Tips to create a spending plan
How much should you allocate for each category?
This year is flying by, are you still using your spending plan? If not, now is the perfect time to get back on track. Spending plans, also known as budgets, are great tools to use to help you stay on track with monthly spending. Spending plans also make you accountable for your finances. The most important part of creating your spending plan is sticking to it!
It is important to include your net income and other expenses like savings, housing, transportation, health, food, revolving (credit card) and installment (personal loans, cars, etc.) payments, student loans, personal and recreation/entertainment expenses. So, how much should you be spending in each category? Financial experts recommend the following when budgeting:
- Housing: 35 percent - includes mortgage/rent, taxes, insurance, association dues
- Utilities: 5 percent - includes phone, electric, gas, cable, internet
- Food: 10 – 20 percent- groceries
- Transportation: 15 – 20 percent - includes car payment, car insurance, car maintenance, bus, taxi, parking
- Clothing: 3 – 5 percent
- Medical: 3 percent - health care, prescriptions or over-the-counter drugs
- Personal: 5 – 10 percent - recreation/entertainment, grooming, hobbies
- Savings: 5 – 10 percent - savings should be included as an expense in your spending plan. It’s important to pay yourself first.
- Debt Payments: 5 – 15 percent - revolving and installment debt.
Everyone’s situation is different, so these are general guidelines. Nonetheless, you should strive to create a spending and savings plan and implement your plans to reach your financial goals. Michigan State University Extension offers workshops throughout the year to help you become financially healthy. Additionally, you can take the Financial Health Survey and discover more ways you can improve your financial health.