Budgeting Based on Your Pay Stub

After the last year, you may have noticed your budget changing. Your pay stub, on the other hand, isn’t.

And there’s a reason for that.

As of June 2022, 61% of Americans — roughly 157 million adults lived paycheck to paycheck. With grocery prices rising and cost of living going up, it’s harder to stretch your income and easier to fall of track financially.

How can you manage money and adjust your spending habits to escape the paycheck to paycheck cycle? Start by budgeting with your pay stub.

But first, you may be wondering…

What is your pay stub?

Your pay stub is a document that shows how much money you’ve earned and how much money has been deducted from your paycheck. It’s an important document to have, because it can help you keep track of your finances and make sure that you’re getting paid what you’re owed.

Your pay stub will also show any benefits you’re receiving from your employer, such as healthcare or retirement contributions. And if you have any deductions from your pay, such as for disability insurance or taxes, those will be listed on your paystub as well.

Paystubs can be confusing, but they don’t have to be. Take some time to understand what all the numbers mean and you’ll be better prepared to manage your money.

Now on to why you came here in the first place….

Why you should start budgeting based on your paystub

For starters, budgeting based on your pay stub can help you get a handle on your finances. It can also help you make smarter choices about how to spend your money. Lastly, you can be sure that your budget is realistic, based on your income, and will help you stay on track financially.

Inflation may be rising, but your paystub will always give you an accurate picture of your true earnings.

How to budget based on your pay stub.

If you’re not sure how to budget based on your pay stub, don’t worry! We’re here to help.

First, take a look at your pay stub and determine your gross income. This is the amount of money you make before taxes and other deductions are taken out.

A lot times people are surprised by just how high the number is. If you’re wondering why that number is so big, you may need to adjust your withholding.

Tax withholding

If you’re like most people, you probably have money withheld from your paycheck for taxes. But did you know that you might be having too much money withheld?

When it comes to managing money, it actually may be better to have a little less money withheld from your paycheck. You’ll have a little more money between paychecks to manage and feel less financially stressed. Downside? You’ll get a smaller refund when you file your taxes.

Of course, you don’t want to withhold too little, because then you’ll end up owing money come tax time. But as long as you’re reasonably close to the amount you actually owe, you’ll be fine.

So go ahead and adjust your withholdings accordingly. Your future self will thank you for it.

The next step is to review your workplace benefits.

Ask yourself, have you optimized your benefits at work?

When it comes to your money and what’s showing up on your pay stub, there are a lot of things to think about. Healthcare, retirement and more all come into play when you’re making your benefits choices.

Here are a few things to keep in mind as you make your decisions:

Healthcare: Make sure you understand your health care options and how it covers you. This is important not only for your own health and well-being, but also for your budget.

Do you see a doctor regularly? Or take monthly medications? Even if you don’t, you’ll want to understand your health insurance benefits. After all, you may need to cover your deductible when you’re calculating your emergency fund.

When budgeting based on your pay stub, make sure you’re setting enough aside for retirement

Many workplace benefits include retirement savings plans. This is a great way to save money for the future, so make sure you understand how your plan works and how much you can contribute.

A lot of people call a 401k match “free money” but it’s actually part of your compensation package.

The way it works is that your employer will match a certain percentage of the money you contribute to your 401k, up to a certain amount. For example, if your employer offers a 50% match up to $5,000, that means they will match half of the money you contribute to your 401k, up to $5,000. So if you contribute $2,500 to your 401k, your employer will contribute an additional $1,250.

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There are a few things to keep in mind when it comes to 401k matches.

First of all, not all employers offer them. If your employer does offer a 401k match, make sure you’re contributing enough money to take advantage of the full match, if you can afford it.

Other benefits that may be eating up your paycheck

There are other workplace benefits that can be extremely valuable, such as flexible spending accounts to help you cover medical expenses, disability insurance, and life insurance. Make sure you understand what’s available to you and how you can take advantage of it.

Next steps to reviewing your pay stub in order to build a better budget is calculating your take-home pay

Your take-home pay or net income is the amount of money you have left after taxes and other deductions have been taken out of your paycheck. If you’re on salary, this should be pretty predictable, but hourly workers should estimate how much they’re working in a given time period and keep track of it.

