Smart ways to budget

April 20, 2009 In fact, all week long, you'll be able to access some of the top financial advisers in Chicago as part of "Money Smart Week" sponsored by the Federal Reserve in Chicago

While there is no one-size-fits-all rule about how much a person should be spending in various categories, it can be helpful to compare your spending with others. Just tallying up your own expenses is a learning experience in and of itself.

Average household expenses in Chicago metro area:

Housing (total) 27%
Housing (rent/mortgage, taxes, repairs, insurance) 17%
Food (total) 9.5%
Food (away from home) 4%
Transportation 12%
Healthcare 4%
Entertainment 3.5%

*Consumer Expenditure Survey, 2006-2007

Read a complete smaple household budget

There are two things of note:

· Many people think of the costs of home ownership as being limited to the mortgage payment and property taxes. But those costs are only about 60% of the total housing costs. Homebuyers need to be prepared for higher utility costs, repair and maintenance, and furnishing the home.

· Food away from home is 45% of total food expenses, which indicates another area where many household could reduce expenses.

The old rules of thumb used by many lenders for determining how much mortgage and total a person could handle was the 28%/36% ratios:

· Mortgage payment (PITI – principle, interest, taxes, insurance) not to exceed 28% of gross income.

· Total debt payments not to exceed 36% of gross income. FHA and VA loans may allow up to 41%.

· Higher debt-to-income ratios become even more of a problem with the mortgages whose payments could increase significantly in the future, such as interest-only mortgages, negative-amortization mortgages, and even the more traditional adjustable rate mortgages.

Money Smart Week runs until April 25 and contains 450 classes at various locations throughout the city and suburbs. You can find all the specifics on

Click here for the complete schedule of events

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