeting percentages and how to use them to create a budget, there are several additional budgeting tools you might want to consider to make the job easier:

    1. Cash envelope system: This type of budgeting uses cash only, divided into different envelopes for each category. It's often the recommended budget strategy for those who struggle with overspending. You can learn more about how cash envelopes work here.
    2. Qube: Qube is the digital version of cash envelopes. With the Qube app, you break your paycheck into various qubes (digital envelopes) for spending - like groceries, transportation, etc. Then, when you want to purchase from that qube, you'll select it in the app and make your purchase. Learn more about Qube and how it works for individuals, couples, and families here.
    3. You Need a Budget: You Need a Budget (or YNAB for short) is a budgeting app created by Dave Ramsey's company. You're able to set goals, tracking spending, and instantly share budgeting info with your partner to help everyone stay on budget.
    4. EveryDollar: Also by Dave Ramsey's company, the EveryDollar app is a more simplified version of YNAB. With tons of great content to help you learn, this app is great if you're working your way through the seven baby steps.
    5. Mint: One of my personal favorites is Mint. I use this weekly to see how my different budget categories are doing for a more realistic and instant update than my paper budget. The two combined are a powerhouse of budgeting for me! Want to know more about the differences between YNAB and Mint? Learn more here!
    6. Paper budget: Old fashioned? Sure. Gets the job done efficiently and quickly? Absolutely! I still write out my budget on paper every month to help me get a quick snapshot of how we're doing; plus, it's easier to flip back and see past months. My friend Kristin has a great budgeting bundle you can check out here.

     

    Now that you know more about Dave Ramsey's budget percentages and more about budgeting categories let me know how it's going in the comments below!

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    A forty-ish web designer/developer by day, a budget & financial fanatic by night. I’m a mom, wife, avid reader, and DIY enthusiast who’s tracking our journey to debt freedom. Read More

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