I’m sure we’re all familiar with personal finance guru Dave Ramsey, his radio show, and his books like The Total Money Makeover (his 7 baby steps), but do you know his recommended budget percentages?
Similar to the rest of Ramsey’s advice, he likes to be very specific about how much money he thinks you should spend on things like housing, food, and recreation.
If you’re new to budgeting or simply want to improve your budgeting skills, his recommended budget percentages are a great place to start.
Simply put, budget percentages are the way in which you divvy up your paycheck to cover different categories of expenses.
In this article, we’ll discuss Ramsey’s recommended categories, their percentages, how to determine your own percentages, and much more.
What Are Dave Ramsey’s Budget Percentages?
If you’re making your first budget, it can be pretty overwhelming to determine how much of your income you should allocate to each budget category. How much should you spend on housing? How much should you save each month?
That’s where Dave Ramsey comes in. Here are Ramsey’s recommended budget percentages for 11 categories in descending order:
Note: These recommendations are just guidelines. Depending on your personal finances, your percentages may look a bit different.
- Housing: 25 percent
- Insurance: 10 to 25 percent
- Food: 10 to 15 percent
- Saving: 10 percent
- Transportation: 10 percent
- Giving: 10 percent
- Utilities: 5 to 10 percent
- Health: 5 to 10 percent
- Recreation: 5 to 10 percent
- Personal spending: 5 to 10 percent
- Miscellaneous: 5 percent
Dave Ramsey’s Budget percentages Explained
Now that you know Ramsey’s recommended budget percentages and the 11 categories, you may be wondering what specific expenses each one includes.
Here is a breakdown of each category to help you make sense of them:
Note: These recommended budget percentages are for your after-tax income but before insurance payments and retirement contributions.
1. Housing (25 percent)
At a quarter of monthly take-home pay, housing is Dave Ramsey’s most significant budget percentage.
Ramsey recommends spending no more than 25% of your expenses on your mortgage or rent payment, property tax, renters or homeowners insurance, PMI (if applicable), homeowners association fees, and home maintenance.
Ramsey believes if you spend more than this on housing, you risk not being able to afford other expenses. However, this is a budget category that many people disagree with Ramsey.
The argument is that if you make minimum wage or live in an area with a high cost of living, it’s impossible to spend this little on housing.
Related: 20 best alternative housing options
2. Insurance (10 to 25 Percent)
Ramsey’s second largest recommended budget percentage is for insurance at 10 to 25 percent. This category includes life insurance, health insurance, disability insurance, and business insurance (if applicable).
You may be wondering, “What about auto insurance?” Ramsey recommends including this in your transportation category.
Tip: Shop around once every six months or yearly to ensure you’re getting the best price for coverage.
3. Food (10 to 15 Percent)
Coming in at third, Dave Ramsey recommends you spend 10 to 15 percent on food. This includes groceries, dining out, and fast food.
Tip: If you have trouble staying within this amount and frequently find yourself overspending on food, consider meal prepping to reduce your spending in this category. You should also never shop for groceries without a list.
4. Saving (10 Percent)
After you have become debt-free (aside from your mortgage), your budget category for saving should be all about building wealth for your future.
Ramsey wants you to always save a minimum of 10% of your income for retirement in a 401(k) or an individual retirement account (IRA).
However, if you don’t have an emergency fund, you should allocate some money in this category each month until you have 3 to 6 months of expenses saved for emergencies.
Suggestion: While saving 10 percent of your income is a great start, it would be ideal to save 15 to 20 percent instead. This is based on the 50/30/20 budgeting method.
5. Transportation (10 Percent)
Dave Ramsey suggests spending no more than 10% of your budget on transportation.
Transportation costs include everything it takes to get from one place to another, such as your vehicle, public transportation, Uber rides, or even your bicycle (i.e., if you bike to work).
Your transportation budget category should also include gas, car insurance, oil changes, car tag renewals, DMV fees, parking, toll fees, etc.
Suggestion: If you’re struggling to stay within 10%, consider carpooling to work, taking public transportation, or even trading your car for a less expensive one.
6. Giving (10 Percent)
Ramsey is a firm believer in giving. As a result, he suggests having a budget category for charitable giving to which you allocate 10% of your income.
The funds in this category can be used for anything from tithing for religious beliefs to donating to a charity near and dear to your heart for philanthropy.
As someone who is also big on giving, I think it’s super awesome Ramsey encourages people to give back!
Tip: According to Ramsey’s 7 baby steps, you should build an emergency fund and pay off your debt before giving back. This way, you will be in a better position to do so.
7. Utilities (5 to 10 Percent)
Ramsey believes you should spend 5 to 10 percent of your budget on utilities, as they tend to fluctuate throughout the year. Utilities include water, electricity, gas, trash service, etc.
If you’re a renter, these costs may be included in your rent payment. In this case, a utilities budget category may not be necessary.
That said, while not explicitly stated by Ramsey, I recommended you also include expenses like your phone, cable, and internet in your utilities budget category as well.
