How Much of Your Paycheck Should Go Toward Bills? Here’s What Experts Say
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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If you’re finding that your bills are eating up such a significant amount of your paycheck that you have very little leftover for leisure, saving or emergency funds, it’s probably time to reevaluate your financial situation.
Here’s how much of your paycheck experts recommend you allocate to bills.
Three Approaches to Allocation
On one hand, Melanie Musson, a finance expert with InsuranceProviders.com, suggested that 50% or less of your paycheck should go to essential bills.
“When your necessities take up less than half your paycheck, you should be able to create a liveable lifestyle with the other 50%,” she said.
On the other hand, Joe DiSanto, a financial advisor and the founder of JoeDiSanto.com, argued that generic budget percentages won’t help the average person.
“They need to track their spending and make a budget based on that. Then, they make spending adjustments where they can. Prioritize needs first, savings second and wants third.”
William Bergmark, a personal finance expert and finance editor at Credwise, recommended the 50/30/20 rule, with 50% of your after-tax income on necessities, 30% on discretionary expenses and 20% on savings and debt repayment.
However, he pointed out that there may be times when your bills surpass 50%, if you live in high-cost cities or inflation is high, which is OK “temporarily”
“What’s important is you know where your money goes and make the necessary adjustments mindfully,” Bergmark said.
Clarify Essential From Nonessential Bills
If your bills are dominating your paycheck, it’s possible you’re calling something a “bill” that is nonessential, Musson said, such as streaming subscriptions, children’s sports or going out with friends. While these are welcome ways to spend money, they aren’t necessarily “essential.”
“It’s important to keep necessities in their place of priority and nonessentials as secondary,” she said.
When Your Income Is Irregular
If your paycheck is irregular due to freelance work or commissions, you need to attempt to keep your essential bills far lower than 50% of your average income, Musson urged, or else you will struggle to pay even the basics.
Bergmark urged creating stability where you can, averaging out your income to get a “baseline budget” and then deducting your necessities from that baseline. After that, it’s important to build a “buffer fund,” he said. “It keeps you afloat during low-paying months and smooths out the highs and lows of freelance or gig work.”
Prioritize Saving and Investing
With any money that doesn’t go to bills, Musson said, “Saving and investing are more important than monthly discretionary spending.”
The saving percentage should be based on a long-term plan you make, DiSanto said. “Any savings is good, of course, but an arbitrary percentage may or may not work out in the end.”
And if you have to “cannibalize” from the “fun bucket,” DiSanto said, that’s better than not saving at all.
Don’t Make This Budgeting Mistake
One huge mistake is not budgeting for non-monthly or irregular payments like car maintenance, annual memberships or holiday purchases, Bergmark said.
People also tend to get locked in high fixed costs like rent or car payments, he warned.
“To avoid this, I recommend setting aside a little “buffer” for unforeseen expenses and examining large expenses at least annually. Sometimes even a small cut — like changing phone plans or negotiating subscriptions — can be a huge help.”
Budget in Layers
If you are living paycheck to paycheck or have inflation-driven bills, Bergmark recommended budgeting in “layers.” This means you start by paying essentials such as rent, food and utilities, then make minimum debt payments. All other subscriptions or eating out can wait if necessary.
“I would also suggest switching from automatic to manual payments temporarily so you can make wiser financial decisions,” he said.
Look Out For These Red Flags
Finally, if you’re never able to save, relying too much on credit cards just to pay for the essentials or if you’re out of money right after payday, these are signs that much of your income is spent paying your bills, Bergmark warned.
In those cases, it’s time to reassess and look for any room to scale back or renegotiate expenses.
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