We all know what we earn each week or every two weeks, depending on when the paycheck arrives. We see the taxes, 401K contribution and healthcare premiums deducted from our checks. 

But many of us don’t know what we are spending beyond the big-ticket items – car and mortgage or rent. The other expenses – food, clothing, gas, $5 lattes, dinner out – pile up and you’re sweating it until the next paycheck.

You’re not alone. According to a recent CareerBuilder survey, 78 percent of U.S. workers live paycheck to paycheck. 

It doesn’t matter the income. In the survey, one in 10 workers making $100,000 or more are usually or always living paycheck to paycheck. But the number runs to 51 percent for those earning less than $50,000. Debt as well increases from 59 percent to 73 from the top income line to the lowest. 

This situation is where having a personal budget and establishing financial goals helps. 

Here’s why a personal budget is essential

In personal finance classes he teaches at Emory University in Atlanta, John Carty-Campbell, a senior partner with A Better Financial Group based in Canton, Ga., said it is easy for students to come up with their topline. 

It can be a challenge, however, when it comes to digging deeper into their spending. A lot of people simple don’t have a grasp on where the money goes each month beyond the fixed spending items – house and car, for example. “The other side is where you can make some headway,” Carty-Campbell said. 

When his students figure out where their money is going, such as $500 a month on coffee drinks, there is an “Aha!” moment, he said. 

Keith Newcomb, founder of Full Life Financial in Nashville, Tenn., said most people are simply budget phobic. “They feel enslaved by it,” he said. 

Newcomb suggests an easy inspection of your finances as a way of fighting the budget phobia. “You can simply look at your checking account and see if it’s growing, shrinking or staying steady,” he said. “That will give you a snapshot, and then you can decide how imperative it is to dig into your spending.”

If you dig in, Newcomb said take the checking statement and do a line-item mark-up of spending: “have to”, “just wanted to”, and “wish I hadn’t”. Then, he said, budget so you don’t have a lot of “wish I hadn’t.” 

“The feeling of having a bunch of items you wish you hadn’t spent money on is like having a hangover,” he said. He added that the idea is to being financially fit and to get the priorities in order. 

Carty-Campbell said the goal should be to apply 10-20 percent of income toward retiring debt and/or savings but noted that “a vast majority of Americans don’t.” In fact, the personal savings rate has been trending down from a peak of 17 percent in May 1975, according to figures from the St. Louis Federal Reserve Bank. The rate now hovers around 3 percent. 

Household debt in the USA is climbing — a realistic budget is the only way out

Household debt, particularly student loan debt, has increased while the savings rate declined over the past decade. For many young adults, student loan debt will be one of the biggest fixed expenses for a number of years. They come out of college with a mountain of student loan debt, a situation that has grown substantially since 2008. 

Through the first quarter of 2018, total student loan debt grew to $1.41 trillion, according to the New York Federal Reserve Bank, nearly tripling over a decade. 

Helping avoid large student loan debt could be what Millennials and Gen Z – as they get older, marry and have children – do for their children. 

“Every generation wants to give their children better opportunities than they had or make it so they don’t have the same problems they have,” said Newcomb said.

It is best to start early with a personal budget. “The longer you wait, the more painful it is,” Carty Campbell said, with respect to saving money for the future. 

Working out a budget right after college is a good time to begin laying the groundwork. “Once you’re out of college, that’s what being an adult is about,” Newcomb said. “It’s an easy way to feel powerful. It’s one of the few things in life you have control over.”

But for young people, the future seems so far away. “It takes security and maturity to think long-term,” he said, adding that being mindful of a budget increases security. 

Emergencies happen, however, even with a budget and savings in place. People lose their jobs, or an unplanned major medical expense arises. A personal budget helps prepare for such contingencies. 

The general rule of thumb is to have at least a six-month reserve in savings if the household has one income, Carty-Campbell said. If the household has two incomes, at least a three-month reserve should suffice. 

“You want to keep yourself insulated,” he said.