- 1). Decide whether you will calculate your budget based on your gross paycheck (what you're paid before taxes and deductions) or your net pay (your "real" paycheck"). There are fewer steps involved with making a budget based on net pay, which makes it a little less complicated.
- 2). Assuming you are using the net pay method, your taxes and any other voluntary deductions have already been taken out of your paycheck. Is a contribution to a 401k, pension fund, health spending account or college savings plan one of those voluntary deductions? If so, move to on to the next step. If not, decide what percentage of your net pay you can comfortably contribute to each of these (if you have one). Most experts recommend putting approximately 10% of your paycheck towards retirement.
- 3). Now the fun part--adding up all the bills! List each bill and the amount you pay each month. If the cost varies (such as with a cell phone bill), try to think of the average amount you pay per month. Don't forget regularly occurring expenses such as groceries and dining out, childcare, parking fees, organizational dues and prescriptions.
- 4). Determine if there are any services or products that you could cut or modify in order to free up money. Do you really need all those premium cable channels? Is there a cell phone plan that better fits your needs?
- 5). Now that you've squeezed every last penny out of your mandatory expenses, add them all up. Subtract them from your net pay (total net pay minus total mandatory expenses). What's left is yours to divide up as you please--such as contributions to church or charity, shopping money, entertainment or a vacation fund.
Building Your Budget
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