This budget calculator is mainly for the planning of personal finance. All the income items are before tax values.
What is a Budget?
A budget is an estimate and planning of income and expenditure, and commonly refers to a methodical plan to spend money a certain way.
Generally, budgets are created to reach certain financial goals, such as paying off several credit cards, reaching a certain savings goal, or getting income and expenses back on track. There are many different reasons why people create budgets, and even more ways to go about doing so. While some people may prefer our budget calculator or our free budget template, others may prefer different methods. Modern technology has paved the way for many different budgeting software and apps. They all have their pros and cons, but the one that works best is the one that budgeteers will bother sticking with as best as they can.
How to Budget
Budgeting can generally be summed up by two things: living within your means and planning for the future. Successful budgeting usually involves having a detailed personal budget and adhering to it.
Living Within Your Means
Millennia-old religious teachings, countless online resources, and thousands of financial advisors over time have echoed the principle of living within your means. As simple as it may seem, many struggle to implement it successfully in their lives, as the statistic that eight out of ten Americans are in debt, shows. The reason why people are not able to adhere to the principle is generally due to reasons such as:
- Spending more than their income allows—The biggest financial blunder people can make is simply spending more than they earn, which over the long-run snowballs into more and more debt.
- Trying too hard to keep up with the Joneses—In consumerist societies, conspicuous consumption, defined as the spending of money on, and the acquisition of, luxury goods and services to publicly display economic power, is common.
- Overly relying on credit—This borrowed money allows people to live beyond their means temporarily. However, if borrowers are unable to pay back the borrowed money on time, they will probably find themselves in a sticky financial situation.
- Lacking knowledge—Not everyone is expected to be an expert on personal finance, and it is very possible that misinformation or lack of awareness can lead to people living outside of their means. As a result, it can be helpful to learn more about personal finance.
Planning for the Future
There is a reason why entire departments exist within many corporations for the sole purpose of budgeting and forecasting, as budgeting and forecasting are very important factors when trying to achieve certain financial goals. This concept applies to individuals as well, as it can be hard to achieve personal financial goals successfully without first planning for them. Proper planning can help predict future financial standing according to best estimate forecasts of income and expenses. Proper planning can also help with:
- Mitigating sudden misfortunes (everyone encounters expected and unexpected life events)
- Loading up on emergency funds
- Weather heavy-debt seasons
- Getting ready for the purchase of a new house, car, or other major purchase
- Properly managing investments
- Preparing for retirement, children, or education
- Purchasing appropriate insurance plans
A personal budget can help people live within their means and plan for the future. The Budget Calculator evaluates the components of a personal budget and highlights which specific areas need improvement.
We have created a free, basic, budget template for people who want to start budgeting their personal finances on a month-to-month basis. While it is not the most feature-packed budgeting tool in the world, it was created as a way for people to get motivated and started on their budgeting goals, then eventually move onto more intricate budget-planning tools. It can also serve as a supplementary tool to annualize net income as calculated based off of our Budget Calculator. There is also a computation for annualized expense-to-income ratio. Use our Budget Calculator every month, then update the figures in a saved version of our budget template. The annual net income will update accordingly. Please click here to download our free budget template.
Most budgeteers’ main source of income will come from their full-time or part-time job in the form of salaries or wages. The second largest source of income tends to come from investments and their capital gains, and there are various other methods of receiving additional income.
Obviously, anyone would most likely want a higher income. Aside from more consumption, conspicuous or otherwise, a higher income allows for more flexibility when it comes to expenses; a month of extreme spending can be quickly rectified by a high enough income. While achieving a higher income is easier said than done, it is generally accomplished through several main avenues: looking for a new job, attaining higher education such as additional degrees or certifications, the development of new skills, or networking with the right people. For some budgeteers, a higher income can come through investment income, though this method only tends to work in the long term. In some situations, a second job may be necessary to make ends meet.
A main source of income for most Americans in retirement is Social Security. It is important to remember that Social Security payments can only be received as early as age 62. Please visit any of the calculators below for more specific information or calculations.
Housing & Utilities
Most budgeteers will normally have rent or mortgage costs as the bulk of their monthly housing expenses. A general rule of thumb says housing costs should be no more than 30% of monthly gross income, give or take. Any budgeteer who finds that their housing costs are significantly more may find it worthwhile to consider more cost-effective approaches to housing. This may include refinancing to a lower rate, relocating to a more budget-friendly location, or down-sizing to a smaller home if possible. They may also consider renting out an extra room if they have one for rental income. Smaller ways to save on housing costs include transitioning to new, smart technologies that generally tend to be more energy-efficient such as programmable thermostats, energy-efficient lightbulbs, and the installation of solar panels. Please visit any of the calculators below for more specific information or calculations.