Related: ways to lower your heating bill during the winter
8. Health (5 to 10 Percent)
Unfortunately, we all get sick from time to time, and while we can’t predict when, it’s still good to account for it in our budget.
The health category is for any health-related costs, such as unexpected trips to the doctor or urgent care that aren’t covered by insurance and out-of-pocket medicine you may need, like aspirin or cold remedies.
Dave Ramsey recommends spending 5 to 10 percent of your income on these expenses. While this may seem like a lot, your health is ultimately more valuable than money in the long run.
Reminder: Health insurance should be included in your insurance budget category, not your health category.
9. Recreation (5 to 10 Percent)
Also referred to as the entertainment budget category, your recreation category is simply for anything fun you do!
This includes activities like date nights, going out to the movies, attending a concert, going to the gym (fun, right?), fun things for the kids to do, and even subscriptions for things like Netflix and video games.
That said, Ramsey suggests allocating no more than 10% of your income to entertainment but no less than 5%. We all need a bit of excitement in our lives!
10. Personal Spending (5 to 10 Percent)
Want some new clothes but don’t really need them? Spent $300 at Target when you were planning only to spend $100? This is what the personal spending budget category is for.
Dave Ramsey wants you to spend 5 to 10 percent of your income on personal spending.
Personal spending includes personal care such as haircuts, clothes, shoes, home furnishings and decor, and other miscellaneous stuff you simply decide to spend money on.
11. Miscellaneous (5 to 10 Percent)
No matter how on top of budgeting you are, there will always be expenses you forget to account for or underestimate. This is what the miscellaneous budget category is for.
Ramsey recommends allocating 5% of your income for expenses you simply left out of your budget, such as a last-minute birthday gift, etc.
Think of your miscellaneous category as a buffer that prevents you from derailing your budget.
Tip: Make it a goal to spend as little money in this category as possible and then use the funds for a different purpose, like building an emergency fund or paying off debt.
How to Determine Your Budget Percentages
Do Dave Ramsey’s recommended budget percentages work? How do you determine your own? To answer the first question, yes, Ramsey’s recommended percentages work for many people.
However, as previously stated, the Dave Ramsey budget percentages are just guidelines to help you get started.
To determine the correct budget percentages for you, start by analyzing your current expenses and comparing them to Ramsey’s recommendations. Here are a few questions to ask yourself while doing so:
- Which categories in my budget am I falling within his recommendations?
- Which ones am I not?
- What are my variable expenses?
- What are my fixed expenses?
- Which budget percentages will eventually increase? Why?
- Which budget percentages will eventually decrease? Why?
- What categories do I need to decrease my spending? How?
To help yourself answer these questions, consider your financial goals. For instance, if you want to become debt-free, you may need to decrease your spending in your food category by no longer eating out and cooking all your meals at home instead.
That said, if any percentages are way off, there are two possible reasons: your expenses are too high, and you need to cut back your spending, or Ramey’s recommendations are simply unrealistic for your situation.
For example, if you live somewhere with a high cost of living, like Los Angeles, spending only 25% on housing may just not be possible.
Dave Ramsey’s Recommended Budgeting Method
Now that you fully understand Dave Ramsey’s recommended budget categories and their percentages, which budgeting method should you use?
As seen here, Ramsey recommends using a Zero-based Budget with an allocated spending plan. Simply put, zero-based budgeting is a budgeting method in which you give every dollar of income a job, a goal, as Ramsey likes to say.
This means that when you budget each month, your income minus expenses should equal zero. However, this doesn’t mean you have zero dollars in your checking account.
It just means you’re being purposeful with your spending and not buying anything mindlessly.
At the beginning of each month, you know exactly what every single dollar will be used for, which should include personal and miscellaneous spending.
As for an allocated spending plan, it’s simply a plan to allocate your expenses by each pay period. For example, if you’re paid bi-weekly, you will budget twice per month.
Other Budgeting Methods
While Dave Ramsey recommends using the zero-based budgeting method, there are several others you may want to consider, such as the cash envelope system, the 50/30/20 method, and reverse budgeting.
Here is a quick breakdown of each:
Note: Many aspects of these different budgeting methods can be combined into one, which may be a good strategy.
Unlike Dave Ramsey’s recommended budget percentages, the 50/30/20 budgeting method is straightforward and less restrictive.
A 50/30/20 budget calls for 50% of your after-tax income to go toward your needs (necessary expenses), 30% toward your wants (discretionary expenses), and 20% toward savings and paying off debt.
Here is a look at these three budget categories:
- Needs (50%): Housing, food, transportation, utilities, and insurance
- Wants (30%): Recreation, personal, and miscellaneous, i.e., attending a concert, home decor, birthday gifts, etc.
- Savings (20%): Emergency fund, credit card payments, 401(k) contributions, etc.
The Cash Envelope System
Like the zero-based budgeting method, the cash envelope system is also recommended by Dave Ramsey.
The cash envelope system is a budgeting method in which you categorize your budget using envelopes and only pay for things with cash.
Simply put, you have an envelope for each budget category, and at the beginning of each month, you take out money and put it in your envelopes based on your budget percentages.
