Pay for your Necessities & Save for Future Goals

You can maximize the benefit of your income by creating a game plan for financial stability. By practicing some fundamental, financially conservative budgeting techniques, you can meet your current obligations and begin accruing some savings to finance your short- or long-term goals, like saving for a vacation or a down payment on a home. Before you begin, gather some basic information regarding your current income, like your most recent paycheck, as well as your expenses, like utility bills and car loan statements.
 Instructions

1 Calculate the total amount of your monthly bills. Be sure to include all expenses, such as rent or mortgage payments, car loans, student loans and utilities like cable, water and cell phone. Itemize these costs using a spreadsheet with software such as Excel.

 2 Examine your paycheck stub to find your net monthly income. This is the amount you receive after paying taxes, Social Security and other deductions. If you contribute to a 401(k) or other pretax savings program, make a note of the amount. If you have other income, such as occasional commissions or stipends, include these in your monthly income figure as long as they are consistent and reliable.







 3 Evaluate the ratio of your income to your monthly expenses. Identify the largest expense, which is usually your rent or mortgage. The U.S. Department of Housing and Urban Development suggests a general guideline of keeping the cost of housing at 30 percent or less of your income. If your housing expense exceeds this percentage dramatically, you may need to consider finding more affordable housing or offsetting the cost by getting a roommate. Analyze the remainder of your monthly expenses as a portion of your income in the same way.

 4 Analyze your monthly expenses for which you don't receive a bill, such as groceries, gas and entertainment. Add these amounts to your other monthly liabilities and subtract the total from your monthly income. If you have less than 10 percent of your income left over, you may be overspending. If so, review all of your expenses, starting with nonessential expenses like entertainment, and consider setting a monthly limit that will keep your spending within 90 percent of your monthly income.

 5 Set aside the remaining 10 percent or more in a savings account to meet your future goals. Make an appointment with a financial adviser to ensure that your short-term financial goals will not inhibit your long-term goals. For example, if you save all of your excess income for a new car, you could be in danger of underfunding your future retirement. Many employers offer retirement fund matching up to a certain percentage of income, which could mean free money to help fund your long-term plans.

 6 Track your continued monthly expenses against your new budget, but don't get too bogged down in the details. If you overspend by small amounts in different categories, you can always correct these habits in the future. However, if you find that it becomes a habit or that you are withdrawing extra cash every few days, revisit your budget to be sure that it's not too restrictive.