Rather than allocating strict and rigid dollar amounts to every line item in my budget, I prefer to use a more flexible system called percentage budgeting. Percentage budgets involve setting a target percentage of total spending for each expense category, for example, 55% of all income designated towards expenses.

There are a ton of ways to break up percentage budgets. You can include all the regular line item budget categories and give them a percentage amount; Housing, transport, healthcare, etc. But I prefer to keep things simpler by implementing larger, more all-encompassing categories, allowing for more variation and flexibility.

Popular Percentage Budgets



The Jars Money Management System by T. Harv Eker

55% Required Expenses: The necessities. Housing, food, insurance payments, loan payments, etc

10% Savings: Emergency Fund contributions and/or contributions to short term savings goals.

10% Financial Freedom Account: IRA contributions, stock picks, money used to create passive income streams.

10% Education: Taking classes, reading books, learning skills, etc.

10% Play: Vacations, nights out, entertainment, etc.

5% Give: Gifts and donations.

The 60/20/20 Budget

60% Required Expenses.

20% Savings and Future Financial Goals.

20% Wants/ Splurge.

The Balanced Money Formula by Elizabeth Warren

50% Required Expenses.

30% Wants/Splurge.

20% Savings and Future Financial Goals.

You can play with the percentage points here and there, break it up as much or as little as you like; as long as you’re accounting for your needs, wants, and goals, you’ll be able to fund all three all the time.

Percentage Budgets: A Guideline for Living Within Your Means

One of the great things about the percentage budget is that it gives you a guideline for living within your means. If you want to know how much you can afford to spend on your basic necessities- rent, food, transit, taxes, insurance, etc. Just figure 50-60% of your income.

If you overload your required expenses beyond the 50-60% budget designation, either with an expensive apartment or a big car payment or otherwise, you won’t have anything left for your wants and future goals. Percentage budgets are a great way to realize that trade off. Keep your required expenses low and you have more flexibility to fund your wants and goals. Who knows, maybe you’ll even be able to reduce your expense budget below 50%, freeing up even more money to save or play with.

To keep your expenses within the 50-60% range of your income, particularly on a low income, you have to master mindfulness and conscious spending. If you only bring home $2,000/month, that means you need to figure out how to live on $1,000. If you’re living beyond that 50-60% of your income range, or even 70% if you’ve given yourself a little more breathing room on the expense end, it’s a sign that you either need to cut your cost of living or earn more.

Percentage Budgets and Variable Income

As someone with an incredibly variable income, percentage budgets help me make sure I’m continuing to fund all my goals all the time, even when income is inconsistent. For instance, when I get a big, unexpected pay day, let’s say a tax refund of $5,000, I don’t think of it all in one big chunk to spend immediately on a vacation or new laptop. Rather, I apply my percentages, divide it up, and then decide what I’m going to do with it when I see how much there is to spend in each category. 20% of $5,000 still leaves me $1,000 to splurge with, even after contributing to savings and expenses. It’s a win-win-win!

Have you ever tried a percentage budgeting system? How do you break up your categories of spending?