How to Allocate Your Income (and Keep Spending Under Control)

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piggy_bank_tighten_beltIf you find it difficult to determine how to allocate your income to save money and cover ever day living expenses, this article is for you. I’m going to give you some broad saving and spending percentages that you can use when preparing your household budget and monitoring it against your actual monthly expenditures.


The percentages are not etched in stone because in some parts of the country certain expenses will be higher than in other parts. For example, housing costs as a percentage of net income (take home pay) will be higher in New York City than it is in rural Topeka, Kansas.

So feel free to make reasonable adjustments, but keep things real. And once you have the percentages in place, you’ll be able to gauge where your finances stand on an ongoing basis. Here are the general guidelines (give or take a few percentages here or there) that most financial experts would agree are reasonable:

Saving (10%-15% of your take home pay): Every financial expert will tell you that the first amount of money that should come out of your pay check should be directed into your saving and investment accounts. This is money that can be used for your retirement, to buy a home or car, or to have available in case of a catastrophic event.

Housing Expense (25%-30% of your take home pay): This would include rent or your home mortgage. Now, in the case of your mortgage, the upper percentage could go as high as 35% if you add in homeowner’s insurance, property taxes, and home maintenance. Living in an expensive city may also play a role.

Food (10%-15% of your take home pay): This includes the food you eat at home as well as what you spend at restaurants.

Transportation (15%-20% of your take home pay): This includes your car payment, auto insurance, gasoline, maintenance, and repair.

Utilities (10%-15% of your take home pay): This includes electricity, water, heating oil, telephone, etc.

All other (15% of your take home pay): This would include things such as health insurance, clothing, prescriptions, etc.

So the first thing you should do is tally up how much you’re spending on the above categories. It’s okay to breakdown a broad category into several sub-categories with smaller percentages. You can even follow our suggestions for creating a household budget by clicking here.

But the point to doing this is to give you a starting point for identifying any obvious problem areas. It also provides a big picture perspective for you to think about how your money is being spent.

For example, if you aren’t saving 10%-15% of your take home pay, it probably means that one of the other categories is draining your wallet. But the problem area will become quite clear once you calculate the percentages.

So that’s it for how to allocate your income. Let the percentages be your guide to getting or keeping your finances on track.

Now, before you move on to another article on this site, leave a comment below. Also, share which spending category is getting too much of your money. Maybe I’ll write an article that will help you get that specific area under control.