How to Budget Your Paycheck (and Never be Poor)
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Learning how to budget your paycheck allows you to be more in control of your cash. When starting a budget for the first time, I recommend budgeting by paycheck using a zero-based budget.
This simple budgeting method helps you to monitor your spending and debt repayment more closely in order to be the most successful.
Why you Need to Budget per Paycheck
Once I decided to start a budget, I would do it monthly. First, I would gather my monthly expenses and list them by date in my budget template, and then put my total income at the top. Then I would subtract all expenses from my income to see what was left over to put towards my savings or debt.
This plan worked mostly. I say mostly, because it did help me to track my income and expenses, but things could change over the course of a month. I could get a bonus, receive side hustle income, or need to realign an expense sinking fund.
I decided that budgeting by paycheck would help me better manage my cash. In response to this need I created my paycheck to paycheck budget!
Starting your Paycheck to Paycheck Budget
To start a paycheck to paycheck budget, you will first create a list of your income by pay date. I have created printable budget worksheets and budget spreadsheets that make this easy for you!
You will then create a list of your expenses by their due dates. A bill tracker or calendar is a great tool to use to organize your expense due dates! You can find a free bill tracker in my free resource library!
You will list your expenses in chronological order for the month and then use this list to never miss a payment date. Paying late fees is an expense we don’t want to add to your budget!
Second, you will list your expenses and income per pay period on a budget template. If you see that you have more expenses than income for that period, call the companies you owe money to so that you can change the bill due dates. Companies are more than willing to work with you on your desired payment due dates.
Now that you have your budget set up in a way that works for you, you can start focusing on using leftover cash to save or pay down debts. Make a list of your debts and savings goals. If you are following a debt repayment plan, you will use your budget to complete that plan. Budgets are the first step towards mastering your savings and debt repayment goals!
Once you have your budget created, you will forecast future pay periods to make sure no bills slip through the cracks. You will also track debts to visualize paying them down. I have been able to pay down $70,000 of debt since May of 2016 this way!
Refine Your Budget
After a pay period occurs, download your bank statement and categorize each expense item and put these totals into your budget. Next add your income items for that pay period. Then compare your budgeted items to what you earned and spent. This information is used to adjust future periods as needed.
Adjustments you can make to future periods could be:
- Create sinking funds for new monthly, quarterly, or annual items. For me this is our annual propane expense. I also had to increase our medical expense sinking fund.
- Adjust income for items such as new deductions. An example of this would be adjusting income down for an increased 401k deduction.
- Add a new expense category. I decided to study for a new accounting certification, and with this comes an added expense. To plan for this expense, I went ahead and added a new budget expense category named “continuing education”. I am a lifelong learner and know spending money on this will add value to my career.
- Use a cash envelope system to prevent yourself from going over budget. For this to work, you will pull cash out of your bank before the beginning of your budget period and only allow yourself to spend cash on things like groceries, restaurants, clothing, and fun. It is a great way to hold yourself accountable to your budget!
Setting Budget Goals
At the end of the year you will create a list of your goals based on the upcoming year. For example, in 2020, we want to save money to move to a low cost of living area. To do this, we diverted money from our student loan debt repayment categories to our savings goal. We will go back to paying off debt once this cash is saved.
Another goal we had was to increase my husband’s 401k contribution so that we would be investing 15% of his income towards retirement, our HSA and dependent care funds, and his employee stock purchase plan.
Create a list of goals that are easy wins, and goals that are stretch goals. An easy win could be to decrease your grocery budget by 1% each month for the new year. A stretch goal could be to get a 7% raise at work!
You shouldn’t limit yourself. Be creative and see what you can accomplish!
When your goals are outlined, you can then analyze your budgeted amounts against their actual amounts for the previous year to forecast your expense and income amounts for the upcoming year.
Make sure to see where you can make improvements and add them to your list of goals for the year.
Going Forward
You may experience setbacks during the year. Don’t let these setbacks derail you from your goals. Keep moving forward, even if they are baby steps you will still be making progress.
Now that you have created your budget you can work towards your financial goals! Since I have started budgeting by paycheck I stopped the endless cycle of being broke I felt would never end.
Start your paycheck to paycheck budget today to get back on track!
Do you want to start a paycheck to paycheck budget this year? Use my budget tools to get started today!
