Complete Guide on How to Budget your Paycheck
Managing your finances can feel like such a daunting task, especially when you’re trying to make every dollar count. This is where Paycheck Planning comes into play. This is your complete guide on how to budget your paycheck.
Paycheck Plan
In my last post we discussed How to Budget. This post, we’re working on a commonly overlooked step, Paycheck Planning. If you want to get a handle on your finances, you need a budget and a paycheck plan.
It’s essential to have a solid plan to ensure that your money lasts and works for you. A paycheck plan is a way for you to manage your cash flow to ensure all of your financial obligations are met, savings goals are achieved, and discretionary spending is controlled. It involves detailed budgeting, prioritizing expenses, and strategic allocation of funds from each paycheck to cover your financial needs throughout the pay period.
I can proudly (but sadly) admit that I didn’t know what a paycheck plan was for the longest time. I would budget for the month but never took the next steps to plan my cash flow throughout the month. This would lead to so many issues which left me questioning why I had run out of money. The essential step I was missing in my monthly process was a PAYCHECK PLAN. Trust me, no one wants to be a broke girlie trying to figure out if they can afford that Starbucks coffee in the drive-thru! Here’s how you can effectively manage your income, action out your monthly budget, to help you achieve your financial goals.
How to Budget your Paycheck
1. Use Your Budget.
In this step, we’re going to leverage the budget you created from the How to Budget post. If you haven’t created one already, you need to go back and do that first. In your budget, you have already listed out all your fixed expenses (such as rent or mortgage, utilities, insurance, and car payments), variable expenses (like groceries, dining out, entertainment), as well as debt (e.g. credit card, student loans, etc.), and savings (e.g. sinking funds, investments, emergency funds). Your monthly budget will be the basis of your cash flow plan.
2. Know your Pay schedule.
Additionally, with the work you did to setting up your budget you should know your pay schedule. You will know if you’re paid weekly, bi-weekly, semi-monthly, or monthly. Knowing when and how frequently you get paid will help you plan effectively. The most typical pay schedule tends to be either weekly or bi-weekly. If you’re paid with either of these schedules here’s how I would recommend you set up your paycheck plan:
3. MAP IT OUT.
Next, what you’ll need to do next is map out your expenses in a calendar. This step helps create the paycheck plan itself. You’re able to visualize which expenses will be paid for by the relevant paycheck.
While this step is not mandatory, I do find it extremely helpful. Especially for all the visual girlies who like to see their whole monthly financial budget mapped out. So I highly recommend that you do this especially when you’re just starting your journey. It will help you keep track of your bills and allow you to prioritize your spending based on your income. Your budgeting system should be based around routines until it becomes autonomous. Adding this step within your routine helps you build discipline which is key to getting your finances on track.
Money Calendar
On your blank calendar, map out your income and all your expenses from your monthly budget. You should also pen in any holidays, birthdays, etc. (this should have already been considered when you wrote out your budget, especially if you planned on spending any money for these things). For the expenses that may not have a date (e.g. gas, eating out, groceries, etc.), you can hold off on putting them on the calendar. We’ll place these in when we write out our paycheck plan as these types of expenses should be scheduled depending on your cash flow.
By now you should be able to see everything laid out. You should be able to see which paychecks will service whichever bills that proceed it. This mapping will also help you see whether your expenses are evenly split throughout the month or if it’s top heavy (when most of your expenses are more heavily weighted to the beginning half of the month rather than the latter half).
Here’s an example below using the free Money Girlie Monthly Money Calendar template on how this would be illustrated using a bi-weekly paycheck.
PAYCHECK BUDGET PLANNER
4. write IT OUT.
Let’s write this plan out. Similar to how you wrote out your budget, you’ll write out your paycheck plan. Start with is your first paycheck of the month. If you’re paid bi-weekly you’ll be paid twice a month, therefore you will do two paycheck plans a month. You could choose to do this all at once or you could choose to do the first plan after you budget, then after your first weekly check-in, you can create your next paycheck plan with any adjustments you have made following your check-in. I prefer the latter as you can make live adjustments.
