How to Budget as a Young Adult
A college finance blog.
What Do I Spend the Most On? Let’s grow our wallets!
Think of a budget as a “self-reflection for your wallet.” Budget planning is a great tool to help you start planning for future financial success and be used to help cut bad, unnecessary spending habits. Creating a budget can be daunting at first. Let’s break it down!
First, you want to break down your monthly income after all taxes and other expenses have been removed. This allows you to clearly picture what you bring in and helps avoid annoying surprises in the future.
After you have calculated your income, think about what method of budging will work best for you. Some people work better when they budget through apps, digital documents, or paper charts. Personally, I use an Excel spreadsheet. Below are some free Excel budgeting sheets to help get you started!
You must break down and categorize your spendings to help you understand what is a necessity over a “want.” For example, you need to pay your bills and keep up with housing, food, and transportation. Group all of these as “necessities.” Group streaming services, food, entertainment, and other expenses as “wants.”
Next, start thinking about some long-term and short-term financial goals! Some examples of short-term goals could be to cut $10 off your grocery bill, saving for a trip, saving for home improvements, paying off small debts, or saving 10% of your monthly paycheck. Some long-term goals would be saving for retirement, paying off a mortgage, or starting a business.
I know for many young adults, saving for retirement may not seem like a priority right now. However, the sooner you put money away for the future, the better off you will be in the long run. Even putting away $10 a month for retirement could make a huge difference down the road! Everything adds up! In just one year, you would’ve already saved $1,200.
Once you have a clear goal(s) set, choose a budgeting method that best aligns with your goals. Some favorable financial budgeting methods are the 50/30/20 rule, percentage savings, and the envelope method. My personal favorite is a mix of both the 50/30/20 rule and envelope saving. Every month I set aside a budget for each category; savings, bills, food, fun. I tend to spend less money when I pay for things with cash.
50/30/20: 50% on needs, 30% on wants, and socking away 20% to savings.
Percent Savings: Determining what percent of your income should go to savings and expenses based on your spending habits.
Envelope: Categorize spending for the month by keeping your cash tucked away in envelopes and only use the cash in the title envelope.
Keep up with your budget! You can do it! It may feel like a lot of maintenance at first, but this is a great skill and can be a great tool to monitor your income and expenses. You can do it!
Editor’s Note: This article was written for a class project. Information gathered from personal experiences and information learned over the years in various college classes.
