What is the right income expenditure ratio for your family?

There is no magic percentage when it comes to the right income expenditure ratio for your family. This ratio is an important budgeting tool, but there is not a specific percentage that is ideal for every single family. That does not mean that you can not determine what ratio is best for your family, just that you will have to look at all of your budget factors, amounts, and columns to arrive at this ideal number for your unique family. Ideally all households would only spend between fifty and seventy five percent of income on expenditures, and the balance would be used for savings, but this is often not possible. First you need to make a list of all the income your family has each month, as well as a list of all the expenditures that are paid out every month.

Once you have the total income and expenditure amounts for your family you can determine your income expenditure ratio. This is done by dividing your income amount by your expenditure amount. The resulting number should be as high as possible, and if you receive less than a one point five percentage you are in big financial trouble and need to look at ways you can minimize or eliminate expenses. There are some special circumstances that can cause you to get a very low ratio percentage through no fault of your own. If you have special considerations, such as a chronically or terminally ill family member, a child in college, or other extenuating circumstances you may find your percentages greatly lowered. In these cases there is probably not a lot you can do except hope they get better in time.

A good income expenditure ratio is between one and a quarter and one and a half, because this means roughly one fifth of your income is not going out, but is being saved instead. If you have a ratio that is just one this means all of the income you have coming in for the month is going back out, leaving nothing for your savings. This can result in not having an adequate savings amount built up, so that if you experience a job loss or other financial difficulties you may not have the resources you need.

A fantastic income expenditure ratio will be between one point five and two point zero, or even higher. This means that you are only spending about half of your income or even less each month, and in these circumstances you can really watch your savings grow very quickly. There may not be a perfect number that is ideal for any family, but you can use this ratio as a tool to help you budget more effectively, and provide for your family in the best way possible. This ratio is just one of the many tools you can use to increase your savings and keep your expenses as low as possible. Just like any budget tool, using this ratio will only work if you use it properly. When you see your income and expense ratio it can be an eye opener, and force you to really look at your financial health for the sake of your family.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.