Here’s How the Dave Ramsey Budget System Works

Dave Ramsey budget percentages

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There’s no doubt about it.

Dave Ramsey knows about personal finance.

And regardless of what some critics might say about Dave, he’s probably helped more people become debt-free than anyone else on the planet.

But don’t just take my word for it:

He’s had over 5 million people participate in his Financial Peace University program. He’s got over 14 million listeners on The Dave Ramsey Show – making him one of the most popular radio hosts in the country.

And he’s been changing people’s financial lives for more than 25 years.

So as an ode to our favorite financial expert, let’s show you how to budget like Dave Ramsey.

Dave Ramsey’s Budget Percentages

Dave Ramsey budget percentages

How to Make a Budget Using the Dave Ramsey Plan

Let me guess.

Now you’re probably wondering, “What budgeting method do I pick? 50/30/20 method? Half payment method? Reverse method?”

It can get a little overwhelming, right?

You’re not alone. But let’s make things simple today.

Let’s talk about the method Dave Ramsey recommends. It’s called the zero-based budget.

According to research, when you use a zero-based budget you’ll pay off 19% more debt and save 18% more money.

 

So what is a zero-based budget?

It’s a type of budgeting that encourages you to account for every dollar you earn. This means every single dollar has to be assigned to a category.

For example:

Let’s say you budget for all your expenses and still have $250 leftover. That’s great – but you aren’t finished budgeting yet.

You see, that $250 has to be assigned to a category. Savings, debt, fun money – wherever. Just make sure it has its place. This is a powerful trick for preventing yourself from wasting money.

Here’s a Dave Ramsey Sample Budget:

zero based budget for dave ramsey budget percentages article 

You see how every dollar has a purpose? Including things like fun money and savings?

That’s your goal.

And here’s the thing:

Once you start budgeting this way, you’ll surprise yourself with how much money you start saving. It just works.

Now to help you get started, we’re giving you a free budgeting worksheet below:

 
Budget Sheet


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So let’s breakdown Dave Ramsey’s budget categories so you’ll have a better understanding of how this works.

 

Housing – 25%

Dave Ramsey’s budget percentages encourage you to allocate no more than 25% of your take-home pay to housing.

This includes your rent or mortgage plus any other monthly fees associated with it. So think taxes, insurances, HOA fees, and mortgage insurance.

And if you’re buying a home, Dave recommends a 15-year, fixed-rate, conventional mortgage. You can get one through one of his smart lenders.

And here’s the deal:

You have to give your budget room to grow. That’s why you shouldn’t spend more than 25% of your take-home pay on housing.

So let me ask you:

Are you planning on having kids?

Do you want to go back to school?

Will you change careers?

Are you getting married?
These things matter. And you’ll want to think about them before you commit to spending too much on a house.

 

Food – 10% to 15%

dave ramsey budget percentages

Eating in or eating out – when we’re not making or consuming food, we’re thinking about it, right?

That’s why it’s no surprise that this budget item is one of the hardest to rein in.

And if you’re like me, one of the most dreaded questions you get is:

What’s for dinner?

Because sometimes you’re staring at a pile of laundry, crumbs on the floor, and a baby who needs a bath – and the last thing you want to do is worry about dinner.

 

Can you relate?

So here’s the thing:

Managing your grocery budget is all about saving yourself time and money.

So my advice?

Start using an online program called the $5 meal system to make entire meals for your family that cost less than 5 bucks per meal. For a family of 4, that’s only $1.25 per person.

The first time I used that program, I cut my grocery bill by 40%. And this made it much easier to fit my grocery bill within Dave Ramsey’s budget percentages. 

The best part?

The recipes typically take less than 30 minutes to make and they come with their own printable shopping list.

shopping list for dave ramsey budget percentages
(Above: A $5 Meal Plan Printable Shopping List)

 

As you scroll through the recipes, you’ll be able to “favorite” the items you want added to your shopping list. Then you’ll just print that list when you’re ready to hit the grocery store.

