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Percentage of Income and Miscellaneous Budget

Original post by Dennis Hartman of Demand Media

Drafting and living by a personal budget is important for families with low incomes and wealthy individuals with complex investment decisions alike. Personal budgets can allocate money for retirement planning, savings and investing. Understanding and controlling a budget's miscellaneous category using income percentages can simplify the process, making it easier to track spending and meet financial goals.

The Percentage Method

The percentage method is one approach to personal budgeting. It involves dividing a personal budget into categories, each of which represents a set percentage of total income for a period of time, such as a month or year. Some percentage categories, such as rent or payments on a fixed rate mortgage, are fixed unless income changes. Others are flexible from month to month. For example, a family's gift budget may represent 5 percent of income in a typical month, but rise to 20 percent in the month of December due to holiday shopping. Planning this percentage change ahead of time gives a budget user the option of selecting where to cut 15 percent of income, such as savings, entertainment or miscellaneous categories.

Miscellaneous Budget

A miscellaneous budget is a budget category that includes all items that don't fall into other categories. Since each individual's budget is unique, the size and contents of miscellaneous budgets vary. For example, an investor who buys stock on a regular basis may have a 10 percent investment budget each month to work with. However, a family that devotes money to a retirement plan only occasionally may not have a separate category for investments, taking this from the miscellaneous budget instead.

Analysis

There is no specific percentage of income that a miscellaneous budget should consume. However, a high percentage indicates a large amount of miscellaneous, unplanned spending. This can indicate the need for a new budget category with its own percentage of income. For example, a worker who receives a raise and begins making charitable contributions regularly can add a 2 percent budget category for donations rather than spending 2 percent of income from the miscellaneous budget on giving every month.

Allocating Miscellaneous Budget

While cutting a miscellaneous budget, or moving its spending to more clearly defined categories, can help achieve financial stability and better spending analysis, miscellaneous budgets are also useful for increasing flexibility. If your income rises and you have no need to increase the amount of money you save each month, you could reduce savings as a percentage of income and devote the additional percentage to miscellaneous spending. This leaves room for covering overages in other areas of the budget and creates the freedom to make occasional purchases without special planning.

                   

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About the Author

Dennis Hartman is a freelance writer living in California. His work covers a wide variety of topics and has been published nationally in print as well as online. Hartman holds a Bachelor of Fine Arts from Syracuse University and a Master of Arts from the State University of New York at Buffalo.

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