I frequently get asked questions like:

• “How much money should I spend on groceries?”
• “How much money should I spend on kids’ activities?”
• “How much money should I be saving each month?”
• “How much money should my car payment be?”

For each family the answer to those is completely different.

Except the car payment one: the answer is zero. For everyone.

I have seven children that prefer to eat multiple meals each day. I am guessing that my monthly spend on groceries will be substantially higher than my niece who is a recent college graduate that lives alone.

Same with my savings/investing goals. I should be saving quite a bit more as I’m more than a decade older than my niece.

However, if we set percentages or ratios as our target figures, we can then compare those questions apples to apples. I earn 100% of what I earn. You earn 100% of what earn. Looking at it like that, I can say that we earn the same amount of money, 100%. If you set your giving, saving, investing and spending goals as a relative percentage of what you earn, you can track it better and more easily answer the questions listed above.

Example:

• Family A earns \$200,000
• 10% give: \$20,000
• 5% save to avoid future debt: \$10,000
• 15% invest for the future: \$30,000
• 20% housing payment: \$40,000
• 20% taxes: \$40,000
• 30% spend: \$60,000
• Family B earns \$30,000
• 10% give: \$3,000
• 5% save to avoid future debt: \$1,500
• 15% invest for the future: \$4,500
• 20% housing payment: \$6,000
• 5% taxes: \$1,500
• 45% spend: \$13,500

The income taxes we pay vary based on our taxable income, which explains the difference in the tax and spend percentages above.

If you set your target ratios and are hitting them, that answers how much you should spend each month on specific categories. If you can’t seem to make your budget work each month, then you can dig into the spend category to really drill down on how much you should spend on groceries. A good target would be \$1.50/person per meal.

Using my family as an example, if we want to provide three meals a day (yeah right, my boys eat three meals by noon) for all seven kids and my wife and me, then we should target \$1,215/month for groceries. \$1.50 x 9 people x 3 meals a day x 30 days a month = \$1,215.

For my single niece: \$1.50 x 3 meals a day x 30 days a month = \$135.

If you don’t know your cost per meal, it is a fun exercise.  Give it a shot!