Earning over $100,000 per year is a goal that many people strive for. But without the right budget, it can feel like your money disappears as fast as it comes in — even on a six-figure salary.
Budgets often get a bad rap for being restrictive, but a good budget is just the opposite; it can help you prioritize how you spend your money and ensure you’re on track to hit your financial goals.
So, what should the typical budget for a $100,000 salary look like? Here’s what you need to know.
If you get paid $100,000 per year, that doesn’t actually translate to a six-figure income.
A gross salary of $100,000 ends up being closer to between $70,000 and $80,000 in net income (your take-home pay) after certain deductions are made from your paycheck. These may include:
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Federal and state taxes (exact amounts vary by state, filing status, and your tax bracket)
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Contributions to retirement and other tax-advantaged accounts, such as a health savings account (HSA)
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Out-of-pocket premiums for health, life, and other employer-sponsored insurance plans
This isn’t to say that you should skip these deductions and contributions for the sake of having a slightly bigger paycheck. In fact, reducing these contributions could mean leaving money on the table.
“For retirement contributions, I usually ask clients if they receive matching on their retirement plans through their employer,” said Jamie Hobkirk, CFP, CFA, and portfolio manager at Reynders, McVeigh Capital Management in Boston, Mass. “If they do, it is usually a good idea to at least contribute this amount, if possible.” Hobkirk added that she encourages clients to automate retirement savings to avoid spending that money on other expenses.
The same idea applies to your insurance premiums — investing in these plans on a monthly basis can reduce any surprise medical bills down the road.
Start by reviewing your last few pay stubs to better understand your typical monthly net pay. Once you have that figure in mind, you can divvy up that money across all your major spending categories.
In our example scenario, we’ll assume you take home $75,000 after taxes and other deductions, or $6,250 per month.
Keep in mind there isn’t a one-size-fits-all approach to budgeting; your budget should reflect your unique financial situation and goals. That said, experts often recommend certain guidelines to help keep your budget and spending on track.
For example, your housing costs — likely the most expensive category in your budget — should be no more than 28% to 30% of your income. Hobkirk noted these expenses can include rent or mortgage payments, taxes, insurance, and homeowners association fees. And the right amount can vary depending on where you live.
The same goes for other essentials, such as utilities, healthcare, food, and transportation. How much you can afford to allocate toward each category will depend on the cost of living in your area, whether you support dependents, and more. However, it’s important to keep these expenses within a reasonable percentage of your overall income.
Read more: Fixed vs. variable expenses: Key differences and how to budget for each
As for your nonessential spending — also known as discretionary spending — you have more wiggle room when it comes to fitting expenses into your budget. For example, during the winter, you may need to cut back on your entertainment spending to account for higher energy bills. On the other hand, if you negotiate down your auto insurance premium, you may be able to spend a little more on dining out.
One expense that shouldn’t be compromised? Your savings. This should be a line item in your budget just like any other bill. Although it may take some time to work up to saving 15% of your income, you should strive to consistently put money away for the future.
Read more: How much of your paycheck should you save?
It’s worth noting, though, that savings can and should be fluid. There may be times in your life when you’re able to put more money into your savings, but if you have competing financial obligations, like a credit card or personal loan bill, you might consider scaling back your savings to pay down those balances.
Finally, it’s a good idea to leave a buffer of cash in your checking account to avoid overdraft fees in case you end up spending more than planned.
Read more: How much money should you keep in your checking account?
Remember: Your own spending categories and percentages may not align exactly with this budget example, and that’s okay. Your budget should be tailored to your own living expenses and financial goals. It’s important to make sure that you’re checking in with yourself periodically to determine whether your budget is still working for you or whether it’s time to make some adjustments.
Again, there’s no one right way to budget, and your personal budget should fit your financial priorities. But if you’re overwhelmed by the idea of creating your own budget from scratch, there are a few tried-and-true strategies that you can use as a framework.
The 50/30/20 rule is a budgeting strategy that simplifies the process. With this method, you spend 50% of your income on needs, 30% on wants, and 20% on savings and extra debt payments.
Read more: Struggle with budgeting? Following the 50/30/20 rule could be your solution.
A zero-based budget assigns every dollar you earn to a spending category so that at the end of the month, your remaining balance is zero. This might be a good fit if you struggle with overspending and want to take full control of your money by ensuring every dollar has a designated purpose.
Read more: Guide to zero-based budgeting
The envelope system is a budgeting method that uses physical cash to control your spending each month. You separate the available cash you have to spend into different envelopes for each spending category and withdraw money from the appropriate envelope when you need to make a purchase. Digital versions of envelope budgeting are also available if you like the concept but aren’t a fan of using cash.
Read more: Guide to the envelope budgeting system
Ultimately, the best budgeting strategy is the one that you stick to and use to help you reach your goals. You may have to try a few things before you find a system that works for you.
