By Rachel Semple
Budgeting is hard, right? How do I know how much to spend on things? Do I have to write everything down? How do I even get started?
It's not as hard as you think.
When it comes down to it, budgeting is all about how you use the money you have to accomplish your goals. Whether your goal is to pay off student loans, get a pet, buy a house, save money for retirement (this is important even if you're young), or go on a great vacation, budgeting is a way to help you get there.
The first step is to figure out what you make each month after taxes. This gives you an overall number to work with (and not go over)!
Most budgeting rules offer suggestions on what percentage of your income should be dedicated to categories of expenses. One of the most basic strategies is the 50 / 30 / 20 rule, and it goes a little something like this:
Necessities are the largest part of your budget for a reason: They're the things you can’t live without. Necessities include things like food, housing, utilities, bills, transportation, and health care.
When you budget, necessities are things that you can’t possibly cut out. If you’re looking to save money, your option here is to cut back, not cut out. You can, for instance, move to a smaller apartment or get a more fuel efficient car, but for most people it’s not feasible to not have a place to live or to walk to work every day. If you need to cut something out, you should first look at your wants.
The most subjective of all your categories, wants are things that make your life enjoyable, but aren’t required in order to live. This includes privileges such as your Netflix subscription & other forms of entertainment (Hulu, Amazon Prime TV, cable, etc.), eating out at restaurants, shopping, vacations, and “treat yourself” expenses.
If you’re looking to decrease your monthly spending, this is the area it’s most suggested (and makes most sense) to decrease from first. It’s a little bit less fun to stop eating at restaurants or to cancel your Netflix account, but you can make some short-term sacrifices here more than in other areas until you're more financially stable.
Ways to decrease your "wants" spending without going crazy:
This is another area of your budget that is critical to pay attention to. Financial goals include both your long and short-term goals financially. So, every month, this category may get divided up into things like student loan payments, car payments, mortgages, and contributing to your savings.
Does that all sound hard to keep track of? If so, another way to budget well is by using the free budgeting apps such as Mint. Mint lets you set categories for you to track your spending, whether it's on groceries, fast food, mortgage, rent, cell phone bills, and/or pet supplies. It's simple to use: you link it to your bank account(s) and categorize spending as each transaction hits your account. It even displays each budget as a little bar that you fill up as you spend more of your budget–which turns from green to red if you go over. They send weekly notifications and emails regarding your budget and you can even connect it to your credit score to see how you're doing in that regard.
With all things considered, a budget is a basic first step to take on your journey to doing the adult thing. If you can set a budget and stick to it, you’ve succeeded in a major way.