Turning twenty-something means learning lots of life lessons. We’ve talked about everything on the website, from love to health to work, but now it’s time to talk about budgeting. The B word is a scary but necessary part of growing up. Now’s the time to make sure you’re being frugal with your finances, and saving as much as possible so you can move out and move on.
The key to budgeting is making it part of your every day life. People who don’t budget are the ones that end up starving themselves for a month so they can pay their bills – something that can be easily avoided if you start budgeting early on.
It sounds scary, but with a bit of preparation, is easy as pie and the benefits are huge!
1. Know Where Your Money Is Going
You might not think that you spend a lot at the moment, especially if you’re still living at home or are still using college loans to get by. But every twenty-something is a guaranteed spender. The most vital part of starting to budget is looking back over your list of expenses and realising what kind of a spender you are.
Most banks will let you print out paper copies of your bank statements, which is really handy for highlighting. If you can’t do this, get it up online and on a separate piece of paper write out briefly what your statement says. Split your spending into two sections: necessary and trivial.
Necessary items are things like rent, car insurance, food shops, internet, travel costs, phone bills (as long as they’re your agreed monthly cost and you haven’t been overspending).
Trivial items are things like clothes, shoes, make up, meals out, coffee – basically anything that you don’t need to live or use to get to work!
This seems like a scary exercise, and it will make you feel guilty for a while, but it’s absolutely essential for seeing where you’re spending most of your money. You’ll be amazed how much a few coffees a day adds up over the course of a year, or what you spent on that dress that you’ve never worn. Most people will see their money going in one particular direction. You might not shop a lot, but if you eat out every night, there’s one clear place where you can start to cut down.
2. Be Realistic About What You Can Live Without
Now that you’ve fessed up to what you’ve been spending, you can start to think seriously about where you can begin to budget. It’s important to be realistic. I’m not telling you that you can’t go out for lunch or stop for coffee or that you can only buy one pair of jeans a year. Life isn’t worth living without a few small joys! Budgeting isn’t about spending nothing – it’s about knowing what your means are and not living beyond them.
With your money all laid out in front of you, you can see what you tend to spend on. Now it’s time to negotiate with yourself. If you really feel like you can’t live without your morning coffee, but could probably make lunch three days a week instead of buying it, you’ve made a compromise. There are endless tiny ways you can begin to save money, without preventing yourself from doing too much. Planning ahead is key – book taxis in advance or online for better deals, call clubs and gigs to see if they’re offering discounts on group entry and look up local restaurants to see what lunch offers they have running.
Just make sure you’re having an honest conversation with yourself about money. – “Okay, I really want these shoes, but I can’t afford them right now. But if I don’t eat out for the next two weeks, I’ll have saved enough to buy them.”
3. Know Where It’s Coming From, Know Where It’s Going
Everything we’ve talked about so far is completely pointless if you don’t actually have a budget. Budgeting can be hard if you’re a student or just starting out and not earning much (or anything!) but everyone has to know where their money is coming from and where it’s going.
Whether you have a loan, savings or your parents are helping you out, you can map out some kind of plan that will keep your spending on track. Give yourself a maximum spending limit a week, based on your needs, and keep track of what you spend during the week. I’ll try to give you a quick example of my own budget for this summer:
Journalism training course x 9 weeks = $6,000
Rent in the city x 9 weeks = $3,000
Public transport to and from the offices = $128
Food and social allowance = $50 a week = $450
I’ve given myself a $10,000 budget for my vocational training this summer, including my accommodation, travel costs and food and social spending. I’ve estimated the maximum I’d think I’d spend each week during the nine week course, but each week will vary and some will be less or more. It’s important to give yourself a bit of room to breathe and manoeveur, so you don’t feel guilty if the budget bends a little.
4. Save Now, Enjoy Tomorrow
Budgeting is the best way for young people to get themselves on track with money. A lot of us won’t have a direct income, but if you can be smart with a student loan or your parent’s money, you’ll be well set up for when you start earning for yourself.
Forgiving yourself is essential with any budget, at any point in your life. Some months, things just won’t work out, and you’ll have to spend a little more here and there. Don’t beat yourself up about it – just assess where the money went, and where you can save a little extra in coming weeks.
It’s also important not to feel like you have to spend to the limits of your budget – if you’re nearing the end of the week/month and you have some money leftover, do not make it rain. Put the money aside or into a savings account and let that grow. You will always be grateful to have some extra savings in life. Just think – every pair of shoes you don’t buy today will only add up to an even better pair in the future!