Happy Sunday! I’m back with some practical advice, this time regarding budgeting. I’ve written posts in the past about saving or budgeting for gifts or friends, but realize that I haven’t actually talked about making a general budget yet.
Why have a budget? The short answer is because you spend money. Even if you don’t buy much beyond what you need, it’s the best way to make sure you’re on track with savings and building good financial habits for the future. If you like to spend, it’s those reasons plus making sure you don’t overspend. It’s a way to keep yourself accountable — starting as an emerging adult — so that if you ever want to travel, buy a house, have kids, or retire you can actually, y’know, afford it.
Our generation is strapped with high costs of almost everything and staggering amounts of debt. There isn’t always much we can do about where we landed. But we can do something about where we end up.
As always, the disclaimers: No app or service I mention is sponsored, and I’m not compensated in any way. I only mention specific names because myself or someone I know has found them useful, and hope that others will too. None of my advice is ever all-encompassing. You gotta do what works for you, but I hope this serves as a helpful starting point.
With that out of the way, let’s jump in.
Step 1: Research
Do you know how much your cost of living is? Do you know how much you spend in various categories every month? Those basics are the first place to start. Before I set up my budget for the first time, I had been carefully tracking my spending over the course of several months.* I used that data, plus some info from my parents regarding the costs of food, insurance, etc. to figure out ~about~ how much I needed to account for in various categories every year. Once I had the rough annual cost of each category, I then just divided each category by 12 and ta-da! I had a monthly budget.
Step 2: Setup
I use the free version of an application (I just use the website) called EveryDollar. It’s not perfect, but it’s easy to use and lets me be as detailed or as general as I want. The downside is that unlike apps like Mint — which I tried but didn’t love — you’re responsible for inputting whatever you spend. The good or bad part, depending on your perspective, is it’s not linked in any way to your bank account. So there’s no risk, but it also doesn’t do anything for you except serve as a really helpful, less-ugly spreadsheet.
I’ll be honest. I spend several hours every week budgeting and tracking my finances. But I’m the least stressed about money that I have been since my early teens, so it’s more than worth it.
Below is a loose approximation of my budget, with all the relevant categories. Note that the costs of things per person can vary wildly, so take it with a grain of salt, but I have noted in parentheses what percentage of my income is relegated to these categories.
Utilities, including wi-fi and phone (3%)
Eating out (3%)
Car repairs, misc. (2%)
Includes auto, renter’s, health, life, etc. (5%)
Specific goals, i.e. car replacement (6%)
[Note that retirement savings is taken out of my paycheck automatically, so it doesn’t appear on this list, but it’s 8% of my gross income]
Clothing, toiletries, haircuts, etc. (2%)
Furniture, household items (3%)
Entertainment, spending money, misc. (4%)
Christmas, birthdays, weddings, etc. (4%)
I realize that’s 101% based on rounding, but bear with me. I also have to spend less of my income on rent than a lot of my peers, which gives me more room to save. But notice all my “fun” stuff — eating out, shopping, etc. — accounts for less than 10% of my monthly budget.
So while I will never say “stop eating out and you’ll magically be able to buy a house,” which is simply not true, I would advise caution and relative frugality with finances. Fun is still allowed! I go on trips and eat out with coworkers. I buy a new piece of clothing if I really want it. But the budgeting part is just putting parameters on how far that can go.
Also I didn’t put a category here for debt, because it runs on a simple rule: Pay it off as quickly as possible. Cut down on fun items, and cut back a little on saving, until debt is paid off at its appropriate pace. For example, credit card debt should be paid off as quickly as possible because it has crazy high interest, but student loans can be paid off more slowly. Being in the black is more important than saving a huge percentage of your income.
Step 3: Adjustments and future planning
I adjust my budget every month. I don’t start from scratch, of course. But if my income is higher from a freelancing project, or I know I’ll be spending more on gas, then I can up one category and lower another, and so on. Everything hovers around the percentages I mentioned above, but it’s completely okay to adjust your budget with your life.
Of the money I save every month, some is for retirement, some is for emergencies, and some is for specific goals like when I’ll eventually have to buy a new car. But a lot of it is just general. Because then, when I want to go on a big trip or if I ever decide to buy a house, I will be much better prepared for having started early.
I know that was a long post, but I hope it proved helpful to you. I want emerging adults, both my generation and younger, to be able to do better than the financial situations we’ve grown up seeing. This is where that starts.
What are your favorite budgeting tools or tips? Are there any questions you have about finances as a young adult? Let me know in a comment below, on Twitter @ohgrowup, or Instagram @oh.grow.up! Thanks for reading, and good luck adulting!
*For the spending tracking, I literally just used a Google sheet and tracked notes and amount of all money that I spent or received. It was a little painstaking, but very helpful.
(Photo is a free stock photo because this was way cooler than my ideas.)