how to budget your paycheck

How to Budget Your Paycheck (4 Foolproof Strategies)

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If you struggle to properly budget your paycheck, you’re not alone. Approximately 54% of Americans live paycheck to paycheck and are confused on how to set up an accurate monthly budget. These 4 proven strategies on how to budget your paycheck are guaranteed to help you quite over-drafting and under-saving money for good.

Budgeting paychecks can sometimes be difficult. With things like bills, groceries, social outings, and rent due each month, sometimes it can feel like you’re just throwing money in every direction.

Creating an intentional budgeting plan with your paycheck can help you make sure that all your bills get paid on time, money gets saved from each paycheck, and a designated amount of money is set aside for socializing and special occasions.

While there are a few popular and simple budgeting methods to choose from, it’s important to pick what works best for you and your family. Since everyone’s financial situation is different, there is no one-size-fits-all approach to financial planning. While each method on this list is researched, tested, and proven by experts, feel free to tailor aspects to your liking. As long as you find what works for you, that’s what matters the most.

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Is it worth is to budget your paycheck?

As of the year 2021, approximately 53% of consumers in the United States who earn $50,000 – $100,000 per year live paycheck to paycheck. That’s A LOT of people.

If you fall into that statistic, or if you want to avoid the paycheck to paycheck lifestyle, learning how to budget your paycheck can save you money and stress.

But paycheck budgeting isn’t just for people who make a certain amount of money. If you relate to any of the following questions, paycheck budgeting is for YOU:

  • You struggle to keep to a monthly budget
  • You—or someone in your family—have a ton of debt to pay off (i.e. credit card debt, student loans, etc.)
  • You’re saving towards a goal such as a wedding, buying a home or car, dream vacation, school, etc.
  • Sometimes you check your bank account and wonder, “Where did all my money go!” so you want to be more financially aware of your spending

If one or more of those rings true to you and your situation, you need to create a budget!

how to budget your paycheck

What if I’m currently living paycheck to paycheck?

If you’re one of the 53% of people who live paycheck to paycheck, budgeting WILL help. In fact, you can get out of that strapped-paycheck lifestyle for good once you learn how to budget your paycheck.

It will take effort on your part to commit to sticking to your budget, but it will all be worth it to get rid of that stressful financial burden of barely making it to payday.

Is budgeting my paycheck the right decision for me?

This is entirely dependent on you and your family’s situation. Some people are naturally good with money and spending. Others, not so much. However, it likely won’t HURT you to become aware of your money and spending habits.

How to budget your paycheck

There are a handful of great budgeting strategies that work really well. This post talks about 4 proven strategies that are highly researched, tested, and provide life-changing results for people’s finances.

All you need to do is decide what strategy to choose, and then make up your mind to stick to it. It might not be easy at first (if it were easy, people wouldn’t be so desperate for payday all the time), but as you practice and make tweaks here and there, it becomes second nature.

Don’t forget to download your free budget template below!

1. Budget-by-Paycheck

Budget-by-Paycheck is a strategy where you budget each time you are paid, rather than once a month. This is a highly successful strategy that keeps you aware of your money throughout the entire month.

Who is Budget-by-Paycheck good for?

This strategy works great for people who are paid weekly or bi-weekly. If you are only paid once a month, it could still work, but it might not be the best option. Personally, this is the method I use for my family, and its been very successful.

How to Budget-by-Paycheck

Step 1: Establish how much money you make each month. If it varies because you work different hours each week, go with the lowest possible number just to be safe.

Step 2: List all your monthly bills on a calendar

  • Paper calendar
  • Phone calendar or
  • App

Step 3: Establish an accurate number for varied expenses (gas, groceries)

Step 4: Save money (aka don’t ignore your sinking fund)

What are sinking funds?

  • Christmas
  • Medical expenses
  • Car expenses
  • Vacation
  • School tuition
  • Etc.

How to save money while on a budget

  • Set up an emergency fund
  • Establish long term goals and how much money to save towards them
  • Establish short term goals and how much money to save towards them
  • Don’t ignore sinking funds

Step 5: Decide which paycheck will pay for particular expenses.

If you are paid weekly, you can use your paycheck to pay for any bills that occur that month. If you are paid bi-weekly, you can use the first paycheck for all bills within the first 15 days and the second paycheck for the bills between the 16th-31st.

