Schwab MoneyWise ®

Making the Most of Your Paycheck

Where does it all go?

Our Two Cents

Spending more than you’re making each month will only cost you later, especially if you’re putting the overflow on high-interest credit cards. Cutting down now means living better later.

Before you can decide what to do with your money, you need to know what you're working with. The first thing to get straight is the difference between your income and your take-home pay. The reality: what you think you're making—your annual salary—isn't the whole story.

Your employer will deduct taxes from every paycheck—take a close look at your pay stub and you'll see what we mean. Most pay stubs break out earnings, gross pay, deductions and net pay. Your net pay is the amount of money you’re actually getting with each check, after taxes and other deductions for things like insurance, 401(k) contributions, and perhaps commuter costs have been taken off. This is your starting point as you decide how to use your income to cover your bills, pay off your debts and still have some fun.

Living within your means

To stay on top of your expenses and make the most of every paycheck, you'll have to be realistic about what you need and what you don't. It helps to put it all on paper. Here's how to get started:

  • Make a list of your needs and the dollar amounts that go with them. These are necessary expenses, such as rent, transportation, groceries, utility bills, student loan payments, car payments, etc.
  • Then list your wants and estimate how much they could cost you each month. These are the extras you can live without, such as entertainment, dining out, travel and even clothes.
  • Now, add these two categories together, and then subtract the total from your monthly net pay.

If you have enough money to cover everything, you're set. If you don't, you may have to make some trade-offs, like eating out less often. The thing to remember is that you are in control of the money you earn each month. There's nothing wrong with splurging on a new TV or concert tickets as long as you're willing to pass on something else to pay for it.

Making more of your money

Little, everyday expenses can eat away at your take-home pay fast, but ideally, you won't blow your whole paycheck every month. By setting some goals and saving for them, you can do more with what you earn. A goal can be short- or long-term, practical or purely fun. The point is to know what you want and be deliberate about how you're going to get it. If you take seriously and make it part of your monthly plan, you'll end up in good shape financially now and in the years to come.

Keep learning

Read more about income taxes, saving money from your paycheck with an IRA, and using your money to its fullest by organizing your financial life.


The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner, or investment manager.

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