For most budgeteers, the bulk of transportation expenses will probably be their car payment, or auto loan. There is generally much leeway to reduce this expense, as retail prices of different cars vary greatly. Choosing to purchase a car within a specific price range will go a long way towards meeting the financial goals of a budget. As a general rule of thumb, monthly car payments should amount to less than 10% of gross income. Other transportation expenses generally include fuel, maintenance, and insurance. There are a number of different ways to try and cut down on transportation expenses. For one, depending on region, car ownership is not an absolute necessity, and there are alternative transportation options. If possible, use public transport, carpool, bike, or walk instead. Not only can these help a person meet their budget, but they are also eco-friendly and some can provide exercise. Maybe consider owning a more fuel-efficient vehicle. If car ownership is a must, routine upkeep can help maintain the car in optimum condition. This may include properly inflating tires, performing oil changes, tuning the engine. Also, try to stay educated on traffic laws and operate motor vehicles in a legal manner; not only will traffic violations result in fines, but they can also cause a hike in auto insurance premiums. Car owners who find that they are paying excessively for fuel may want to change driving habits such as aggressive acceleration. As a rule of thumb, try to keep total transportation costs below 15% of income. Please visit any of the calculators below for more specific information or calculations.
- Auto Loan Calculator
- Cash Back or Low Interest Calculator
- Auto Lease Calculator
- Gas Mileage Calculator
- Fuel Cost Calculator
Other Debt & Loan Payments
Credit cards carry negative connotations regarding budgeting because people tend to use them to spend more than they can afford. It is important to remember that credit cards are not an endless resource, and that they must be repaid in a timely manner to avoid large interest payments.
Although credit cards can potentially exacerbate debt, when utilized under strict control, credit cards can be incorporated into a budget as a way to save on purchases and even build good credit. However, particularly for those who have constrained budgets, it is important to use credit cards sparingly to avoid large interest payments that could strain budgets even further. Please visit any of the calculators below for more specific information or calculations.
Important: Make sure not to double dip when accounting for student loans, personal loans, or credit card debt in the budget. For instance, do not add $20 to both Credit Card and Meals Out for the same dinner. This applies to student loans and tuition and credit card balances being carried month-to-month.
- Credit Card Calculator
- Credit Cards Payoff Calculator
- Debt-to-Income Ratio Calculator
- Debt Payoff Calculator
While the expenses associated with daily living may seem insignificant when compared to the other categories, they can discreetly add up. A category that has lots of wiggle room in improving a budget is “Meals Out.” Cooking at home is generally significantly more cost-efficient than eating out, and depending how often a person has meals out, eating in more often can potentially reduce living expenses by a large amount.
“Food” and “Meals Out” are part of the expenses breakdown in the results. In general, this combined expense should be less than 15% of income.
In the US, healthcare costs about $10,000 a year on average for each person. Unfortunately, this is an expense that generally has little pliability in a budget. However, there are some strategies that can be used to potentially reduce healthcare costs:
- Don’t smoke, eat healthier, get plenty of sleep, and exercise regularly.
- Use in-network doctors, hospitals, and facilities.
- Regularly re-assess health insurance needs.
- Use tax-advantaged accounts that are created for healthcare spending. In the U.S., this is called a Health Savings Account (HSA).
- Buy generic drugs when possible.
- Seniors can try to rearrange their environment in order to reduce the risks of falling, since falling is one of the most common events that leads to a large healthcare bill for the elderly.
Children & Education
It is often stated that an investment in education is the best investment a person can make. Statistics show high correlation between higher degrees of education and higher income levels. This category probably has less to do with scaling back, but more to do with planning for it correctly. Keep in mind that in most developed countries, student aid from government tends to be very accessible so that no matter a person’s financial standing, they have the ability to attain higher education. Budgeteers struggling to repay multiple high-interest student loans may consider consolidating them.
Having a child is generally one of the costliest (and time-consuming) expenses for any adult, so it is important to plan for this financially. Please visit any of the calculators below for more specific information or calculations.
Savings and Investments
In healthy budgets, excess money tends to be allocated for the future, which includes savings or investments for retirement, emergency funds, or college savings. It is important for budgeteers not to overlook the importance of an emergency fund; having one can make or break being in debt or not. If savings and investments are managed well, it is not uncommon to see average income earners retire at earlier ages. As a general rule of thumb, it is recommended for the total of this section to be 15% or higher. Please visit any of the calculators below for more specific information or calculations.
- 401K Calculator
- Roth IRA Calculator
- IRA Calculator
- Social Security Calculator
- Retirement Calculator
- Pension Calculator
- Savings Calculator
This section of expenses is generally the most pliable in a personal budget relative to other categories such as housing or savings. It includes a number of expenses that could fall within the blurred lines of “needs” and “wants.” This leaves a lot of room for personal discretion, which can be a good or bad thing. Bad in that over-expenditure can wreck a budget, but good in that moderation can ease stress and potentially heal a budget. Important decisions regarding whether or not to take an expensive trip to the Maldives, whether to attend a Super Bowl in town, or whether it’s worth spending large amounts on an art collection go a long way towards achieving financial goals. Lavish vacations, loving pets, and fulfilling hobbies are all great ways to invest in oneself, only if financially feasible. For anyone looking to fix a faltering budget, this section should be the first area to evaluate.