Rachel Cruze: 6 Tips for Setting Budget Percentages and Sticking to a Budget That Works for You

Image of Rachel Cruze smiling confidently
©Rachel Cruze

Financial experts are always telling you to create a budget, but advice on how to allocate your money can vary widely. You may have heard of the 50/30/20 rule on budgeting, the 60/40 method or something else altogether and are not know where to start.

Fortunately, financial expert Rachel Cruze helps you break down budget percentages into granular detail, making sure you’re really on top of your finances. Before you get into the nitty gritty, she suggests you take the following steps.

Save $1,000 Immediately

Unsurprisingly, one of Cruze’s first pieces of advice is to save. More specifically, to put away $1,000 ASAP as a kind of emergency fund starter. You don’t need to put more away — not just yet, anyway.

Pay Off Debt

Next, you should pay off your debt, which she admits is the hardest step of them all because it can take the longest and feel the most discouraging when your goal is to save money. However, with dedication and a positive attitude, she says most people can achieve this.

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Build a Full Emergency Fund

Once you’ve paid off your debt, you reward yourself not by spending, but by funding three to six months of expenses in an emergency fund. She doesn’t suggest a set strategy for how, or how soon, you can expect to build this fund, but knowing the goal is three to six months worth of expenses will give you a target and a method for carving out unnecessary spending in your budget.

Invest in Retirement

If you’ve done the first three steps, you should begin to put 15% of your income into retirement accounts, but only if it doesn’t compete with your ability to get out of debt. Debt repayment should take priority. Still, it’s good to always put something toward retirement, especially if you have any kind of employer matching program.

Allocate Budget Percentages as Follows

For other key expenses you need to budget for, Cruze breaks it down like this:

  • Food
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Food is going to be one of the bigger line items in your budget, but Cruze doesn’t say what percentage you should allot. Instead, she recommends you pay attention to what you plan to spend on food versus what you actually spend and note discrepancies to cut out excess, or be more realistic in your planning. Also, save money by not dining out.

  • Utilities

Utilities are not negotiable most of the time and also don’t have a neat suggested percentage. While you can certainly pay attention to how you’re using electricity or gas, and adopt strategies to become more energy efficient, everyone has to pay these bills. So, look at what the averages are for your county for electricity and gas and see where you fall.

  • Housing

When it comes to housing, Cruze does have a hard percentage to adhere to — no more than 25% of your net income (take-home pay). That should include all the rent, mortgage, taxes, insurance, HOA fees and so on. Additionally, baby step No. 6 is paying off your mortgage early by making larger payments, which saves you interest over time.

  • Transportation

Many factors will affect how much you should budget on transportation, such as how far your commute, what public transportation is like, and whether you drive a gas or electric vehicle. But the average household spends the following on transportation annually, according to Cruze and Ramsey Solutions:

  • $2,148 on gasoline, other fuels and oil ($179 a month)
  • $452 on other forms of transportation (nearly $38 a month)
  • $975 on maintenance and repairs (about $81 a month)
  • Health 
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Healthcare costs can be among the most outrageous in a budget. Most people budget for the cost of their healthcare insurance, plus any out-of-pocket necessities such as co-pays, medications and other essential treatments not covered by your insurance. Cruze reported that American households in 2021 spent $1,070 total (about $89 a month) on medical services and $498 ($41.50 a month) on medicine.

  • Insurance

Cruze insists that you absolutely need to have four types of insurance: healthcare, home, auto and term life. However, not everyone may be able to afford whole life insurance or other kinds like liability, disability, and more. Again, while she doesn’t give a strict percentage, you want to spend as little as you have to for the maximum coverage you need.

  • Child Care

For families with children, child care may be essential, and it does not tend to come cheaply. According to Cruze, the average cost of child care ranges from $10,700 to $29,800 a year per child depending on where you live. If you work part-time or at a low-paying job, you may have to weigh whether the cost of child care is even worth it in your budget.

  • Charitable Giving

For those who really get their financial ducks in a row, Cruze suggests a goal of charitable giving to the tune of 10% of your income. For people still paying off debt, or saving for goals like college and homes, this may not be realistic. But it is a nice goal to shoot for, since giving back is an ideal way to live.

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Minimize Spending in These Areas

  • Lifestyle or Entertainment

If there’s one area where you should allot the least of your budget, Cruze said it’s in lifestyle and entertainment, which might range from going to concerts to streaming services to getting drinks with friends and so on. Your financial security will bring more joy, she suggests, than the fun you overspend on.

  • Personal Spending

Other than basic personal care items, or mandatory new clothes for work, or new school clothes for a growing child, keeping these expenses to a minimum in your budget is a good idea. Cruze said that American households spend about $64 a month on personal care products and services and about $146 a month on apparel and services.

  • Miscellaneous

If you’re serious about budgeting down to your literal last dollar, what’s known as a zero-based budget, then Cruze suggests you leave a “miscellaneous category” of about 5% of your net pay to leave wiggle room for the unexpected.

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