How to Budget Your Money like Dave Ramsey
Dave Ramsey may not be everyone’s cup of tea, but he, without a doubt, made budgeting practical, easy to follow and understand. Which for “non-finance” people is super enticing!
One of the first times I remember hearing about Dave Ramsey was back when I was fresh from the nest and living on my own. I remember searching for “easy ways to budget money“.
While I knew budgeting was important, I wasn’t too sure about where to start or even what best practices looked like!
Money is hard. Budgeting is hard.
How can money be made easier? Let’s jump into his basic budgeting bumpers (Alliteration for the win!) and plan for success with money.
Table of Contents
- Why Do I Need a Budget?
- Budget Percentages According to Dave Ramsey
- A Sample Budget
- How Do I Determine the Right Budgeting Percentages?
- Which Budgeting Method is Right for Me?
- Tips on Sticking to My Budget
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Why Do I Need a Budget?
No matter what your financial situation you need a budget. Budgeting is the financial roadmap for your life. Budgeting can be as easy or as complicated as you want to make it. Budgeting helps to ensure you reach your financial goals and can help keep you or get you out of debt.
Budget Percentages According to Dave Ramsey
New to budgeting? Maybe you aren’t new to budgeting, but have previously been unsuccessful?
Dave’s budgeting percentages are a great jumping off point to help get your budget on track and prioritise your spending.
- Charitable Gifts 10–15%
- Saving or Debt Repayment 10–15%
- Housing 25%
- Utilities 5–10%
- Food 5–15%
- Transportation 10%
- Clothing 2–7%
- Medical/Health 5–10%
- Insurance 10–25%
- Personal 5–10%
- Recreation 5–10%
Dave Ramsey really promotes giving. Whether it’s through tithing, donations, or supporting certain causes– giving. If this is something you want to prioritise, he recommends spending 10-15% of your total net income.
SAVINGS OR DEBT REPAYMENTS
The other side of this coin is getting aggressive with paying down debt.
The first step in Dave Ramsey’s baby steps is building a $1,000 Emergency Fund before getting down to the business of wrecking your debt.
If you have no debt you will need to build your Emergency Fund up to cover 3-6 months expenses.
Once you’ve covered your full Emergency Fund, you get to move on to the wealth building.
How much should you be saving?
10-15% is the recommendation, but depending on your goals, that may look a little different.
One of my absolute favorite posts is from Mr. Money Mustache and his post about retiring early and the surprisingly simple math on how to do it. Super motivating!
Food is often times the area in your budget where things start to veer off course. Eating out gets expensive, quick coffees, vending machine snacks, all add up rather quickly.
Dave recommends 5-15% of your budget goes to food. Cost of living, dietary restrictions, etc. should all be considered when coming up with where you should be on this spectrum for spending.
Eating in or eating out it doesn’t matter as long as it’s accounted for in this budget line.
Utilities are things like your electricity, water, trash services, sewer, cell phones and cable/internet. Dave recommends 5–10% for all monthly utilities.
How much should I spend on rent? What kind of mortgage can I afford?
Dave says, no more than 25% of your take-home pay
The housing category covers your rent or mortgage plus property taxes, HOA fees and PMI.
There are a few websites like Mortgage Calculator who make it super easy for you to see what you can actually afford. Just remember to include ALL housing expenses and to keep it below 25%.
I live in a very high cost of living area and we chose to live well below the 25% benchmark as it was an easy way to give us more wiggle room in our budget.
Yes, we sacrificed a bigger place and our children are sharing rooms, but it’s alleviated the stress of taking us to the ceiling of our budget!
Transportation should account for 10% of your monthly income. Transportation covers car payments, registration fees, maintenance, repairs, and gasoline. Depending on where you live this could also include train, bus or subway fare, as well as parking.
The recommendation for a clothing budget is 2-7%. While clothing is a necessity, that doesn’t necessarily mean it has to be expensive! Check out my list of over 100 money saving tips— clothing included— for ideas on how to save yourself more money!
Dave recommends allocating 5–10% of your budget to health expenses. Health insurance, medications, co-pays, all fall here. Depending on what life throws at you, this is one category that could see quite a bit of month to month fluctuations.
In the event that their is a significant health event, starting a sinking fund for medical expenses could be a great way to offset the uncertainty of medical expenses.
There is absolutely nothing sexy about insurance. It feels about as satisfying as buying socks. However, it is an absolute must! The recommendation here is to keep spending here between 10-25%.
