A budget is easier when you start from the money you actually receive. Your take-home pay is the real number, so it is the only one worth planning around.
Start with net, not gross
Work out your monthly take-home pay with our calculator, or read it off your payslip. If your pay is irregular, use a low-but-typical month. Everything below is a share of that number, not of your salary.
A simple three-part split
A well-known starting point is to divide take-home pay into needs, wants and savings. A common version is about half for needs, three-tenths for wants and a fifth for savings and debt repayment. It is a rule of thumb, not a law. If your rent is high, needs may take more. The point is to make the split on purpose.
Count your needs honestly
Needs are the things you must pay to live and work. List them with real figures:
- Housing: rent or mortgage, utilities, council tax or property tax, home insurance.
- Food from shops, not eating out.
- Transport to work, fuel or fares, car insurance.
- Health, phone and internet, and any minimum debt payments.
- Childcare or other regular commitments.
Pay yourself first
Set up an automatic transfer to a savings account for the day after payday. Money you never see is money you do not spend. If you are not saving at all, start with a small amount, even 20 pounds or dollars, and raise it each time you get a raise. If your employer matches retirement contributions, taking the full match comes before most other savings.
Build a cushion
A starter emergency fund of one month of essential costs makes a big difference to stress. The longer-term aim is often three to six months. Keep it somewhere easy to reach but not in your everyday account.
Review it twice a year
Budgets go stale. Check yours whenever your pay changes, your tax code or withholding changes, or a large bill appears. A raise is the best moment to decide in advance how much goes to savings. Use our calculators to see your new take-home pay before you adjust the plan.
Calculators for this guide
More tips
- How to Read a Payslip, Line by Line
- Hourly, Weekly, Monthly or Yearly: Converting Pay Without Mistakes
- Marginal and Effective Tax Rates: Why a Pay Rise Never Costs You Money
- Retirement Contributions and Take-Home Pay: Before Tax or After?
- How to Compare Two Job Offers Properly
- Why Your Real Payslip May Differ From an Online Estimate
- Bonuses and Overtime: Why They Seem to Be Taxed More
- States With No Income Tax: What That Does and Does Not Mean
- Moving for a Job: Will You Really Be Better Off?
- Self-Employed? How Much Should You Set Aside for Tax
- Asking for a Raise: Using Take-Home Numbers to Plan the Conversation
- Student Loan Repayments and Your Take-Home Pay
- A Yearly Tax Check-Up in Thirty Minutes
- All tips and guides
These guides are general information and estimates to help you plan. They are not tax advice. Rules and rates change, so check the official tax authority for your country.