Regarding the best % rules for a household budget, Dave Ramsey has a lot to say. Furthermore, it’s difficult to contest his effectiveness in motivating millions of people to live within their means and pay off debt.
He is well known for his wealth-building, debt-paying snowball, and baby-step approach to money. If you’re a passionate personal finance lover and ardent saver, you’ve probably seen several budgeting percentages. Although they are only recommendations, they provide an example of how to manage a budget for each area of expenses.
In this article, we will look at the Dave Ramsey Budget Rule and look at some ways we can use that to better our finances.
What is the Dave Ramsey Budget Rule?
The Dave Ramsey Budget Rule requires that people set aside every dollar of their monthly income for a certain category, making sure that their total costs and their total income are equal. The Dave Ramsey Budget Rule is monthly income less monthly spending equals zero.
This implies that you would report $5,000 in costs if your monthly income was $5,000.
Using the example of a family of four with a take-home income of $5,000 per month who need part-time daycare, have employer-provided health insurance, and have paid off their non-mortgage debt, these are Ramsey’s ideal percentages across his 12 budget categories:
- Housing costs: 25%
- Saving: 15%
- Food: 12%
- Childcare: 12%
- Giving: 10%
- Miscellaneous: 5%
- Insurance: 4%
- Utilities: 4%
- Personal spending: 4%
- Lifestyle and entertainment: 4%
- Transportation: 3%
- Health: 2%
You locate a location for $200 if, after deducting costs, there is still money left over, making your net income equal to zero. You must change your spending patterns to return your budget to zero if your costs are higher than your income.
You may see Dave Ramsey‘s budget on his website, however, I originally came into him by reading an article about the 50/30/20 rule during my days at the university.
The 50/30/20 rule was really covered in that informative post as well, but we’ll talk about it later. Dave Ramsey came first. He gives daily sermons.
He preaches against debt on a regular basis and claims that living on the Dave Ramsey budget, which he refers to as “zero-based,” is one of the greatest methods to defeat this monster.
The difference between the Dave Ramsey budget rule and the 50/30/20 budget rule
There is a very thin line between the Dave Ramsey budget rule and the 50/30/20 budget rule and very often many people overlook it.
The goal of the Dave Ramsey Budget Rule is to balance your monthly income and spending to allocate your money to zero.
The 50/30/20 budget guideline, on the other hand, recommends allocating 50% of your income to necessities, 30% to desires, and 20% to savings. According to individual circumstances, Ramsey’s method offers precise percentages for a number of areas, including housing, saving, eating, childcare, donating, and more.
However, without providing specific category percentages, the 50/30/20 rule provides a more straightforward division of expenses into requirements, desires, and savings/debt payback.
Although the goals of both approaches are to help people manage their money wisely, they vary in the amount of freedom and depth they provide.
If you have any questions about the Dave Ramsey Budget Rule leave them in the comment section and I will be very happy to answer them for you.