Back to your map, look at all the bills that will need to be paid from this first paycheck and list them out in chronological order in their respective categories. In addition to accounting for your fixed expenses, debt and savings, you need to account for your variable expenses. These are the expenses that may or may not have an exact date but you need to account for when you plan to spend for these for cash flow purposes.
For example, this could be your gas or groceries expenses. If you anticipate to spend $200 per month on gas, you can easily split this up in your paycheck plan as $100 per paycheck (so filling up your tank $100 bi-weekly). For groceries, you’d do the same thing, if your monthly budget for groceries is $600 per month, you would split this up as $300 per paycheck (so you could do this as $150 per week or shopping $300 every two weeks).
Here’s an example of a paycheck plan using the free Money Girlie Paycheck Planner template.
PRIORITIZE
Let me caution you girlie, not every expense can be split up evenly or land this cleanly. So I mentioned in the last section that you needed to map out your expenses (fixed, debt, and savings) first then we would add in the variables and there is a reason for this, you need to understand how your cash flow flows throughout the month based on what needs to be paid and when/how your bank account will look as a result. Again, you don’t want to have to be checking your account every two seconds to ensure you can afford to get gas or groceries.
Therefore, you need to place your variable expenses strategically based off of your cashflow remaining from your paycheck after they’ve serviced your bills. This is where you need to prioritize. I would recommend that you prioritize the variable expenses that are more crucial like groceries or gas vs. your less crucial expenses (eating out or getting your nails done). So what this could look like is that you may not be able to afford to get your housekeeping that’s $200 a month at the beginning of the month because you have to pay for your rent or mortgage alongside your car, etc. so instead you would plan to have this done in the latter half of the month.
Be thoughtful about how you place your expenses throughout the month. You don’t want to over exert a particular paycheck and you don’t want your cash flow to be in a position where you overdraft. Again, nobody likes a broke girlie who’s constantly over-drafting.
5. NET IT OUT.
Similar to creating your zero-based budget plan, you’re now at the point in the process where you can net it out. You don’t need to zero it out (i.e. when your expenses net against your income creates a zero balance) for your paycheck plan as your surplus will be rolled over to your next paycheck plan to contribute to the overall month (if you are in the negative you will need to review your plan and see what adjustments need to be made).
6. TRACKING & DISCIPLINE.
As always, track your spending and stay disciplined. Regularly review your spending to ensure you’re sticking to your budget. I make it a priority to spend time with my money every Friday, affectionately known as “Finance Friday”.
Use budgeting apps, spreadsheets, or even my free budget template printables to keep track of your expenses. This practice will help you identify areas where you might be overspending and allow you to make necessary adjustments for the rest of the month. Impulse purchases can quickly derail your budget. Stay disciplined and avoid unnecessary spending. Make a list before you go shopping and stick to it. Finally, if you find something you want to buy, wait 24 hours to see if you still want it.
Bonus Money Girlie Tips!
Prioritize Your Bills
To avoid the stress of late fees or missed payments, prioritize paying your essential bills first. This includes housing, utilities, and any other mandatory payments. Schedule these payments to be paid immediately after you receive your paycheck to ensure they are covered (or set up automatic payments for your fixed expenses to streamline the process and avoid late fees!).
create a cushion
Life is unpredictable girlie, and unexpected expenses can pop up at any time. Aim to set aside a small portion of each paycheck into an emergency fund or a monthly miscellaneous. Even $20 a week can add up over time and provide a financial cushion when you need it most.
Use the Envelope System (commonly known as “Cash Stuffing” Method)
The envelope system is a tried-and-true method for managing cash flow. Label envelopes with different expense categories (e.g., groceries, dining out, entertainment) and allocate a specific amount of cash to each envelope. Once the money is gone, you can’t spend any more in that category until the next pay period.
Consider a Second Checking Account
Having two checking accounts can be beneficial for those on a bi-weekly pay schedule. Deposit your paycheck into one account and transfer half to the second account. This way, you’ll always have funds available for the second half of the month, helping you avoid overspending immediately after payday. I personally use this method!
Let’s Recap!
Effective paycheck planning is key to financial stability and achieving your financial goals. By creating a budget, prioritizing your bills, saving for emergencies, and staying disciplined, you can make the most of your weekly or bi-weekly income. Remember, the goal is to have control over your money, not let your money control you girlie.
