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How to Budget Paychecks

Original post by Andrew Mayfair of Demand Media

Budgeting your paycheck is an important exercise to ensure that you do not spend more than you earn and take on debt. Budgeting can be difficult at times, as it requires that you examine the amount of money that you spend on various categories, such as shopping and utilities, each month. Nevertheless, budgeting permits you to gain and maintain financial freedom and control. You can begin budgeting your paycheck with merely a pencil and paper, without the need for fancy or expensive software.

Contents

Step 1

Create a list of spending categories on a piece of paper. Generally, these categories should include rent or mortgage, utilities, car payments, credit card payments, groceries, dining out and savings. Your specific financial situation may necessitate more specific or additional categories. Review your bank account statements to determine what you spend your money on to determine if you need additional categories. Remember to include expenses that come once a year (like insurance payments) as well as more regular bills.

Step 2

Review your pay stubs and bank account statements to determine the amount of income you receive from all sources each month. Your income should only include your regular income and not sporadic income, such as a tax refund. Write down the total amount of income on your budget paper.

Step 3

Set a maximum amount of spending per category of your budget. For example, budget experts typically advise that you spend no more than 30% of your income on housing, although this percentage may be higher or lower depending on where you live and other factors. Other categories are also highly personal, but, for example, most Americans spend 10 to 15 percent of their monthly income on food, not including dining out. You may try to reserve at least 10 percent of your income for savings - more if you are close to retirement but short of your retirement savings goals. You will need to make sure that the spending in each category does not add up to an amount greater than your total income per month. In fact, you should attempt to have extra money in your budget to use as a financial cushion for extra expenses.

Step 4

Track your spending each month and take note of each expenditure so that you can see how much you have left to spend in each budget category. Alternatively, withdraw cash from your bank account once a month in the amount of each of your budget categories. You may find it useful to organize the cash in envelopes labeled by each spending category. The cash method can be easier as it helps some people stick to a tight budget, however, you may need to make certain payments via check or electronically, requiring money in your bank account.


                   

References

About the Author

Andrew Mayfair has written professionally since 2009 when his article on patent law was published in the "Loyola of Los Angeles Entertainment Law Review." Mayfair earned his Bachelor of Science in biochemistry from the University of California, Davis and his Juris Doctor from the University of the Pacific, McGeorge School of Law.


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