Navigating the New World of Adulting and Budgeting

Adulting is hard. You’ve got a million things to manage. And you’ve got to be responsible. If you’re irresponsible with money, you can get stuck with years of debt and a bad credit score. However, if you master the art of budgeting, you’ll be empowered to avoid debt, grow wealth, and a build a solid foundation for a financially secure future. So, let’s explore key principals and practical steps to help young adults budget correctly.

Understanding Your Financial Situation

The first step in budgeting is to understand your financial situation. Start by calculating your total income from all sources; this includes salary, allowances, freelance work, and any other earnings. Next, list your essential expenses like rent, utilities, groceries, transportation, and debt repayments. Identify discretionary expenses like entertainment, dining out, and shopping. By assessing your income and expenses, you’ll have a clear picture of your financial standing.

Analyzing Your Financial Situation

Now, analyze the financial data you gathered. Start with income. You’re probably a student or at the start of the career, so your salary may not be where you want it to be yet. However, you can determine if there are ways to make extra money or use savings to build wealth. Next, assess expenses. Identify any areas where you’re over-spending, then determine how you can cut back. For example, if you spend too much buying food, you can meal prep every week to save money.

Setting Realistic Goals

Budgeting becomes more meaningful when you have clear financial goals. Define short-term goals like saving for a vacation or buying a Carnival costume, medium-term goals like creating an emergency fund or buying a car and long-term goals like saving for retirement. Try to make your goals SMARTER: Specific, Measurable, Achievable, Relevant, Time-Bound, Evaluated and Reviewed. Don’t just say, “I want to take a vacation next year.” Calculate the estimated cost of your vacation and work out how much you’ll have to save each month to make it happen. Whenever you feel like throwing your budget out the window, think back to your goals and remember that you’ll only achieve them if you stick to your budget.

Create a Monthly Budget

The 50-30-20 budgeting rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. You may not be able to split your money exactly this way, but it’s a helpful guide.
Start by allocating approximately 50% of your income to cover essential expenses, detailing how much you’ve set aside for each expense. Remember, you may have essential expenses that don’t occur every month, such as annual doctor’s visits or health insurance. Don’t forget to budget for these too.
Next allocate income for your wants. Don’t forget any subscriptions that are automatically billed each month, like streaming services or gym membership.
Finally, set aside savings. Your savings may include an emergency fund, a savings account, or saving for retirement. Differentiate between the different types of savings and allocate money accordingly.

Using A Budget Tracker

The only way your budget will work is if you follow it. Keep a record of your income and expenses. You can use a budget app, a spreadsheet, or a simple pen-and-paper method. Every month, you should review your spending habits and, if you’re not staying within budget, identify areas where you can cut back or increase your income. Over time, using a budget tracker will help you become more mindful of your spending, and you’ll find yourself making better financial decisions.

Adjusting Your Budget

Life is dynamic, and your budget should be too. If your income, expenses, or financial goals change, then you should adjust your budget accordingly. You’ll only continue to follow your budget if it remains aligned with your evolving needs and circumstances.

Budgeting is a journey, and it requires discipline and regular adjustments. With persistence and commitment, you can master the art of budgeting and pave the way for a financially secure future.