average monthly expenses

How Much of Your Income Should Go To Average Monthly Expenses?

There are those who are absolutely brilliant at saving money, and those who seem to never have enough left over after bills to do anything with.

Those who are good at saving are not wizards. Even though it may seem this way to those who can’t save at all, no matter how hard they try.

Saving is about creating the right budget for debt to income ratio, living within that budget, and ensuring adherence to the budget. Even when there is a surplus of income, such as tax returns.

All that is much easier said than done. One of the biggest issues with creating an appropriate budget is determining how much income a person will devote to average monthly expenses. The reason for this is the seemingly impossible task of actually averaging monthly expenses.

How exactly does someone average the cost of something — such as gas prices, groceries, and heating and power bills — that fluctuate. Continue reading to learn how much income should go to average monthly expenses, how to average out fluctuating bills, and the best way to help build up a savings account.

Take Home Pay and Tax Brackets

The first thing to consider when determining the amount of income to devote to average monthly expenses is to determine the tax bracket an individual falls into and from there the take-home pay.

Just because a person makes $60,000 a year does not mean they bring home that amount. That $60,000 is the gross annual income and is the amount a person makes before taxes.

The first step in determining the proper take home amount is to determine the tax bracket. There are six different tax brackets for each federal filing status: 10, 15, 25, 28, 33, and 35. For example, a person filing single and making $60,000 a year would be in the 25% tax bracket. This means that person would pay around 15,000 in taxes. This makes the take-home amount only $45,000.

For this scenario, the $45,000 will be the amount of income to go towards the average monthly expenses. Let’s now take a look at breaking down what would be average monthly expenses.

Defining Average Monthly Expenses

Let’s break monthly expenses down into three main categories: Fixed costs, Variable costs, and Savings. This break down is commonly referred to as the 50/20/30 rule.

Let’s take a closer look at the 50/20/30 rule and what it means for breaking up average monthly expenses.

50/20/30 Rule

The 50/20/30 rule refers to percentages. Meaning, what percentage of take-home pay will a person devote to what category. It looks like this:

  • 50 – 50% or half of the take-home pay is what to devote to fixed monthly expenses. These are monthly expenses that are essential. A person can’t go without these. Examples are rent/mortgage, utilities, groceries, travel to and from work (car payments), and cell phone bills.
  • 20 – 20% of the take-home pay is what to devote to savings and financial goals. Investments and debt-reduction (credit card payments) can also fall under this category.
  • 30 – 30% is what to devote to variable monthly expenses. This is usually things a person wants but not necessarily needs to survive. For example, saving up for a new TV, cable/internet bill, or the newest gaming console.

By now it should be obvious that the 50/20/30 rule totals out to 100. 100% of the take-home is allocated to these categories. These percentages aren’t without purpose, they weren’t chosen arbitrarily.

50% of the take-home pay should cover all essential needs. Anything more is living beyond one’s means.

Devoting 20% to savings allows for a safety net in times of emergencies. It also provides a consistent way to pay down any debt owed.

30% allows for fun purchases such as going out to eat, going to the movies, or upgrading an appliance that may not need an upgrade. In essence, this is the fun money or mad money as some may call it.

The 50/20/30 in Action

Now that the 50/20/30 rule has been explained and broken down, let’s see it in action with actual numbers. Using the already established annual gross income of $60,000 and the 25% tax bracket, we know that the take-home pay is $45,000.

50% of $45,000 comes out to $22,500 a year dedicated to monthly expenses. Monthly that comes out to $1,875 a month for essential expenses.

20% of $45,000 comes out to only $9,000 a year which a person can contribute to savings, investments or debt reduction. Monthly that’s $750 going to savings, investments, financial goals, and debt reduction.

30% of $45,000 is $13,500 a year dedicated to variable expenses. That’s a monthly total of $1,125 dedicated to non-essential (fun) expenses.

Now here’s the kicker, for the essential monthly expenses and the variable monthly expenses those percentages (50 and 30) are the maximums. If those categories fall below those percentages, that frees up more money for savings, investments, and debt-reduction.

Now that we’ve seen the break down let’s go over some pros and cons.

Pros and Cons of the 50/20/30 Rule

The 50/20/30 rule seems to be easy and the best way to figure out how much income should go towards average monthly expenses. But, like with everything, there are upsides and downsides.


As already mentioned the 50/20/30 rule is fairly simple to use and maintain. The percentages given are the max amounts a person will contribute to the three categories with the ability to be flexible.

The 50/20/30 rule also works with any amount of income. Even those who make minimum wage can use the 50/20/30 rule. For example, 50% of 45,000 is 22,500, but 50% of 20,000 is 10,000. No matter the income, the percentages still work to assist with living within a person’s means.

And finally, there is the ability to see exactly how much of the take-home pay will go towards the three categories of monthly expenses. This allows for the ability to trim unnecessary expenses.


There are, as with anything, a few downsides to the 50/20/30 rule. One issue is that the 50/20/30 rule does not explain exactly how much of the 20% dedicated to savings category will go to debt reduction or growing savings.

It also doesn’t explain what to do if there isn’t money left over after contributing to debt reduction for savings growth or investing. This can be an issue when the goal is to build the savings account.

One other problem with the 50/20/30 rule is its flexibility. It can leave too much room to poorly categorize the average monthly expenses into the three categories. This can result in an allocation of all take-home income, but still not result in savings growth or debt reduction.

Income, Average Monthly Expenses, and Savings

While the 50/20/30 rule may have its downsides, it is still a good tool to use as a guideline for determining the amount of income to go to average monthly expenses.

The percentages are the maximum and are not concrete. The rule as a whole is flexible, allowing it to suit the individual needs of a person. The amount of take-home income dedicated to average monthly expenses should not exceed 50%.

Average monthly expenses are essential expenses that a person cannot live without. These are groceries, rent, and travel to and from work. Depending upon the need for employment internet and phone bills may also be monthly expenses.

Yet, if average monthly expenses equal more than 50% of total take-home income, then it may be worth looking into exactly what that money is being spent on. For example, the grocery bill may be higher than it should be and may need lowering. Do this by buying generic instead of brand name, or cheaper instead of more expensive steaks.

It may be worth looking into refinancing a home to get a lower mortgage payment, the same goes for a car loan.

The 50/20/30 rule allows you to examine these issues and find places to begin trimming the excess.

Get Out There and Save!

No matter how much spending is currently taking place, future financial goals, money currently being made, a good rule of thumb to follow, is that no more than 50% of total take-home income should go towards average monthly expenses.

Following this part of the 50/20/30 rule at a minimum will help to ensure that the lifestyle chosen will be sustainable within the means provided.

For more information on saving, check out our blog post on important reasons to save money, and get started growing that empty savings account.