How Do I Create an Ideal Budget?

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An ideal budget is something everyone strives for, but circumstances can make reaching that ideal allocation difficult at times. While different people from different regions of the country will tell you what they believe is an acceptable balance of your monthly income, where is that perfect middle ground? Pulling together data and suggestions from experts, we found there may be a magic number after all.

The Nest believes that they have cracked the formula for ideal spending each month:

  • Housing – 34%
    • 60% goes towards rent costs, mortgages, real estate taxes, and homeowner’s taxes; the other 40% goes towards utilities, maintenance, and new items for the home
  • Transportation – 17%
  • Food – 13%
    • At-Home dining accounts for 60% of cost while eating out accounts for 40%
  • Savings – 5 to 10%
  • Life Insurance and Retirement – 10%
  • Healthcare – 6%
  • Cash Contributions – 4%
  • Personal Expenses – 16%


However, the folks at LearnVest firmly believe in the 50/20/30 rule of budgeting:

  • 50% of your monthly income should be set aside for fixed costs that repeat every month, such as rent, insurance payments, bills, and subscriptions to services. This amount is the easiest to plan for because it is reoccurring and typically does not change that much.
  • 20% of your monthly income should go towards financial goals you have set for yourself and go towards helping you to become financially secure; these goals include paying down debt, investments, saving up for your retirement years, and a rainy day fund.
  • 30% of your monthly income should be reserved for flexible spending on things that can vary from month to month like gas, food, going out, entertainment, and miscellaneous things from the store. It is highly suggested that you wait until you have allocated your total funds for both your fixed costs and financial goals first to see what you can use for flexible spending.


Since everyone’s individual situations are different, it can be very difficult for some people to make these ideals a reality. For example, people who live in the more expensive housing markets like New York, Miami, or coastal California are virtually guaranteed to spend between 40%-60% of their monthly income on housing costs because of the high property values. This large imbalance has equally large implications on the ratios for everything else in their budgets, so reaching the ideal budgets listed above seems only possible for the wealthiest of residents.

Another hindrance to achieving the ideal budget is unexpected excessive expenses, such as a car dying or an extreme medical emergency. Such sudden expenses can put a real dent in your overall budget and can really throw things off for long time to come if not indefinitely. This is partially why allocating money towards a rainy day fund can be crucial if something goes wrong in your daily life.

The bottom line is that you must always find your own ideal budget that works for you, because your financial factors may differ from that of others. To help you out, CNN Money has created their own budget calculator to help you figure out what your ideal budget is. It’s always better to know where to start with your money that wasting it playing by ear.