How to Allocate Your Salary

Decide before you get paid where your money is going.

Decide before you get paid where your money is going.

There are basic guidelines available for how to allocate your paycheck each month so that the important bills get paid and you put some money away in savings. Figure the allocations on your after-tax salary, which is all you really have to work with anyway. When money is left over, you should allocate some to an emergency fund and another portion for food, clothing and transportation. Then and only then can you allocate money to your discretionary fund for play. According to Kiplinger’s, based on an annual $35,000 salary, your allocations should take care of your living expenses, allow you to save, go out occasionally and repay your debts.


Investment advisers recommend paying yourself first to ensure you won’t be left high and dry by the time you retire or if you encounter an emergency. The first allocation should come straight off the top and equal about 10 percent of your salary. You can have the money automatically taken out of your paycheck and deposited in a money market or other liquid account to force you to save. Use direct deposit with your bank to get that set up.


You need to take care of your living arrangements next. Plan to allocate no more than 40 percent of your salary to your rent or mortgage and the utilities. If big cooling bills in the summer and whopping heating bills in the winter hit you hard, you may want to consider a monthly utility payment plan that automatically averages out your utilities so that you pay the same amount every month, alleviating any concerns about whether you’re allocating enough to cover them.

Food and Clothing

The necessities of life include food and clothing, but what brands and how much you buy is negotiable. When setting up a budget, include groceries, takeout and restaurants in your total food allocation, which should be about 15 percent of your $35,000 salary. You can put aside your clothing allowance and spend it all at once or purchase items that fit into your budget each month. Either way, plan for your clothing allocation to average about 5 percent of your salary.


You can’t forget about your debt. Kiplinger recommends an average allocation of about 10 percent to cover your credit card bills and other debt such as student loans. Of course, if you don’t carry any debt, that 10 percent can go toward your savings, vacation plans or large purchases.


Plan on allocating about 15 percent of your $35,000 salary to car payments and insurance, gas and maintenance for your vehicle. You may be able to squeeze a bit more out of your paycheck for entertainment or saving for a special purchase if you don’t drive or if you own your car outright. For example, if you live in a city with a sufficient transportation system, you can probably cut your transportation allocation.


That leaves you about 5 percent to allocate for your hobbies and other interests. Not that it’s unimportant, but your fun and entertainment is the lowest priority and can’t take up more than its fair share if you want to maintain a comfortable life without incurring additional debt. Entertainment expenses include drinks after work, concerts, sports gear and movies. Your vacation money should come out of this pot as well.


About the Author

Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."

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