Auto insurance. There are a few states that don’t require auto insurance, but most do. Help protect yourself and your assets with auto insurance.
Homeowner’s & renter’s insurance. All of your worldly possessions- together, under one roof. It’s a great idea to give one of the most significant parts of your life, that layer of protection– just in case.
Life Insurance. Benjamin Franklin said there are only 2 certainties in life: death and taxes.
Life insurance is a financial protection policy for your family that gives them a tax-free cash payment if you die while the policy is in effect. This can cover funeral expenses, outstanding debts, or help to support your family.
Dave recommends 5–10% of your budget here.
Going to the movies, buying books, and vacations– this is the category for those types of expenses.
The recommendation here is between 5-10%.
Child Care, tuition, hair cuts, fun money. All happening here.
You are obsessed with Chip and Joanna and need ALL THE THINGS from Magnolia Market (Preach!). This is where the money for your fall scented candle or those super cute votives comes from.
Want a new handbag or shoes? You want all the things from the Container Store (#nojudgements)– this is where you make it raaaaiiiinnnn!
I’m a big believer in this spending category. While you do need to prioritise spending and have a financial plan in place. Budgeting is kinda like dieting, it’s 3x harder to stick to the diet without that cheat day to give you some much need relief from your cauliflower pizza crust.
So, personal spending. Don’t be in a huge rush to cut this back.
I find I’m far more likely to overspend when I don’t get this little bit of fun money. Might as well give over to the controlled burn so things aren’t blazing outta control. Ya know?!
A Sample Dave Ramsey Budget
So what does this look like in practice?
Let’s look at a family with a take home pay of $30,000. Check out this budget pie chart to take see what your spending would look like.
And now with the amounts budgeted based on the percentages:
As you can see based on the pie chart and the budget snap shot, these give you a solid idea of what your budget could look like based on your income.
If you are interested in jumping in, check out the Dave Ramsey Budget spreadsheet I made in Google Sheets. To get yours, check out my resource library where I have tons of great resources for budgeting!
If you are more interested in the Dave Ramsey Budget Forms and Worksheets, he has them earmarked on his site.
Now for a super important follow up question– are these percentages right for you?
How Do I Determine the Right Budget Percentages?
While Dave’s recommended budget percentages are a great jumping off point– a budget is a very individualised piece of your financial picture.
For example, maybe you have spousal support or child care to factor in. Perhaps child care costs in your area are crazy high.
I remember when we lived in New England, sending our daughter to preschool was going to cost as much as our rent. Which is insane!
In case the suspense is killing you, I found Homeschool curriculum and worked with her an hour or so a day on my own and joined a bunch of play groups. Frugal me just couldn’t justify that much money for my then 4 year old. Nope!
The best way to start out when you are trying to make your own budget would be to start with your fixed expenses (rent/mortgage payment, tuition, etc.) and start planning out from there.
If your rent is eating up more than 25% of your budget, you are going to have to shrink some other areas to compensate.
An easy way to determine what you can expect for certain budgeting categories is to evaluate your spending by looking at the last 3-4 months spending to see where your money has been going.
Some banks offer this as a built in feature, but if yours doesn’t there are tons of budgeting apps and software that can do the same thing. I personally use Mint and love it. I tried You Need A Budget, but it just didn’t work for me, but I know tons of people who love it. Another program that I used previously and thought was pretty user friendly was Quicken software.
I purchased it through Amazon, downloaded it and imported everything in. Pretty easy to use overall.
What Do I Need to Consider When Building my Budget?
Another important consideration when building your monthly budget is to take into account your monthly goals.
Are you saving for a down payment on a house? Trying to pay down debt? Need a vacation?
Incorporating these goals is an important step to stop you from accumulating more debt (throwing it all on a credit card) or just moving you toward achieving those goals.
Experience has shown me, that I’ve been far more successful when I have a specific plan for every dollar rather than just throwing a lump sum in my savings and then calling it good.
Which Budgeting Method is Right for Me?
Once you have your budgeting percentages set, the next step is to select which budgeting method you are going to use to rock your monthly budget and finally take control of your money.
There are many different types of budgets, but here are the most popular.
The traditional method to budgeting is probably what you would consider as the “classic” form of budgeting.
With line item budgeting, you are going to categorise all your spending and really get down into the nitty-gritty details of your spending.
