How Much Of Your Paycheck You Should Spend vs. Save

It may seem hard to figure out how to make the most of your monthly paycheck when for most of us, it’s not changing month-to-month. But, you can make sure that you’re divvying it up as wisely as possible so that you end each month in the black (on budget) and not in the red (ouch, over budget).

You’ve probably heard productivity experts suggesting to go ahead and “eat the frog” each morning, which essentially means to do the hardest thing on your to-do list first to get it off your plate and help the rest of your day progress more smoothly.

That doesn’t just apply to your to-do list; it also applies to your wallet.

We’ve all been there: you get your paycheck (cha-ching!) and all of a sudden, your spending trigger finger gets itchy. “First round at happy hour is on me!” or “Let’s go shopping!”…right? Maybe an impulse purchase of those concert tickets that you’ve been eyeing?

Slow down! I love a good happy hour or concert just as much as you, of course. But if you start buying that stuff first, more likely than not you’ll be dipping into your savings to make sure you can cover your monthly bills.

So when you get your paycheck, start by eating the frog. That means: pay your bills, first. Sounds pretty “Captain Obvious,” right?

This can be really helpful to stay on track with your spending plan because it gives you a better idea of what you can actually afford and what you can’t. Plus, you’re making sure that you’re not going to submit a late payment (or miss a payment) which will help keep your credit score from being damaged.

The best way to ensure success with this is to set up automatic monthly payments from a deposit account. It adds discipline to the process, without you having to think about it.

Just how should you be breaking down that paycheck?

70% of your monthly paycheck should be going toward your Essentials–all those living expenses, such as your mortgage/rent, utilities, insurance, food, and other literal needs (soap! toilet paper!). As much as you can, try to set aside 5 percent for an emergency fund here. You know, just in case your car dies, or your laptop becomes unresponsive.

What about the other 30%?

15% should be going to your Endgame, aka things for your future like savings accounts, investment accounts, and retirement accounts. Think of the Endgame as being the lovely stuff you get down the line from this 15%, not the burden of having a 15% “bill” every month. I promise you that “Future You” will thank “Present You”.

Now comes the fun part, because building fun into your budget is a must. The remaining 15% of that monthly paycheck is for the Extras, and that means: whatever does it for you. First round on you at happy hour? That comes outta this 15%. Those concert tickets you’ve been eyeing? That also comes out of this 15%. Whatever it is, if it’s accounted for, then there’s nothing to be embarrassed about, after all, you do you! Allowing yourself indulgences here is essential to keeping your budget on track so that you don’t get “money hangry” and end up splurging on something that’ll leave your wallet hurting.

By doing the hard thing first and paying your bills before you start spending on additional shopping, dining out, or entertainment; you’re ensuring that bills are paid on time, and you’re not dipping into your savings to make sure your insurance premium is paid.

A version of this article was originally published on MindBodyGreen


A simple 12-step plan to leap over the wealth gap once and for all.