Recommended Budget Percentages to Stay Debt Free

No question the most important thing that you can do to manage your money responsibly and achieve your financial goals is to have a solid household budget. However, it isn’t enough simply to assign spending limits and hope for the best.

“Budgeting accomplishes a number of things. It sets up a framework for you to spend within your means, ensuring that you’ve got the adequate cash flow to cover your costs. It also helps you to avoid taking on more debt and helps you to identify a path forward to get yourself out of your current debt, ” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

Struggling with debt? It might be because you don’t have a budget. Or perhaps you do have a budget, but it isn’t comprehensive enough to help you keep your cash flow going and get you out of debt. One of the tools you acquire in working with us is learning about the importance and the strategies behind budgeting. Call one of our trained credit counsellors at or check out our free online debt analysis.

Here are some helpful hints on how to set up a good budget:

Reasons why budgets fail

When you are setting up your budget, be mindful of some common reasons why budgets are not successful so that you can avoid the same problems. One of the most common reasons that budgets fail is that they are unrealistic. Kudos to you if you have an aggressive plan in place to pay down your debt or ramp up your savings. However, remember that it usually takes a lot of time to achieve this goal and you need to live your life in the meantime. It can be hard to stick to a budget that is too stringent over the long term.

It is important to revisit your budget at least on a quarterly basis to make sure that your allocations make sense and are realistic for your lifestyle.

“The other most common reason that budgets fail is that are not specific enough. This means not only breaking down your line items very thoroughly, it also means that you need to apply certain percentages of your incomes towards different categories as a strategy to get you where you want to be, financially. Track your spending so that you can be sure that your targets are accurate,” says Schwartz.

Factors that influence your spending

It can be tricky to set up a budget from scratch. How much of your income should be going towards different expenses? How do you know what is smart? There aren’t any “official rules” on how to allocate your budget percentages, but it can be helpful to understand some of the factors that may influence your eventual budget.

For example, consider the cost of living where you live. For some cities, housing and/or childcare costs are going to eat up the lion’s share of your income, simply because those costs are so high.

Are you single or married? Do you have children? How many? Do you have to commute to work? The amount of money that should be allocated to various spending categories will be different for different people, dependent on these items below and other factors.

The necessary line items

Before you start to allocate budget percentages, it is a good idea to set up your expense categories. Again, there is a variation on these depending on your personal situation, but generally, you should include:

• Housing
• Utilities
• Groceries
• Health/Medical
• Insurance
• Savings
• Clothing
• Childcare
• Transportation
• Debt

As you can see, there are several areas that depend on your income. If you are carrying substantial debt, you can see how you can quickly get in over your head covering debt payments when there are so many other things to pay for. As interest accumulates and the debt increases, it will swallow more and more of your take-home pay until you can’t stay above water.

Advice for budgeting percentages

The most common approach in budgeting has to do with directing your money towards needs and wants. Have you ever heard of the 50/30/20 rule? What this means is that you should direct 50 percent of your take-home pay towards your needs (i.e. housing, transportation, groceries, medical, etc.); 30 percent of your income should go towards “wants” (which are things like clothing, entertainment, technology, travel etc.); 20 percent of your monthly income should go towards servicing your debt and building up your savings.

Tweak the percentages to meet your needs. Like we mentioned before, you should consider what factors in your personal situation will influence how much you ultimately will assign to each category.

A side note- it is essential that you have both debt payments and savings, even if your primary goal is to pay down your debt. It may make more sense on the surface to pay down your debt entirely and then look at savings, but accumulating savings is actually an important part of becoming debt-free. Having savings on hand in an emergency could ultimately keep you out of debt or send you spiraling back down again.

Ways you can reduce your costs to meet your targets

Although “needs” and “wants” pretty much cover off how you allocate your costs, it is still a good idea to cut back your costs wherever you can so that you can stay within your spending targets.
Under the needs category, how much of your income does your housing eat up? What about downsizing or renting out a room in your home to reduce costs? If your transportation costs are high, considering carpooling or walking wherever you can. For groceries, meal plan, eat meatless a few times a week and use coupons.

If you are having a hard time stretching your income to meet all your needs, especially if debt payments are costing you a lot, aggressively cut back in the wants category. Although this may seem like a sacrifice, it is short term until you have adequate cash flow to cover all of your costs.
Learn about how budgeting can get you out of debt today. Call us at or visit our free online debt analysis.