When we balance our budget, this is the template we use. We aren’t perfect every month, but this is where we start off. If we have a major expense or a vacation or something, the numbers will obviously look differently but this is our starting point every month.
The first 10% is tithing. We give God the best 10% we have. He gave us everything we have, so by tithing we are continuously reminding ourselves that God comes first.
If you aren’t a Christian and don’t tithe, then give a tenth of your income to charities your believe in. There are a lot of benefits to giving that don’t involve tithing. I don’t want to get into them in detail here’s a list that gives you 9 reasons why.
The next thing we do is save. We save around 20% of our monthly income. Right now we are saving up for a baby delivery in June so 20% of our paycheck is going into a savings account.
Assuming you have a fully funded emergency fund of 3 to 6 months and no extreme expenses in the near future (like a baby), then saving would look a little bit different.
15% would go into retirement. The other 5% would go into a different savings account to pay for things that you want in the near future. Things like a new car or a vacation. So you can still work on upgrading things when they break or just want something new.
50% (Fixed Expenses)
The next thing after we set money aside for tithing and saving is we need to live. This 50% is for the necessities. Our house is about 22% of our total budget, so almost 1/2 of our 50% we have set aside for a mortgage.
The other 1/2 of the 50% go to things like groceries, insurance, utilities, etc. If it’s a fixed expense that we need to survive it goes in this category. This might change depending on how expensive your town is, but strive for 50% in this category. It makes the rest a lot easier.
The last 20% is the fun stuff. This is going out to eat. This is our allowance. This is the fun money. By budgeting this in, you don’t feel guilty when you do it and you also know your limit. If you are a big shopper, you know how much you can do ahead of time. This gives us from freedom to have fun, but also limitations to it so we don’t go out of control.
What about debt?
So in 2017 my wife and I made it our mission to be debt free (besides the house) before the end of the year. So we had to sacrifice a whole lot! So how did we do that? We followed the baby steps, so we had $1,000 in savings and every extra bit we had went to debt.
So we had 40% of our income going towards debt. We sacrificed luxuries and saving so we could get all of our debt paid off. With that, it looked like this:
- 10% (tithe)
- 50% (living expenses)
- 40% (debt)
Bankers and other financial experts will say that a debt to income ratio of around 25% is ideal. I’d prefer a debt to income ratio of 0%. After consumer debt is paid off it makes the ratios much more manageable. Without debt, you can have more money going toward luxuries and not feel guilty about it.