Everyone is always telling you to save your money, but don’t you also want to know how you’re supposed to be spending your money? That’s where creating a budget is incredibly important. If you have a good spending plan for your money, you not only have the power to plan for your week, month, and year, but you can feel confident knowing that you’re investing in your future. Creating and understanding your personal budget is not only key to your overall satisfaction, it’s also important for your professional life.

Picture the future you 

Take a moment to think about where you see yourself in the future: as a successful professional. How do you feel? What’s it like in the future? Thinking about the future can be tough stuff, but thinking about your goals will help you create your budget plan. Knowing how much you should earn to pay for the lifestyle you want will help guide your career decisions, use your income efficiently, and position you for financial success.

I know taxes will affect my income… but, what does that really look like?  

When you start thinking about a money management plan, it’s important to first understand your income. What your income is, or will be, is a big factor in how you will choose to spend your money. When creating a monthly budget, you’ll need to consider the amount you actually receive after taxes, health insurance, 401k, and other deductions. In other words, what’s the net total amount listed in your paystub (also known as your after-tax income or take-home pay)? Now, let’s take that number and get planning.

Start categorizing your expenses 

While your expense predictions will not be exact, and the amount you spend will vary monthly, categorizing where you need to and want to spend your money will help you stay on track. You won’t be able to predict the future, but with a good budget strategy, you can be assured that you’re making good, healthy, financial decisions. In the end, your career decisions will play a large role in your ability to achieve financial stability and embrace financial flexibility. There are plenty of budget calculators out there that will assist you in creating a monthly budget, but let’s take a deeper dive into a popular budgeting method now.

The 50/30/20 rule and how to use it

The 50/30/20 rule is a popular budgeting method, created by Harvard bankruptcy expert, Elizabeth Warren — U.S. Senator from Massachusetts. In 2005, she published a book on the method called “All Your Worth: The Ultimate Lifetime Money Plan” and coined the term 50/30/20. This method is an incredibly helpful way to organize your budget by asking you to categorize your spending into three categories. In short, you should be spending roughly 50% of your after-tax dollars on necessities, 30% on wants, and at least 20% on savings or paying off debts. After determining your after-tax income, calculate 50%, 30%, and 20% of that total. This number is the upper limit of how much you should ideally be spending in each category. But how are we defining these three categories?

Set side 50% of your budget for necessities

So, what should actually make up the 50% of your budget? Necessities are defined as essential items. These are typically fixed expenses like rent, utilities, groceries, insurance, and transportation costs. If your necessities are adding up to be more than 50% of your after-tax income, you might want to review your expenses list and ask if you are adding “wants” to your “needs” list like gym memberships, clothing costs or TV subscriptions. If you are, take them off the necessities list. What should you do if the total cost of your needs surpass 50% of your budget? Until you can achieve a better financial situation, you might need to dip into your other two buckets, but that’s why we’re planning, right?

Keep 30% for your wants

While many people have different definitions of needs and wants, the way we see it is simple. If you can’t live without it, you need it. Everything else are probably expenses you could live without. While you do need food to live, you may want to go out with friends on the weekend, splurge on clothes or a new phone, and save for that new something… and that’s okay! When you’re planning your budget, it is important to think critically about your lifestyle and habits. Reward yourself for your hard work, plan a trip, and treat yourself with that 30%–you’ve literally earned it!

Save that 20%!

Many people don’t actively think about savings as an expense. But if you’re consciously setting 20% of your after-tax income aside for the future you, you’re doing a great job. This money should go towards retirement, savings, emergency funds, and debt repayment. It’s important to take action to pay down your debts as early as possible, so your first step should be to determine how much you can actually put toward debt repayment. Then, you should think about an automatic savings plan and retirement. If you have an employer that matches your 401K contributions, it is a no brainer to add as much as you can. With a savings strategy in place, you are setting yourself up for long-term financial success.

Once you are comfortable with your budget plan and money allocation, start tracking. There are several free tools out there like Mint or Personal Capital that track your expenses automatically and alert you if you go over your limit on any certain budget category.

Finally, know that budgets aren’t set in stone. Your current personal circumstances can change. Your future needs and wants will change. The steps outlined above are just a few ways to get you started and help you think about how your career can help you reach your goals. If your current budget is not allowing you to afford things you want like a better apartment or a vacation trip, or worse, things you need,  you should be looking at ways to advance your career to get there.