Then, subtract your living expenses from your net income to determine how much money you have left over each month. This tells you how much you have to work with (or how much you need to make up for if you’re short. )

Finally, it’s time to start categorizing your expenses.

Once you know your take-home pay according to your pay stub, create a spending plan.

There’s no one-size-fits-all approach to budgeting, so figure out what works best for you and your money goals.

Some experts recommend the 50/30/20 rule, which suggests that you should spend 50% of your income on essentials like housing and food, 30% on non-essentials or wants, and 20% on savings or debt repayment. This can be a helpful starting point for creating your own budget.

Another helpful tip is to track your spending. There’s no magic number for how much you should save each month, but knowing where your money is going can help you make adjustments to your spending so that you can save more.

No matter what approach you take to budgeting, the most important thing is to be mindful of your spending and saving. By being aware of your money, you can make better choices about how to use it.

You can start to budget for your monthly expenses.

Image of income and expenses in the Nav.it app. Gains include income. Expenses include groceries, healthcare, restaurants, pharmacies, and unsorted.

There are two types of expenses in your budget: fixed and variable. Fixed expenses are those that you have to pay every month, like rent or mortgage, car payments, and insurance. Variable expenses are those that can fluctuate from month to month, like groceries, gas, and clothing.

Why should you track your fixed and variable expenses?

Tracking your expenses can help you to see where the money you see on your pay stub is actually going.. This can be helpful in creating or adjusting your budget. It can also help you to save money by identifying areas where you may be able to cut back on spending.

So how do you track your expenses?

You can use a budget spreadsheet sheet or even just a simple pen and paper. Or you can automate your savings by using a money tracking app like Nav.it. (With money coaching and all the tools you need to manage your money, Nav.it makes stackin’ your money easier. ) Whatever you do, choose the method that works best for you and get started!

If you find that your monthly expenses are more than your take-home pay, don’t panic. There are plenty of ways to cut costs and get your finances back on track. Start by looking at your biggest expenses and see where you can make some changes.

Try to find cheaper alternatives for some of your expenses, and see if there are any areas where you can cut back without sacrificing too much.

You may be surprised how much money you can save by making a few small tweaks to your budget.

As you can see, your pay stub can give you a realistic picture of your monthly income and expenses. This can help you make informed decisions about where to spend your money. It can also help you avoid overspending and getting into debt.

Things to keep in mind when budgeting based on your pay stub

There are a few things you should keep in mind when budgeting based on your pay stub. First, remember that your take-home pay may be different from your gross pay. This is because taxes and other deductions are taken out of your gross pay. Second, don’t forget to factor in other income sources, such as tips, commissions, and bonuses. Finally, be sure to include all of your expenses, including those that are not monthly, such as annual insurance premiums.

Above all else, remember your budget, even when built based on your paystub, is meant to be a little flexible

Let’s face it, life happens and sometimes that budget just doesn’t work. That’s why it’s important to be flexible and make adjustments to your budget as needed.

Here are a few reasons why you should be flexible with your budget:

1. Life happens. Things come up that you didn’t plan for and that can throw off your entire budget. If you’re not flexible, you could end up in debt or struggling to make ends meet.

2. You might find that you need to adjust your budget as your income changes. If you get a raise, you might want to increase your savings or invest in some new things. Or, if you get a pay cut, you might need to find ways to save money.

3. Adjusting your budget can help you reach your financial goals. If you’re trying to save up for a big purchase, you might need to adjust your budget to make sure you’re putting enough money away.

4. Being flexible with your budget can help you avoid financial stress. If you’re constantly worrying about money, it can be tough to enjoy life. But if you’re able to adjust your budget as needed, you can focus on the things that matter most to you.

5. You might find that you need to adjust your budget seasonally. For example, you might spend more money during the holidays or in the summer when you travel. If you’re not flexible, you could end up overspending and getting into debt.

With a little bit of effort, you can easily build a better money management system by starting with the basics – understanding and working from your pay stub.

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