Creating a budget can seem extremely boring and not important to people in their 20’s. But, from personal experience, I think it is so important to learn this skill early, so that it becomes second nature to have your finances in order! For people our age, it can be difficult to budget because we have so much going on in our lives, from traveling, to student loans, to our first apartment! It can be hard to know where to start, especially if you don’t have parental guidance. That’s why I’m here! So let’s get into it.
Step 1: Figure out your income
It’s really hard to know where to spend your money when you don’t know how much money you’re working with in the first place. So, for a few months, keep track of your income. For someone who works a salary job, this is a little bit easier because you get the same amount of money coming in each month. But for someone who works hourly or gets paid in cash (ie: servers, bartenders, etc), this can be a bit more difficult. So, for the first few months, keep a spreadsheet on your computer or a note on your phone of every time you receive money along with the amount. I’ll include a screenshot here.
Step 2: Track your expenses
This can be done in a similar fashion as Step 1. Keep track of everything you are spending money on throughout your first few months! This will help you determine where you can cut back and where you can spend more. I like to do this in an excel spreadsheet that I enter transactions in from my online banking portal. However, if you are using cash, you’ll need to make a note in your phone or keep track of receipts so you can add to your spreadsheet! I’ll include a screenshot of what this looks like here. Some online banking apps can categorize your spending for you which is really helpful in visualizing your habits! I know Chase Bank and Discover have features like this. This photo is an example of the spending breakdown!
Step 3: Decide on your financial goals
Once you have a clear picture of the money you are receiving and the money you are spending, you need to determine what is most important to you and your future. I knew that I wanted to go to PA school, which is very expensive so I needed to save for that. However, when I first began budgeting, I had terrible habits when it came to spending. So, I knew I needed to start small and build up confidence in myself that I could save money. I read Dave Ramsey’s book and learned about his “Baby Step” formula. This is the plan I decided on and you can learn more about it here. My first task was saving $1000. At the time, this seemed daunting, as I had never saved before. But, I used the autosave function in my online bank portal to save 20% of every deposit over $100. This helped me automate saving so I didn’t have to think about it. Surely enough! It added up quickly! When making my budget, I estimated that 20% for every paycheck I received. I can go into more detail about the savings strategies I use in another post!
Step 4: Create your spending categories
First, you will need to evaluate your non-negotiables. What are categories that you HAVE TO have each month? These can include rent, utilities, gas, groceries, etc. This is not a place for restaurants, shopping, and travel. There will be another section for those! So for me, my non-negotiables are gas, groceries, car payment, and car insurance. Look back at what you usually spend on these items from Step 2 and give yourself an estimate of how much you spend each month. List these first in your budget, since you know they absolutely must be paid each month. Whatever you have left after that can be used for your more fun categories like date night, travel, shopping, etc. Sometimes, it may be easier to use these categories as “funds” that build up over time. For example, if you know you have a trip coming up in 3 months, it would be helpful to add your budgeted amount to a fund so that you can have your stockpile of money ready for your trip! I keep those funds in cash envelopes so that I don’t overspend and am left with no money.
Step 5: Try out the budget
The first few months of this will be pretty difficult. You will find a lot of unexpected expenses that you don’t think about when you sit down to make your first budget. This is a part of the process and it is okay if you are super off on your numbers at first! Use these instances as knowledge for the next month. You just have to keep adjusting your budget as you learn more about yourself and your spending habits. Remember, budgeting is a process and only works if you work for it!
Please let me know if this was helpful! I am always available to answer any questions!
