Personal finance is all about numbers. No, that is not my attempt at a deep-fake statement or pun. What I mean is it is all about minding the numbers or rather the allocation of the money that is available to you. Playing the numbers is the way to fixing your personal finances regardless of your starting position and your end goals. So here I’ve put together some of the most common numbers associated with specific expenditure areas and will delve a little into how it works and why you should be following those numbers.

30% on accommodation

I thought I may as well start with the most controversial one of the lot. From place to place you will find experts recommend spending a maximum of 30% of your income on accommodation costs. This doesn’t just come from would-be personal finance gurus; mortgage lenders too are comfortable with extending loans with repayments that take up no more than 30% of your income. While people fight this one in the long run it holds that spending greater than 30% of your income on accommodation costs is a bad idea.

10-20% on savings

From the most controversial to the most complicated. Don’t get me wrong, I think everyone understands and will even advise you to save 10-20% of your income. Whether or not everybody is doing it is another issue altogether. The logic follows personal finance is all about growing your financial muscle and you can’t grow that muscle without having money to work with.

10% on investment

Saving gives you something to work with. Investing is the working part. Investing is how to get your money growing and working for you in the future and if you’re not investing then your money isn’t growing. At least not growing faster than its value is deteriorating. This is a complicated task for anyone who has tried it but it is even more complicated if you are coming from a place where your investment percentage was 0%.

3% on Personal development or education

You are your greatest asset. To put it in other terms, your ability to produce income is your greatest asset, which is closely tied to your skills and abilities. So it is fairly obvious that investing in your education or self-development is a big part of improving your personal finances. 3% is on the lower end of the spectrum but it makes sense when you take into account your annual income rather than looking at it per month.

3-10% insurance

Though often ignored insurance is a very important part of personal finance. Insurance does one of two desirable things. It either shields you from the impact of undesirable events or guarantees an outcome. Whichever way you look at it, it essentially helps you protect your gains or your circumstances. 3-10% is a good measure but remember the more you have the more (and more ways) you have to protect.

10-20% on debt

Debt is a part of life. At its best, it’s a great expansion tool. At its worst, it is a noose around the necks of many people’s personal financial lives. Personal debt repayments should not go beyond 20% of your income. This goes for existing debt and those who wish to take on debt. If your debt expense exceeds this mark, you may need to consider cutting down on other categories to clear the debt faster, especially in light of interest accruals.

12-25% on food

Far be it from me to tell you how much you should spend on food in your own house. However, some nosey people came together to recommend that you spend between 12 and 25% of your income on food. It is a good guideline to be fair and for most budgets it makes sense.

5-10% on entertainment

While you could lie to yourself that you will not spend any money on entertainment I prefer the realistic view that allocates 5 – 10% of income on entertainment and leisure activities. It’s not unreasonable. Spending over this might suggest that perhaps you need to reign in the fun a bit.

50% on expenses

With all these numbers thrown around you’re starting to wonder how on earth your expenses can be 50% of your income and you somehow still fit everything else in there. This 50% concept comes from the 50/30/20 rule. This rule says 50% should go to fixed expenses including home, transport, insurance and such costs. 30% of your income should go to food, clothes, entertainment and luxuries. The remaining 20% should go to savings, investment and debt repayment. So please note this comes from a slightly different school of thought than the other numbers given here but still holds.

Just remember that these are rough guidelines and not exact measures. If you add up all but the last paragraph taking the lower estimates you will get 83%. That still leaves you with space for your transport and vehicle expenses and other expenses. So these are great guidelines to look at. Individual circumstances will defer and remember it is YOUR financial plan so you may as well make one that works for you.