5 Steps To Start Budgeting As A Young Adult
A major indicator that you've reached adulthood is when you are cautious of your monthly expenses. Not to mention the stress you get when you've overspent this month- again. You're not alone, even adults who's been budgeting for years struggle with it. But budgeting plans are a lifesaver when it comes to ensuring you don't overspend and that you have money left over to put into your savings account. The 5 steps listed down below are for individuals to adjust their budgeting plan to suit their monthly expenses.
Step 1. Track Last Month's Spending
The first step is to obtain a budgeting notebook or use a budget plan template online to write down your budget plan. Next, identify your sources of income and the dates you get your income on a monthly basis. If your income fluctuates monthly, write down a rough estimate. Knowing exactly how much money you are working with every month ensures you don't spend money you don't have. Next, look back at last month's monthly expenses. Look back at your receipts, bank statements, and bills and write it down.
Step 2. Set Aside Money For Savings
The second step is to plan for the future. What is your short term goal? Buying a car ?Buying a new couch? What is your long term goal? Buying a house? Paying off a loan? Estimate how much money you are willing to put into savings every month to achieve your goals. It is beneficial to have some savings because you never know when an emergency might occur. It is always good to have a safety net. In addition, putting money into your savings account every month helps you stay on track of achieving your goals.
Step 3. Make A Plan
Categorize your spending into categories. Make your categories as general as you can and add up how much money was spent last month in each category. Some common categories include:
- Living expenses (ex. Rent )
- Transportation ( ex. Gas, public transportation fees )
- Leisure (Ex. Netflix subscription, entertainment, clothes)
Next, divide your monthly income into the respective categories depending on last month's expenses. This is the step where you can adjust to where you see fit. If you are unsure if your budget plan is realistic, refer to the 50-30-20 Model. It is a simple ratio that explains that 50% of your monthly income should be spent on living expenses, 30% should be spent on leisure activities/items, and 20% should be saved into your savings account.
Step 4. Put Your Plan to Action
Using your budget plan as a guide, spend your money for a month accordingly. At the end of the month, review how you did. Did you overspend? Was your budget for each category doable ? Write down the exact amount spent for each category.
Step 5: Adjust As You See Fit
And if your budget seems to be too small, adjust it. You can adjust your living style by cutting down items that are not essential to living. Items such as getting a morning coffee at a café every day. Or you can replace items with cheaper alternatives like drinking coffee made at home. Getting a third person opinion on your budget plan can also help you identify what needs are necessary.
Finally, a crucial point is that your budget plans are not fixed plans. Your life can change on a month to month basis. Therefore, it is beneficial if you update your budget plan on a monthly basis.