How Should I Divide Up My Paycheck?

Do you have trouble saving money?

Does your paycheck arrive and then barely seem to make it through the weekend?

While a budget will definitely help, knowing how to properly divide up your paycheck can make a big difference, too.

The Biggest Share Goes to Housing

Conventional wisdom is that the largest portion of your paycheck should be going to the roof over your head.

Whether that means rent or a mortgage, you should keep it to between 30% and 35% of your monthly take-home pay.

Of course, if you’re saving money for a house, you might want this percentage to be a lot smaller so you can use the rest to make a down payment.

Put 10% Toward Savings

Another common step is immediately taking out 10% for your saving. This may require a different perspective on saving money, though.

We’re big fans of telling our clients to pay themselves first. This means treating your savings as a priority, not a luxury you’ll get to if you have some money left at the end of the month.

People who take this approach never have money left over. They spend it on things they don’t need and put their savings off until another day.

If it means you can’t go out as much or have to cut expenses somewhere else, do it. 10% of your check absolutely must go directly into savings. Give this its place in your budget.

10% Goes to Paying Down Debt

Debt is a huge financial handicap, especially for young people. While there are certainly manageable amounts, paying down debt needs to be another priority you take seriously.

At the very least, make sure you’re paying the minimal amount every month. However, assuming there won’t be penalties for paying it off early, you should also look to put larger amounts toward your payments.

We’re saying 10% here, but it will depend on the amount of debt you have. If 10% is more than you need, consider taking the remaining amount and putting it toward your savings.

10% for Transportation

If you’re in the market for a car, 10% of your paycheck is the most you should be spending on that payment, insurance and gas every month. The down payment should come from your savings.

If it’s too late and you’ve already purchased a vehicle that comes with larger monthly payments than this, you’ll need to adjust your discretionary funds, which we’ll address in a moment.

10% for Food

Aside from coupons, there are all kinds of ways to save money on groceries. Alternatively, it’s all too easy to waste a lot of money on food.

We’re not suggesting you starve yourself for the sake of your budget, but 10% should be more than enough to cover your groceries if you know what you’re doing and give you ample nights eating out.

Discretionary Funds

If you do the math, you’ll see we’ve left you a solid 30% of your paycheck to do with as you please. That money can be spent on anything, but you can also put it toward any of the above, too.

Whatever you do, don’t use it for buying something that’s going to come with ongoing payments, though.

Saving money and sticking to a budget can be difficult, but hopefully, the above has given you an idea for how you can make the most of each paycheck for these purposes. If you’d like more help, contact Mooney Lyons today.

The opinions voided in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.