One of the best things about being a young adult is that you are starting fresh with countless opportunities and choices ahead of you. The downside can be that mistakes made early in life can have long lasting and sometimes expensive repercussions in terms of debt and credit. Establishing a budget is a great way to help ensure a good beginning to your financial lives.
A budget is an itemized summary of expected income and expenses for typically a month’s time. It will show you how much money you expect to bring in against all your expenditures. The first step is to figure out your monthly income. Simply, what is your monthly take home pay after taxes? Then, track and categorize your monthly spending. We recommend keeping it simple especially when starting out. Break down the spending categories that make sense to you. For example: rent, car expenses, utilities, groceries, medical, entertainment and debt expenses.
After a few months, you get a better idea of how to categorize. You also will get a good idea of the bottom line. If your end result shows more income than total expenses, obviously you are off to a good start. This means you can prioritize the excess by paying down debt, building your emergency fund faster or saving more. If your expenses are more than your income, it means some changes should be made. Look at your non-essential expenses to find areas to cut.
Sometimes tracking all expenses can be overwhelming. Luckily, most credit cards do that for you automatically and offer great budgeting resources. They keep track of your expenses on an ongoing basis and will categorize for you. In addition, there are several apps available like Mint that are free and easy to use. We also have budget templates that we would be happy to share with you.
Everyone should re-evaluate their budget at least annually, and young adults are no exception. As you monitor your budget, be ready to make adjustments. Tracking can be very valuable for finding out what’s really costing you and where you can and should make changes in your spending. The goal is to pay down debts, save money and enjoy life!