$5 meal plans come with hundreds of online recipe ideas for breakfast, lunch, and dinner. They also have separate plans for gluten-free, dairy-free, and vegetarian.

A few of my favorite recipes have been:

Almond Vanilla French Toast (Breakfast)

meal prepping for dave ramsey budget percentages article

BBQ Chicken Nachos (Dinner)

meal prepping for dave ramsey budget percentages article

Salted Caramel Brownie Parfaits (Dessert)

meal prepping for dave ramsey budget percentages article

$5 meal plans offers a 14-day free trial. After that, it’s only $5 per month.

And trust me, it’ll easily pay for itself in the first week – both in time and money.

Click here to try your free trial.

Transportation – 10 %

This category includes any and all transportation expenses, including:

  • Gas
  • Oil changes
  • Parking fees
  • Car tag renewals
  • Uber/Lyft/Taxis
  • Car payments

And while this can vary depending on where you live and your commute, try to keep this category 10% or lower.

 

Insurance – 10% to 25%

dave ramsey budget percentages

I don’t know about you.

But every time I think about insurance, I always think about how damn expensive it is. And even though it’s not fun to talk about or pay for – it’s still a necessity.

So Dave recommends 5 types of insurance policies:

  1. Homeowner’s or renter’s insurance
  2. Car insurance
  3. Health insurance
  4. Term life insurance
  5. Disability insurance

Not sure what you need?

Dave Ramsey offers a 5-minute coverage checkup based on your age and stage of life.

It teaches you about the coverage you need (and don’t need), what questions to ask, and where to go to get the best coverage.

Dave Ramsey budget percentages

Utilities – 5% to 10%

Utilities include water, electricity, natural gas or propane, and trash services.

 

Saving – 10% to 15%

woman budgeting in dave ramsey budget percentages article

Dave Ramsey’s budget percentages allow you to put 10%-15% towards savings. More specifically, Dave recommends saving for 3 things:

1. Emergencies
2. Big purchases
3. Retirement

If you have debt, you should start by saving a $1,000 emergency fund. This safety net will protect you against taking on new debt in the case of an unexpected expense.

Once your $1,000 is saved up, then you’ll shift your focus towards tackling your debt using the debt snowball method. 

If you’re already debt-free, then you’ll focus on building an emergency fund that covers 3-6 months’ worth of household expenses.

After that, you’ll start putting 15% of your gross income (before taxes) into retirement.

Dave Ramsey recommends using one of his SmartVestors to help you with your retirement.

Dave Ramsey budget percentages

Health – 5% to 10%

Sick happens.

And it happens when we least expect it. So Dave recommends putting 5-10% of your income towards things like doctors’ visits.

Dave’s website also talks about how to save money on things your insurance doesn’t cover. You can read more about that here.

 

Giving – 10%

couple budgeting in dave ramsey budget percentages article

If you’ve followed Dave for any amount of time, then you know he’s a big fan of giving.

But you’re probably wondering:

If I’m in debt, how can I give?

It’s a good question.

And of course, Dave recommends taking care of your family’s needs first. Aka, pay your bills and make sure you’ve got food to eat and clothes to wear.

But once those needs are taken care of, you might have to make some judgment calls on other expenses.

For example:

How much could you give if you cut out your subscription services?

What about if you lowered your cable bill? Do you really need all those channels?

What if you cut back on eating out?

 

And chances are, if you’re on the Dave Ramsey plan, then you know he recommends living on beans and rice until you’re debt-free. Meaning, cut out all the unnecessary stuff from your budget.

The bottom line?

The point is to just give what you can until your finances improve (because they will if you follow Dave Ramsey’s budget percentages)

So start by giving a little now, until you can give a lot later.

 

Recreation – 5% to 10%

This is your fun money.

This includes things like movie tickets, concerts, babysitter money so you can go out and have fun, Netflix, Hulu, etc.

Personal Spending – 5% to 10%

woman using cellphone for dave ramsey budget percentages article

I’ll be honest.

When I saw recreation and personal spending on his list, I asked myself, “What’s the difference?”

You probably did the same. 