Also, keep in mind any credit card debt that you carry and make sure to pay that once a month. If you can, pay off your credit card entirely to avoid interest charges.

Step 6: Figure out what to do with the leftover money.

This is personally up to you and your situation. Here are a few suggestions:

  • Put it towards debt: The sooner you and your family can get out of debt, the better. This includes credit card debt, student loans, medical bills, car loans, and a mortgage.
  • Save it: If you don’t have debt (or if your debt plan is already strong), save your money for the future. Having money set aside in a savings account is always wise
  • Treat yourself (and your family): This likely isn’t something you can do each money, but don’t forget to enjoy life. Sometimes we can budget ourselves so much that we forget to live a little. Go to dinner and the movies. Take a weekend trip 1 hour away. Go to the beach or the mountains and enjoy nature.

Recommended reading: 10 of the Best Budgeting Books Guaranteed to Improve Your Spending

2. 50/30/20 Budget Rule

This budgeting method helps you divide your finances into three simple spending categories so that you can easily assess your finances each month.

Who is the 50/30/20 Budget Rule good for?

This popular budgeting method, created by Elizabeth Warren, can work for just about anyone. It’s straightforward and simple for everyone to follow. This method also places focus on savings and emergency funds, which is necessary for just about all financial situations.

How to use the 50/30/20 Budget Rule

Step 1: Split your monthly income after taxes into 3 spending categories: needs, luxuries, and savings+debt

50%: Needs (basic necessities)

  • Housing
  • Food
  • Utilities
  • Insurance
  • Minimum Loan Payments
  • Child care
  • Transportation

30%: Wants: (luxuries)

  • Entertainment
  • Eating out
  • Subscriptions
  • Trips

20%: Savings + Debt

  • Debt (including debt interest)
  • Retirement
  • Emergency fund

Recommended: 6 Mistakes People Often Make When Paying Off Debts

3. Envelope Method

The envelope method was created by Dave Ramsey to utilize cash as a way to keep track of spending and budgeting for monthly expenses.

Who is the Envelope Method good for?

This method is good for people who want a more hands-on approach to money management. There is no technology involved and you can visualize the money you currently have available to spend.

How to use the Envelope Method

Step 1: Figure out how much money you make each month

Step 2: Establish spending categories and limits per category (this cannot exceed the money you make each month)

Here are a few category group suggestions:

  • Rent/mortgage
  • Gas
  • Groceries
  • Entertainment
  • Children
  • Pets
  • Savings
  • Holidays
  • Insurance 

Step 3: Put a limit on each category 

Step 4: Get envelops and label them with each category (one category per envelope)

Step 5: Cash your paycheck and divvy up the allocated funds for each category (envelope)

Step 6: With each paycheck you get, add cash money to the appropriate category

Step 7: Pay your bills or spend money on entertainment with money from the appropriate category. If you run out of money in one envelope, don’t borrow from another category

Step 8: Leftover money: At the end of the month, if there is money left over you can either roll it over for the following month or put that money in savings.

Recommended: 8 Simple Steps to Create a Monthly Budget and Kickstart Your Savings

4. Zero-Based Budgeting

Zero-based budgeting is a method that justifies all spending and expenses down to the penny.

Who Zero-Based Budgeting good for?

This budgeting method is perfect for people who want to know where every single cent of their paycheck goes. If you really want to get ahold of your spending, knowing where every dollar goes can be an eye-opening experience on your journey for how to budget your paycheck.

How to use the Zero Based Budgeting method

The goal is to get to 0 at the end of the month. That doesn’t mean spending your money on random things, but it’s a smart way to pay your bills and save money at the same time. The entire purpose behind his method is to have your monthly income minus your expenses (which includes socializing and saving) equal zero.

Step 1: Figure out how much money you (and any joint financial earners in your household) make each month

Step 2: Categorize your expenses 

If you need to see how to divide up the amount of money that should be dedicated to each category, see the 50/30/20 Budget Rule from above as a great standard to follow.

Step 3: Every dollar you (and your partner) earn should be put into one of those categories until you reach $0.

Sometimes you might have some money left over. If that’s a case, either add that to pay down debt for the next month or add it to your savings. It’s that simple!

Final Thoughts

Learning how to budget your paycheck doesn’t have to be difficult. Once you decide on a strategy, you and your family can find success with spending and saving money. The two main things you need to do are START and don’t STOP!

What to read next: How to Create a Super Simple Financial Plan at Any Age

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