Sample Budget on a $100,000 Income

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 your spending 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 is a sample budget that prioritizes financial health.

Understanding gross vs. net income

If you get paid $100,000 per year, that doesn’t 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:

• Federal and state taxes (exact amounts vary by state, filing status, and your tax bracket)

• Contributions to retirement and other tax-advantaged accounts, such as a health savings account (HSA)

• Out-of-pocket premiums for health, life, and other employer-sponsored insurance plans

This is not to say that you should skip these deductions and contributions in favor of having a larger paycheck. In fact, reducing these contributions could mean foregoing benefits which leave you with less over the long term.

Retirement plan contributions, up to at least the maximum employer match, is a good idea.  Ultimately, we will want to get to a full 15% of income.

What does the typical budget for a $100,000 salary look like?

Begin by reviewing your last few pay stubs to understand your typical monthly net pay. Once you have that figure, you can allocate your income across your major spending categories.

In this example scenario, we’ll assume you take home $75,000 after taxes and other deductions, which amounts to $6,250 per month.

Health Care – $312.50

Miscellaneous – $312.50

Note that not everyone has the same needs and wants in their lives, so you need to adapt this sample budget to your situation.  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, after taxes — should be no more than 25% of your income. Housing costs include rent or mortgage payments, taxes, insurance, and homeowners association fees. Allocating too much of your monthly income can lead to being “house poor” and sacrificing other areas of your budget such as savings, transportation, etc.  Or, it can lead to excessive borrowing to pay for other categories of expenses.

The same goes for other essentials, such as utilities, healthcare, food, and transportation. How much you allocate toward each category will depend on the cost of living in your area, household size and other factors. It is important to keep these expenses within a reasonable percentage of your overall income.

When it comes to your non-essential (discretionary) spending, you have more flexibility in your budget. It’s important to account for seasonal factors, such as winter heating costs and summer travel expenses. Your budget may vary each month based on your specific needs.

One discretionary expense that should be prioritized is savings. While it’s acceptable to contribute less to savings for a month or two, consistently neglecting your savings over the long term can be detrimental. We recommend starting the savings habit by setting aside as much as you can, and then increasing your savings by 1% every six months until you reach a goal of saving 15% of your gross income. If you are already at this savings goal, consider focusing efforts on paying off your house more quickly.

Additionally, it’s wise to maintain a buffer of cash in your checking account to avoid overdraft fees in case your spending exceeds your plan.

Keep in mind that your spending categories and percentages may not match this budget example exactly, and that’s perfectly fine. Your budget should be customized to reflect your specific living expenses and financial goals. It’s essential to regularly assess your budget to ensure it continues to work for you. If necessary, consider making adjustments to better suit your needs.

Common budgeting strategies

There isn’t a single correct way to budget; your personal budget should reflect your financial priorities. If you’re feeling overwhelmed by the thought of creating a budget from the ground up, consider using some established strategies as a framework.

The 50/30/20 budget rule

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.

Zero-based budget

A zero-based budget allocates every dollar you earn to specific spending categories, ensuring that your remaining balance at the end of the month is zero. This budgeting method is particularly useful if you struggle with overspending, as it helps you take full control of your finances by giving every dollar a designated purpose.

Envelope budgeting method

The envelope budgeting method is a strategy that uses physical cash to help manage your monthly spending. You divide the cash available for spending into different envelopes, each designated for a specific category, such as groceries, entertainment, or transportation. You would not use the envelope budgeting method for categories such as Housing and Savings. When you make a purchase, you simply take money from the appropriate envelope. If you prefer not to use cash, there are also digital versions of the envelope budgeting system available that capture the same concept.

In the end, the most effective budgeting strategy is the one you consistently follow to achieve your goals. You might need to experiment with various approaches before discovering the system that suits you best.

As financial coaches, we can assist you in creating a spending plan that effectively balances your needs and wants. Schedule an initial consultation with us to explore how we can help you manage your spending and address any other financial concerns you may have.