So here’s the difference:

Personal spending includes things like haircuts, clothes, shoes, and money set aside for back-to-school shopping.

 

Miscellaneous – 5% to 10%

Let’s face it.

You’re bound to forget something in your budget at some point. So this is why it’s important to include a miscellaneous category.

You know, for the things that pop up during the month that aren’t emergencies.

 

For example:

That birthday party your kid forgot to tell you about that you’ll now have to buy a gift for. 

With a miscellaneous category, you can handle these things without killing your budget.

And if you go through the month without having a misc expense, then Dave recommends putting that money towards debt. (Or savings if you’re debt-free)

 

How do I use these Dave Ramsey budget percentages if I have debt?

couple looking at bills in dave ramsey budget percentages article

Great question.

So let’s briefly run through the most common questions we get about Dave Ramsey’s allocated spending plan.

Should I save money or pay off debt?

The only thing you’ll save money for is your $1,000 starter emergency fund. Once that’s saved, then every extra penny goes towards tackling your debt.

This includes stopping your retirement contributions for the time being. (But don’t worry, you’ll pick back up with retirement savings once you’re debt-free – and you’ll be able to contribute MUCH more once you get the debt burden off your back.)

 

Do I still allow myself to have fun money?

Yes. But only a small amount. 

So here’s the deal:

Dave encourages you to become gazelle intense about becoming debt-free. This means getting sick and tired of being sick and tired. 

So you’ll want to keep your fun money to a minimum.

But.

Paying off debt is a long-term game. And Dave acknowledges that learning how to stick to a budget involves creating one that’s realistic.

And realistic budgets allow you to have fun. So give yourself a small amount (5% or less) and spend it how you like.

 

What if my household percentages don’t match Dave’s percentages?

It happens to the best of us.

But listen:

It’s important that you try to get as close to these percentages as possible. Committing too much to one area is risky.

Because what happens if you lose your job tomorrow?

Economies tank. People get laid off. Companies go bankrupt.

These things happen. So try not to go over more than 3%-5% on a certain category. Because if you overshoot in one category, then you’ll have to spend less in another.

So if you spend 30% on housing instead of 25%, then that might only leave you with 5% to spend on recreation instead of 10%.

Think of Dave Ramsey’s budget percentages as an equation that balances out. 

 

What if I have leftover money in the categories?

Leftover money should go towards paying off debt. If you’re already debt-free, then you can put some towards savings or give yourself a little extra fun money. 

Tools of the Trade

woman writing in notebook

When you’re serious about following these simple budgeting tips, it helps to have a few tools under your belt.

Here are a few we recommend:

1. Free financial worksheets

Our free financial worksheets are a great way to kickstart your budget and debt-free journey. 

If you’ve ever wanted to manage your money but didn’t know where to start, these PDFs are for you.

free financial worksheets


Want to make budgeting easy?
Join our newsletter & get your free budgeting worksheet:


 


2. Easy Money Toolkit

Maybe you want something other than a pen and paper budget. Or maybe you just want to have your personal finances at the tip of your fingers. 

Whatever the case, the Easy Money Toolkit is the perfect system for this. You’ll go from saving no money (ever) to paying off debt and saving your first $10k. You can read more about the toolkit here.

budgeting spreadsheet for virtual assistants
(Above: The Budgeting Template from our Easy Money Toolkit)

savings tracker for virtual assistants
(Above: The Savings Tracker from our Easy Money Toolkit)

3. The Total Money Makeover

If you’re ready to deep-dive into the Dave Ramsey plan, then you have to grab a copy of his book, The Total Money Makeover.

It’s probably the most popular personal finance book ever written.

In this book, you’ll learn Dave’s 7-step financial process that will help you become debt-free and build wealth.

I also recommend subscribing to Dave’s YouTube channel. His radio show streams live on YouTube Monday through Friday from 2pm-5pm Eastern time.

Here’s a link to one of his videos:

As always, thanks for reading. If you have any questions about Dave Ramsey’s budget percentages, leave a comment below. 

 

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