Money management can be one of the biggest sources of anxiety, with 64 percent of Americans citing money as a stressor, according to the American Psychological Association. While most people have a desire to take control of their finances, they are often at a loss when it comes time to make a plan.
Whether you have burdensome debt to pay off or simply want to increase your savings, here are four tips to help you make—and stick to—a monthly budget.
1. Establish your income
Take stock of the pay you actually receive—subtracting 401(k) contributions, health insurance premiums, taxes and any other payroll deductions. If you’re paid a salary, your take-home income is easy to track. However, if your pay depends on unpredictable variables like hourly wages or commission, look at past pay statements and determine a reasonable average monthly income. Try to err on the side of expecting lower paychecks, taking unusually high amounts out of the equation. It’s always easier to figure out what to do (responsibly) with extra money than it is to figure out how to make ends meet when you don’t have enough.
2. Make a plan
Most spending can fall into three buckets: needs, wants, and a combination of savings and debt repayment. While there are many schools of thought on how to budget, one of the most popular—and simple—is the 50/30/20 budget. According to this plan, you should budget to spend 50 percent of your after-tax income on needs like housing, groceries and utilities; 30 percent on wants like dining out, travel and entertainment; and 20 percent on savings and debt repayment. If you need to tweak how you break up your spending, be sure to always take from wants first, so that your needs and savings or debt repayment don’t suffer.