Two Common Budget Calculations Explained
As a former school teacher of math, social sciences and economics it was not uncommon for me to answer the same question several times in a day from each of my classes.
Over the years I've noticed that there are a few standard questions which most students ask at some point about personal budgets.
In this article you will learn the answers to two popular budget calculation questions.
Question One: What is a reasonable amount to spend each month on the most common household expenses? The answer is: it varies widely depending upon where you live! Although that is a truthful answer, I also consider it a cop-out.
So I'll try to give you some very generic guidance for this question.
Remember that in different regions of the world, costs for products and services may vary widely.
In one area car insurance may be fairly inexpensive, yet in another region insurance costs may be sky high! Housing costs are a perfect example of this.
In the midwest, a $1.
5 million dollar house may be considered a mansion, but in California or Florida (near the beaches), the same amount of money may not buy anything more than a 2-bedroom apartment! Here are some rough guidelines on reasonable monthly budget amounts.
Here are the variables we will use: "expense" = EXP; "income" = INC.
The equation is easy: expense divided by income; multiplied times 100.
(EXP / INC) x 100 = percentage of income spent on category X.
Let's do a real life example, just to prove to you that this is really easy! Imagine that you spend $1400 per month total on housing costs, and you earn a total of $4500 per month.
How much of your income do you spend on housing? Easy.
Take $1400 divided by $4500.
The answer is 0.
3111 .
Multiply that by 100 to give your percentage.
0.
3111 x 100 = 31.
1%.
This gives us our percentage amount spent on housing - 31.
1%.
That's just a little bit high for most "normal" budgets.
Let's do one more example just to make sure you understand.
Imagine that you spend $120 per month on "Entertainment" and you earn $4500 per month income.
Take 120 divided by 4500 to get: 0.
2666.
Take 0.
2666 times 100 to get 2.
666.
This means you are spending 2.
6% of your income on "Entertainment" (which is about half of the normal budged amount).
Easy, right? There you have it.
Two of the most common budget calculation questions answered for you in under 10 minutes! Good luck on your budget and your financial dreams!
Over the years I've noticed that there are a few standard questions which most students ask at some point about personal budgets.
In this article you will learn the answers to two popular budget calculation questions.
Question One: What is a reasonable amount to spend each month on the most common household expenses? The answer is: it varies widely depending upon where you live! Although that is a truthful answer, I also consider it a cop-out.
So I'll try to give you some very generic guidance for this question.
Remember that in different regions of the world, costs for products and services may vary widely.
In one area car insurance may be fairly inexpensive, yet in another region insurance costs may be sky high! Housing costs are a perfect example of this.
In the midwest, a $1.
5 million dollar house may be considered a mansion, but in California or Florida (near the beaches), the same amount of money may not buy anything more than a 2-bedroom apartment! Here are some rough guidelines on reasonable monthly budget amounts.
- Housing and utilities should be about 25 - 30%
- Food costs should be about 10 - 15%
- Car / Auto costs should be about 10 - 15%
- Insurances should cost about 5%
- Savings and Investments should be about 10-15%
- Entertainment should be about 5%
- Clothing should be about 5%
- Medical expenses should be about 5$
- Childcare and Education costs should be about 1-8%
- Charity giving: up to you! (many churches push for 10%)
Here are the variables we will use: "expense" = EXP; "income" = INC.
The equation is easy: expense divided by income; multiplied times 100.
(EXP / INC) x 100 = percentage of income spent on category X.
Let's do a real life example, just to prove to you that this is really easy! Imagine that you spend $1400 per month total on housing costs, and you earn a total of $4500 per month.
How much of your income do you spend on housing? Easy.
Take $1400 divided by $4500.
The answer is 0.
3111 .
Multiply that by 100 to give your percentage.
0.
3111 x 100 = 31.
1%.
This gives us our percentage amount spent on housing - 31.
1%.
That's just a little bit high for most "normal" budgets.
Let's do one more example just to make sure you understand.
Imagine that you spend $120 per month on "Entertainment" and you earn $4500 per month income.
Take 120 divided by 4500 to get: 0.
2666.
Take 0.
2666 times 100 to get 2.
666.
This means you are spending 2.
6% of your income on "Entertainment" (which is about half of the normal budged amount).
Easy, right? There you have it.
Two of the most common budget calculation questions answered for you in under 10 minutes! Good luck on your budget and your financial dreams!
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