How to Allocate Your Salary

Setting up a monthly budget is the best way to make sure that you allocate your paycheck to cover all your expenses. A budget will give you a clear picture of how much you make and how you need to spend your money. It will help you decide if you are spending too much in one area and not enough in another. A budget can also help you to get out of debt and to set aside more money for savings.

Before you can create a budget, you’ll need to determine your current income and expenses. You may need to track your spending for a month to get a good idea of where the money is going. Track all your bills as well as your spending on food, clothing, entertainment and other incidentals. At the end of the month, make a list of your income – which is your salary and all the other money you made – and how you spent your money by category. Now you’re ready to create your budget.

There are many tools for creating a personal budget, including apps, spreadsheets and paper. The most important thing about the tool you choose is that you’re comfortable enough with it to use it on a regular basis. Begin by adding your necessary spending, including housing, food, utilities and transportation. Financial experts suggest allocating 50 percent of your income for these essential expenses. Then, subtract money set aside for savings and payments for loans and credit cards, which experts say should represent about 20 percent of your income.

Add up all your essential expenses, savings and debt payments, and subtract the total from your total income. If your expenses are greater than your income, you’ll need to reduce your spending. Otherwise, the remaining money can be used for entertainment, dining out and other non-essential expenses. Ideally, this should be about 30 percent of your income.

Saving money isn’t easy, especially when your expenses take up most of your income, but it’s important to set aside something each month to cover unexpected emergencies. You should also plan on saving for larger expenditures, like a car or vacation, to avoid relying too heavily on credit. Saving even a small amount each month for big-ticket items can add up over time. Saving for the long-term future should also be part of your budget.

If your employer offers a 401(k) or other savings plan, sign up to have a percentage of your salary automatically taken out of your paycheck and deposited in the plan. If your employer offers a program to match some of your contribution, try to invest enough to take full advantage of the program.

Your personal budget is a living document that can help you understand and control your spending. At the beginning of each month, make adjustments for what you expect to earn and spend that month. Update the budget throughout the month, and use it to help create the budget for the next month.