Ever heard people talk about using AI to improve your life? Maybe creating workouts, or optimizing organization, and so on. But why not try creating an AI budget? Sure, you can always create your own, or go to someone else for help, but you can also just ask ChatGPT for help! I gave it a try. I decided to see if ChatGPT could create an example AI budget for the average American, and figured it would be interesting to check out! Here’s what ChatGPT spun back out (with a few SEO updates):
Creating a budget plan for the average American can be a helpful tool to manage finances effectively. However, it’s important to note that individual circumstances can vary, and it’s crucial to adjust the budget based on personal needs and goals. Below is an AI budget plan based on general recommendations and statistics available up until September 2021.
Salary Allocation:
- The AI budget plan assumes a monthly salary of $4,000, which is roughly the average monthly income for Americans as of 2021. It’s important to adjust this figure based on your own income level.
Fixed Expenses (50% of Income):
- Fixed expenses include essential items that are typically consistent from month to month. These may include:
- Housing: Allocate approximately 30% of your income towards housing expenses, including rent or mortgage payments, property taxes, and home insurance. It’s recommended to explore options for reducing housing costs, such as downsizing or considering roommates.
- Transportation: Allocate around 10% of your income towards transportation costs, including car payments, fuel, insurance, and maintenance. Consider alternatives to owning a car, such as using public transportation, carpooling, or biking, to save on expenses.
- Utilities: Allocate roughly 5% of your income for utilities such as electricity, water, heating, and internet services. To save on utilities, consider energy-efficient appliances, adjusting thermostat settings, and being mindful of water consumption.
- Insurance: Set aside approximately 5% of your income for various insurance policies, including health, life, and disability insurance. Shop around for competitive rates and consider bundling insurance policies to save money.
Variable Expenses (30% of Income):
- Variable expenses are more flexible and can fluctuate from month to month. These expenses include:
- Groceries: Allocate around 10% of your income for groceries. Plan meals, make shopping lists, and look for sales or coupons to reduce grocery expenses. Cooking at home and avoiding excessive dining out can also help save money.
- Transportation: If you own a car, allocate an additional 5% of your income for maintenance and repairs. This category also covers public transportation costs, rideshares, and other travel expenses.
- Healthcare: Set aside roughly 5% of your income for healthcare-related expenses, including deductibles, copayments, prescriptions, and routine check-ups. Consider using generic medications when possible and exploring healthcare discount programs.
- Personal Care and Entertainment: Allocate approximately 5% of your income for personal care items, such as toiletries and haircuts, as well as entertainment expenses like dining out, movies, or hobbies. Look for low-cost or free activities and consider cutting back on non-essential expenses in this category.
Savings and Debt Repayment (20% of Income):
- It’s important to prioritize saving for emergencies and long-term goals, as well as paying off debt. Allocate 20% of your income towards:
- Savings: Set aside 10% of your income for emergency savings and long-term goals. Automate savings contributions and consider using high-yield savings accounts or investment vehicles to grow your savings over time.
- Debt Repayment: Allocate another 10% of your income towards paying off debt, such as credit cards, student loans, or personal loans. Focus on high-interest debt first and consider debt consolidation or refinancing options to lower interest rates.
Tips for Improving Financial Health:
- Track Expenses: Use budgeting apps or spreadsheets to track your expenses and identify areas where you can cut back or save money.
- Reduce Discretionary Spending: Evaluate your wants versus needs and cut back on non-essential expenses. Look for free or low-cost alternatives for entertainment and leisure activities.
- Comparison Shop: Before making a purchase, compare prices from different retailers and consider buying generic or used items
Back to me, your Favorite Finance Friend. Again, remember that this kind of split is only a template. If you’re struggling to cover the needs category, this will be higher, always taking from your wants before digging into your savings and investments categories. So first try to use these splits, and see if you need to be more variable. But for example, if your needs category is actually below 50%, great! Highly recommend you put more towards investments or an emergency fund (emergency fund first). But the first step is sitting down and understanding your current situation, where you can improve, and what you can actually manage. Needs are obviously the most important, and once you have those covered, make sure to get at least the full 20% for savings, debt, and investments prior to getting 30% towards wants. The wants category should always be your last priority, even though it’s not fun.
Additionally, I have a few changes I’d make to the ai budget. Usually, people insert wants instead of variable expenses. And groceries, transportation, and healthcare should all arguably be in the needs category, since these are expenses that you will need to pay in general, but I can understand putting them in wants in case your needs are already at 50%. For example, where I am living currently has very high rent. It’s a little too close to the 50% for my liking, but because of the location, I include part of it as my wants category since it’s a nice area for running, hiking, etc. And I always make sure to allocate 30% (I prioritize the savings and investments at 30% over wants personally) towards savings and investments.
So basically, the 50/30/20 split is just a great guideline to start at. Of course, your needs may end up being more than 50%. But as long as they aren’t above 80%, you can still save that 20%!
And look around for different budget advice! Between budgeting apps, Youtube, random finance bloggers like me, your best option will always be a certified financial advisor or planner who can help you with your specific situation. But having ChatGPT create an AI budget is a fun way to get the process started and the ideas flowing!
But remember, as I had shown here, ChatGPT is still limited by the information it has access to and can make mistakes as well, so just remember to verify everything!