How to Budget Money in 5 Steps Divide your income among needs, wants, savings and debt repayment.
LAUREN SCHWAHN AND AMANDA BARROSO
A budget is a plan for how you use your money. No matter how much you earn or how often you get paid, a budget helps you stay on top of your bills, savings and other money goals. It can give you more control and less stress.
HOW TO CREATE A BUDGET: STEP-BY-STEP
To budget money, follow the five steps below.
STEP 1. FIGURE OUT YOUR AFTER-TAX INCOME
If you get a regular paycheck, the amount you bring home is your after-tax income. This is also called your net income or take-home pay. If money is taken out of your paycheck for things like a 401(k) or insurance, add that back in when making your budget. That way, you’ll see your full income. If you have other types of money coming in — such as from side gigs — subtract anything that reduces that income, such as taxes and business expenses.
STEP 2. CHOOSE A BUDGETING SYSTEM
A budgeting system is a plan for how to use your money. Everyone has different habits, personality types and approaches to managing money, and there are systems that can fit your lifestyle.
Every budget should cover your needs, some wants and savings for emergencies and the future.
Examples of budgeting systems include the envelope system, the zero-based budget, and the 50/30/20 budget, in which 50% of your take-home pay goes toward necessities, 30% toward wants and 20% toward savings and retirement.
Other breakdowns, like 60/20/20 and 60/30/10, may work well for some situations.
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