The Guidepost
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Personal Budgeting

Welcome to Lesson 3! You’re half way through Financial Health 101: Debt and Student Loans, a free short course from Justworks.  


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Welcome to Lesson 3! You’re half way through Financial Health 101: Debt and Student Loans, a free short course from Justworks.

Hopefully, you’re feeling pretty good about how to create a plan of attack for knocking off your debt.

In this lesson, we’ll dive into the next important step to financial health: making sure you can cover expenses each month and avoid borrowing money at a high interest rate. Why? Because you don’t want to accumulate bad debt while you are paying off your existing debt.

This lesson is all about the b-word (budgeting):

  • Anatomy of a budget

  • How to create a budget

  • Why (and how) you should save for emergencies

  • Product and tools you should know about


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If the term “budget” makes you anxious (or just bored), swap it out with “control,” “calm,” or “freedom.” Because that is what setting up and sticking to a personal budget can bring you: a clear picture of how much money you have coming in, and where it should be going each month to help you achieve your financial goals.

And now, some proverbial underwear. Here’s a budget, stripped down to its most fundamental parts:

How much money you earn each month. For the purposes of budgeting, you want to know your after-tax income: what you take home after taxes are taken out. If you have a steady income, you can just look at one of your pay stubs. Any deductions, such as health insurance or retirement contributions, should be added back into the take home number (we’ll explain why in just a bit).

If you are self-employed, work on commission only, or have a less steady income, this might be a little more challenging. A good rule of thumb is to figure out your average monthly income and use that as the benchmark. Then, on good months when you earn more than the average, save a larger percentage of your income to help compensate for not-so-good months.

Fixed Expenses
Expenses that will not change month to month.Things like rent and student loans fall into this category. Savings also gets bucketed here, but we will get to that later. Fixed expenses are fairly easy to track if you look back at payments made in the last month or two.

Variable Expenses
Expenses that change month to month. This includes going out to eat, groceries, clothing, and vacations. These are a bit harder to track. It helps to look at what you’ve spent over the course of six months to a year. Don’t forget to include seasonal expenses.

Why it matters

Without a solid understanding of your income and expenses, you won’t know what you can afford to spend (and save) each month, or where your money should be going. And, as you know, if you miss payments on critical expenses, such as credit card bills or student loans, you can find yourself with more bad debt.

So, now that you know the core pieces of a budget, let’s dive into how to put them together in a way that gets you on the path to financial health.


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If you’ve ever hit up Google to find some “budgeting strategies,” you know there are a plethora of ratios and recommendations for how to allocate your money. Everything from stuffing cash in envelopes (it can actually help people avoid credit card debt) to creating a budget based on your values. One that has gained popularity is the 50/30/20 budget, which recommends dividing your after-tax income by needs (50%), wants (30%), and savings (20%).

Here’s the thing. Your budget needs to work for you. How much time you want to spend planning each month, and just how rigid you want to be (is 31% ok?) - that’s for you to decide. The most important part is making sure you are distributing enough money to the right places so that you avoid accumulating bad debt and set yourself up for financial success. That means paying your bills each month, living within your means, saving for emergencies, and putting aside something for the future.

Now the “How” Part (For Real This Time)
For simplicity’s sake, we are going to go through the 50/30/20 budget. It’s a great jumping off point, especially if you have debt to pay off and are just getting started with financial planning. But keep in mind, the actual percentages can be a bit flexible, depending on your specific situation. It’s the buckets that are most important.

The first step is identifying your after-tax income (scroll up for detail). Make sure to add any deductions, such as health insurance or retirement contributions, back into this number. Once you have this calculated, the next step is to bucket your expenses into these three categories:

Need. Anything that would severely impact your quality of life if you did not have it as well as minimum debt payments that, if missed, could negatively impact your credit score.

Want. Things you enjoy, but could forgo with only minor inconveniences.

Save & Repay. This is the category for paying back any debt beyond minimum payments, and contributing to your future - be it retirement or an unforeseen emergency.

Where To Put Your After-Tax Income

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That’s it. You now have a map of how much you are bringing in each month, and where it’s going.

If your expenses are greater than your income, then look at that “want” bucket first, even if it’s within the 30% range. What can you do without? Try prioritizing the items in that category and getting rid of the things lowest on the list first. Keep going up the list until your income and expenses are balanced.

*Yes, You Need an Emergency Fund
It goes by a lot of names: rainy day fund, worst-case-scenario fund, oh shit fund. Whatever you call it, the point is to have money set aside for for urgent, unplanned situations (lost job, accident not covered by insurance, etc).

Hopefully, you never have to use it. But you should still have one, just in case, to help cover unexpected bills and avoid having to borrow money at a high interest rate (ie bad debt).

As an end goal, you want to have 3 to 6 months of living expenses stashed away. You can think of this as the stuff that falls in the “needs” bucket. Don’t freak out - that’s what you are working towards. It’s ok to start small. Once you know what you are aiming for, figure out how much of your “save & repay” bucket you are comfortable devoting to your emergency fund.

Tip. Make sure your emergency fund is easily accessible (ie liquid). Savings accounts or checking accounts are generally a safe bet.

**Emergency Fund vs. Retirement Contributions
Ideally, you’ll be contributing to both an emergency fund and your 401(k) or other retirement plan each month. But, depending on your financial situation, that might not be feasible. We get it.

In the next lesson, we’ll dive into retirement planning in more detail. But if you aren’t sure how to divide and conquer, here’s a tip for how to balance savings priorities:

Start with an emergency fund. It’s the most fundamental and urgent component of your savings plan. This is especially true if you are paying off student loans - you want to avoid getting any deeper in debt.  

Once you have some cushion, spread the love. If your job is less stable or you have a large debt load, that cushion should be pretty thick. Depending on your situation, it might make sense to have a full 3 months saved up in your emergency fund before you start allocating any money to retirement contributions. But, if your job is pretty stable, your employer matches 401(k) contributions, you have very little debt, or you are in a high tax bracket, you should start contributing to your retirement as soon as possible. Again, it depends on your specific situation. One month saved up in your emergency fund might be enough for you to feel comfortable dividing your “save & repay” bucket.  


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There are ton of great apps and other tools out there designed to help you set up and stick to your budget. Even better - there are a ton of third-party review sites that write up pretty in-depth summaries of each to help you decide which to use. Keep in mind that many of these sites use affiliate links to earn commissions on your clicks.

Here are a few to get you started:



In this lesson, we laid out some specific strategies for creating a budget that will set you up for financial health. There’s no one-size-fits-all for personal budgeting, though. Your financial goals will evolve over time. That’s ok. You do you.

The 50-30-20 budget is a good starting point if you want to get into the habit of giving your money a purpose, but make it work for you so you have best chance of sticking to it. It’s a lot easier to reach your financial goals when you have the right plan in place.

In Lesson 4, we’ll dive into retirement planning. Yes, even in your ‘20’s. Actually, especially in your ‘20’s. That’s the best time to start.

This material has been prepared for informational purposes only, and should not be relied on for, legal, tax, or financial advice.