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Making a Budget

Are you tired of living paycheck to paycheck? Want to be debt-free or save for a house? Here's how to make a budget to meet your financial goals.

There are plenty of great online tools for making a budget, but good old pen and paper works just as well. Try out these four steps and the provided worksheets to simplify the process and help you keep your budget in order.

4 Steps to Creating a Budget

1) Calculate Income

That means monthly take-home pay after taxes and 401K contributions. It also includes all of your incoming money — everything from full-time and part-time jobs, child support, dividends, etc.

Worksheet: Calculating Income ►

2) Calculate Expenses 

What are you currently spending? Track down every expense for a typical month. While some things may slip through the cracks, try to include as much as possible.

Break your expenses into two categories: “Needs” and “Wants.” Needs are essentials like rent, utilities, car payments, insurance and groceries. These tend to stay roughly the same every month. “Wants" are those variable expenses that tend to fluctuate from month to month. These include eating out, entertainment, clothes, gas, vacations and gifts. 

Worksheet: Calculating Expenses ►


3) Calculate Net Income 

Net Income = Monthly Income - Expenses

Worksheet: Calculating Net Income ►

4) Make Adjustments

Now that you've identified all the money coming in and where it's going back out, determine where you can make adjustments. The unbreakable rule is: Don’t spend more than you make! If you already do, take a hard look at your “wants” and cut back. Little changes do add up.

Worksheet: Identifying Debt ►

Developing a Debt Reduction Plan ►

When you’re spending less than you make, prioritize where you’re going to put the extra money: Whether it’s paying down debt, creating a rainy-day fund, or a little for each goal. Keep in mind that experts advise saving 15% of your pre-tax paycheck each month as part of a long-term financial plan.

While saving is important, it can be hard to sacrifice those little indulgences. To avoid feeling deprived, you can build some financial rewards into your spending — a little “mad money” each month ... That is, if you stick to your budget

Where do you stand compared to the rest of the United States? Here's how the average American spends their paycheck every year:



*Tax withholding is an estimate based on the average income tax bracket.

Experts recommend saving at least 15% of your paycheck each month, while some advise as much as 20%. This leaves the average American trailing far behind the recommended savings budget.