This is probably the most tedious (because it’s so detailed), but some people really need that in their budget.
Are you looking for a simpler approach to budgeting? Harvard bankruptcy expert and U.S. Senator from Massachusetts, Elizabeth Warren may have the answer you have been searching for– the 50/30/20 budget!
The premise is simple: You set 50% of your after-tax income on your needs, 30% on wants, and 20% goes towards savings or debt repayment.
Cash Envelope Budgeting is just what it sounds like.
Popularised by personal finance guru, Dave Ramsey, you adopt cash only spending.
You still have budgeting categories, but these categories are set up in envelopes with the corresponding amount of cash inside.
A zero-based budget, simply put, is when your income minus expenses equal zero. The big difference between this budgeting method and other methods, however, is that you budget based on last months income.
One important distinction: Zero-based budgets do not mean you have zero dollars in the bank at the end of every month. It means that you have given every dollar a job. You aren’t leaving money on the table.
Having prioritised financial goals in place is a great starting point to look to for “money jobs”!
DIY BUDGETING METHOD
None of the budgeting methods sound like a perfect fit? Why not take the parts that work and put them together to make them work for you?
As I mentioned before, budgeting is very individualised, do what works for you! If you aren’t sure what that looks like, trial and error will not lead you astray.
And to be honest, any budgeting system, even if its not right for you, will still be better to start with than winging it from month to month.
So mix and match or make your own. The important thing is to have a plan for your money.
Tips to Help You Stick to Your Budget
Staying on budget without overspending can be a struggle, ya’ll! But here are a few tips to help you stay on track!
- Pay Yourself First. Make sure you prioritise your savings. You will always find reasons so spend money on something else you “need”, but don’t short change your future because Target’s clearance is out of control with all of the deals.
- Give yourself a weekly budget. Making the switch to knowing my weekly budget made it so much easier to wrangle in overspending. I love weekly budgeting so much, I wrote an entire post about it. If overspending is a worry for you, check it out! Dave Ramsey has version of this, but he calls it an allocated spending plan, complete with free printable forms.
- Plan ahead.This isn’t just a good idea for food, although shop with a list! This includes big purchases, Sinking Funds for irregular expenses (If you don’t know what these are, check it out today), next month’s expenses, short term and long term needs. The best way to avoid a problem is to get ahead of it.
- Make a price book. Start keeping track of items you buy most frequently and how much you are paying for them at various retailers. You’d be surprised how much money you can save!
- Track consistently. Knowing where your money is going is huge when it comes to budgeting.
- Emergency Fund. It is not a matter of if, so much as a matter of when. Life happens– make sure you are prepared.
- Evaluate expenses. Maybe it’s time to trim the fat: subscription services, cable tv, pricey car payment, etc. The tighter the budget, the more creative you might need to get to make sure you are staying on track.
- Treat yo self. And by that I mean, try to find some small fun money to enjoy yourself occasionally. I think its important for mental health and the ability to stick with it if you get a small splurge occasionally.
- Pick up a new free hobby in lieu of spending money. Going for walks in the park, taking up running or yoga. Youtube has all kinds of tutorials– maybe you can learn to play and instrument or paint. Journal or write a books. There are tons of possibilities!
- Set up auto-draft. Auto-draft is a great way to make sure your bills are paid on time. The trick here is to keep track of what you have automated and what you still have to manually pay. The other side of this is that you can also automate savings. At my husbands job, we can have savings pulled before the money ever hits our account, so we don’t even miss it. It made a huge difference in how quickly we were able to save towards our goals.
- Find an accountability partner. My sister has always been a thrifty Miss. I remember when we were little she would save every penny she ever earned and that has translated into her adult life. She is the person I call when I need someone to talk me down from buying something I really, really want but know that I shouldn’t have. Find your person, it really helps knowing you’ve got that little extra layer of protection.
- Leave your credit card at home. It’s 100% easier to do your shopping and stay on budget when you don’t bring anything extra. I’m never more nervous than when I’m shopping in the grocery with my cash for this weeks groceries. I’ve got my calculator out and my 10% buffer for math errors and tax. Ha!
- Self-imposed waiting period. I read an article once that said most shopping is emotional in some way or other. By forcing yourself to wait, you can do away with impulse purchases PLUS if it’s something you might need– it gives you time to shop around!
I always love hearing from you guys. Let me know how this worked for you!