How do you budget your paycheck?

The best way to budget your paycheck is to put 20% of the money into savings, allocate 50% to necessary expenses like food and your mortgage/rent, and use the remaining 30% for fun and other discretionary spending. This is called a 50/30/20 budget. 

There are other budgeting strategies you can try, too. But no matter how you decide to allocate the money from your paycheck, you will need to make a list of your expenses in order to determine what’s necessary versus discretionary and what you’ll have to eliminate or cut back on if you want to achieve your goals. You should also review your budget regularly to make sure you’re on track.

How to Budget Your Paycheck

1. Figure out your after-tax income.

You should use the amount of your salary that you take home after taxes for budgeting. This is usually the amount listed on your paycheck or the amount your employer deposits into your bank account.

If taxes are not automatically taken out of your paycheck, you’ll want to set aside a portion of your paycheck for taxes. You can use WalletHub’s federal tax bracket calculator to see what percentage of your paycheck you should save for taxes.

2. List your expenses.

Once you’ve determined your income after taxes, you have to figure out what expenses to allocate the money from your paycheck to. You can look at past bank and credit card statements to see what you are spending your money on. Some typical expenses to include in your budget are:

• Rent or mortgage payment
• Gas
• Food
• Utilities (electric, water, internet, etc.)
• Credit card and loan payments
• Entertainment (Concerts, sporting events, streaming services, etc.)

3. Choose a budgeting strategy to allocate funds from your paycheck.

A budgeting strategy, such as the 50/30/20 rule or the 70/20/10 rule, can help you figure out how to split up your paycheck among your expenses. When you set a limit on how much of your paycheck to spend in each category, it can prevent overspending on unnecessary expenses. You can get details on some common strategies below.

50/30/20: You separate your paycheck into three categories: 50% for needs, 30% for wants, and 20% for savings.

70/20/10: You assign 70% of your paycheck to your living expenses, 20% to savings and investments, and the remaining 10% to debt and donations.

40/30/20/10: You divide your paycheck into four categories, with 40% going to needs, 30% to wants, 20% to savings and debts, and 10% to donations.

60/30/10: You allocate 60% of your paycheck to necessary living expenses, use 30% for wants, and put the remaining 10% of your paycheck toward savings and paying off debt.

60/20/20: Your paycheck after taxes gets split into three categories: 60% to needs, 20% to wants, and 20% to savings.

You can also try some strategies, such as zero-based budgeting or envelope budgeting, where you can decide how to split up your paycheck among your expenses instead of using predefined categories and percentages.

4. Automate your savings.

You should have your checking account automatically transfer funds to your savings every time you get your paycheck. Depending on your employer, you may even be able to have them deposit part of your paycheck directly into your savings account. It will be one less thing you’ll have to remember to do.

5. Use a budgeting tool to track your spending.

Budgeting tools, such as spreadsheets or budget apps, can help you create your budget and track your expenses. Some budgeting apps, like the WalletHub app, let you sync your financial accounts, so your expenses are automatically updated to your budget.

6. Review your budget and adjust.

Reviewing your budget regularly allows you to check whether you are actually following it. If you realize you are spending more than your paycheck, you may want to identify areas where you can reduce spending. Reviewing your budget also gives you the opportunity to make adjustments to account for changes in your income or new expenses to include in your budget.

To learn more, check out WalletHub’s guide on how to make a budget.