Once the funds run out in an envelope, you stop spending money in that category. This makes the cash envelope system an excellent budgeting method if you tend to overspend in specific categories.
If you’re worried about carrying around loose envelopes, there are many awesome cash envelope wallets you can use instead.
As its name suggests, reverse budgeting is turning your budget upside down. Instead of budgeting for things like housing and food first, you begin by budgeting for debt repayment and savings. This is known as paying yourself first.
Once you have paid yourself first, you then budget for your other expenses with your left over money.
For example, if your goal is to pay off $400 of debt and save $200 each month in your emergency fund, you allocate money for that first before covering other expenses.
Considering this, reverse budgeting is an excellent method if you want to reach your financial goals quickly, as they are the focal point of your budget.
Line Item Budgeting
A more traditional way of budgeting, line item budgeting, is simply when you group your expenses in a spreadsheet by category.
While it may seem like a tedious method to some, it is typically more detailed than other methods, which is beneficial for anyone trying to organize their finances.
How to Make a Budget
Now that you’re familiar with different budgeting methods and how to determine your budget percentages, it’s time to make your budget.
Here are 12 steps you should follow:
- Gather your financial paperwork: The first step to making a budget is gathering all your financial paperwork so you can analyze your income and expenses.
- Note your after-tax income: Using your paystubs from the last 3 months, determine an average of how much money you can expect to earn per month.
- Track your spending: Using bank statements, credit card statements, and receipts from the last 3 months, identify your spending.
- Calculate the difference: Are you making more than you’re spending or spending more than you’re making?
- Set financial goals: Following a budget is all about improving your financial situation. According to your answer to the question above, you should set specific financial goals.
- Choose a budgeting method (as seen above): What type of budget are you going to follow?
- Create a spreadsheet: Once you have chosen a budgeting method, you should create a budget spreadsheet to track your numbers.
- Use a budgeting tool (as seen below): If you’re not a fan of spreadsheets, you can use a budgeting tool like YNAB instead.
- Adjust your spending if necessary: Depending on your financial goals, it may be necessary to adjust your spending to reach them.
- Automate your savings: To make it easy as possible to stick to your budget, you should automate your savings. This is a budget category many people fall behind in.
- Review your budget: Your income and expenses will change frequently. Regularly review your budget to make sure you’re staying on track.
- Get help if needed: If you’re still having trouble creating and following a budget, there is both free and paid help you can seek out.
You can learn more about these steps here.
Best Budgeting Tools
Now that you know how to make a budget, here are budgeting tools that can help you manage it and stay on track:
EveryDollar (Ramsey’s Budgeting Tool)
It can’t be an article about Dave Ramsey’s budget percentages without mentioning his budgeting app first, right?
EveryDollar is Ramsey’s budgeting app that helps you “take the guesswork out of managing your money,” which follows the zero-based budgeting method.
On the app, you can customize your budget categories, line items, and expenses, set financial goals, and much more.
While EveryDollar does have a free version, it also offers premium features for $12.99 per month or $79.99 per year.
I’m sure we all have heard of Mint. Offered by Intuit, Mint may just be the most popular free personal finance app.
The app “brings all your financial accounts together online,” such as your checking and savings accounts, credit card accounts, and retirement accounts.
The purpose of Mint is to help you track your income, spending, and savings by providing you with a daily budget planner. The budget planner will suggest financial goals based on these 3 factors.
You Need a Budget (YNAB)
While You Need a Budget (YNAB) is the only tool on this list that has a monthly fee, it’s well worth it and is also one of the most popular budgeting apps.
However, YNAB is a tool specifically for budgeting that will “help you organize your finances, demolish your debt, save piles of cash and reach your financial goals faster.”
It does not provide other financial analyses as other budgeting tools do. That said, YNAB does offer a 34-day free trial to see if it’s right for you.
Founded in 2009, Personal Capital is a free personal finance app that allows you to “get a birds-eye view of all your finances.” On the app, you can track your net worth, investment portfolio, cash flows, plan for retirement, etc.
Personal Capital also offers paid wealth management services like tax-minimization strategies, which are provided by its financial advisors.
If you’re not a fan of budgeting apps and prefer pen and paper, you can use a budget printable instead. Budget printables are worksheets you can print and fill out each month.
There are printables for everything you can imagine, from budgeting to tracking your net worth.
That said, whether you use a zero-based budget, a 50/30/20 budget, or any other budgeting method, you should be able to find a free printable that works for you.
Final Thoughts on Dave Ramsey’s Budget Percentages
While Dave Ramsey’s recommended budget percentages are a great start, they are just guidelines and shouldn’t be taken as gospel. Your financial situation is different than others, and your budget percentages should reflect that.
For instance, if you’re currently paying off credit card debt, your ‘personal spending’ and ‘miscellaneous’ category percentages may be lower than someone who is debt-free.
While some category percentages will be intrinsically higher than others, your budget percentages should align with your financial goals.
That said, what are your thoughts on Ramsey’s recommendations? Are they realistic? How do his budget percentages compare with yours?