Creating a Budget That Works for Average Income Earners

 

Creating a Budget That Works for Average Income Earners

Do you wish you could have more than just a paycheck? Do you wish you had a little money set aside for emergencies? Budgeting can be tough, but with a little know-how, you can take control of your finances and create a better future for yourself.

Step 1: Track Your Income and Expenses

Record everything you spend for a month, even if it’s just a cup of coffee or a snack. You’ll get a better sense of where your money is going. You can use a budgeting app, spreadsheet, or notebook to track your expenses.

Some popular budgeting apps include:

Mint

Personal Capital

YNAB (You Need a Budget)

Spendee

Step 2: Categorize Your Expenses

Divide your expenses into categories, such as:

Housing (rent, utilities, maintenance)

Transportation (car loan, gas, insurance)

Food (groceries, dining out)

Insurance (health, life, disability)

Debt repayment (credit cards, loans)

Entertainment (hobbies, movies, concerts)

Savings (emergency fund, retirement)

Step 3: Set Financial Goals

What do you want your budget to accomplish? Do you want to:

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What do you want to get out of your budget? Do you want to:

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What do you want to get out of your budget? Do you want to:

Pay off debt?

Build an emergency fund?

For something really big, like a car or a down payment on a house?

Increase your retirement savings?

Improve your credit score?

Write your goals down and prioritize them. This will keep you focused and motivated as you work on your budget.

Step 4: Assign Percentages

Make a percentage decision about how much to put in each category, depending on your goals and priorities. As a general guideline:

Housing: 30%

Transportation: 10-15%

Food: 10-15%

Insurance: 5-10%

Debt repayment: 5-10%

Entertainment: 5-10%

Savings: 10-20%

Remember these are just rough figures – you may need to adjust the percentages according to your situation.

Step 5: Adjust and Refine

As you track your expenses and income, you might need to make changes to your budget as your circumstances change. Review your budget regularly and make adjustments as necessary to stay on track.

Tips for Average Income Earners

Start Small

Don’t try to do everything at once. Start with one or two areas and build on it. You might want to cut back on dining out or cancel subscriptions you don’t need.

Prioritize Needs Over Wants

Tell yourself the truth about what you need versus what you want. Prioritize expenses like housing, utilities, and food over discretionary expenses like entertainment and hobbies.

Use the 50/30/20 Rule

50 percent for necessities like housing, utilities, and food 30 percent for discretionary spending like entertainment and hobbies 20 percent for saving and debt repayment

Automate Your Savings

Set up automatic transfers from your checking account to your savings or investment accounts so you’ll save on a regular basis without even thinking about it.

Avoid Impulse Purchases

Keep track of what you spend and don’t buy things on impulse. Think about whether you really need to buy something before you buy it.

Consider Used or Refurbished Options

- Buy used or refurbished instead of new. This can save you a lot of money on electronics, furniture, and more.

Take Advantage of Employer Matching

Take advantage of an employer-sponsored 401(k) or other retirement plan that matches a portion of your contributions. This is free money that can help you build wealth over time.

Review and Adjust Regularly

Keep checking your budget. Be sure to update it frequently. Your income and expenses change over time, so your budget should change as well.

Common Budgeting Mistakes to Avoid

Not Tracking Expenses

If you don't track your expenses, you won't know how much money you're spending. Write down everything you spend, even if it's not much.

Not Prioritizing Needs Over Wants

It’s also easy to get into trouble if you spend more on discretionary items than you do on necessities. Prioritize your needs over your wants.

Not Having an Emergency Fund

You're more likely to fall into debt if you don't have an emergency fund. Keep 3–6 months of living expenses in an easy-to-access savings account.

Not Paying Off High-Interest Debt

You could pay thousands in interest if you don’t pay off high-interest debt. Pay off debt and consolidate debt into a lower-interest loan or credit card.

Budgeting Tools and Resources