The Ultimate Guide To Budgeting Money In Your Twenties
I am happy to say that I’m all moved into my new apartment, which means I can finally take a moment to breathe! I’ve lived in 4 different cities within 2 years, so I’m no stranger to the art of moving – but it never really gets easier!
Since moving can be quite expensive (and rent isn’t cheap), I’ve had to figure out a system to help budget my money and make sure I’m not spending more than I earn. I’ve put together this guide based on the system that works for me, and I hope it helps anyone who’s been looking for a way to stay on top of their finances!
How To Budget Your Money
For twenty-somethings, handling money can be quite a foreign concept as we’re not really taught how to budget or told how much of a paycheck should go to savings. On one end of the spectrum, some people end up blowing all of their money in their twenties because they never thought they’d run out. On the other end, you have people who are always struggling to pay rent on time because they have loans to pay off, medical bills to pay, family to support, etc.
If you come up with a system for budgeting your money each month, you’ll be able to see where you need to adjust your spending, if you have room to treat yourself, and how much you should be saving from each paycheck.
1. Categorize Your Spending
What do you spend money on? Take a look at your bank account and go back through the past two months and categorize every purchase. Type each transaction into an excel spreadsheet with a category name next to it or write it down on your bank statement. These categories are going to be different for each person depending mostly on your living and employment situations, but this is what I find myself spending money on through the month:
- Utilities (internet, electricity, etc.)
- Car Insurance
- Misc. (clothing, household items, gifts, beauty products, etc).
I tend to lump all of the extras together under a Miscellaneous category because the amount I spend on those types of things varies each month. You can separate them out into more distinct categories – for example, you might spend a similar amount on clothing every month. You may also have expenses that occur annually or quarterly, and I find the best thing to do is split that expense up as if it were a monthly payment.
2. Divide Your Money
According to my research aka a Google search, you should split your income into the following: 50% on living expenses (rent, food, gas), 30% on lifestyle expenses (thing you don’t need to live but are nice to have), and 20% should go into savings. This ratio has definitely helped give me a better idea of where my money should be going.
3. Determine Your Budget
In order to figure out how much you should be spending in each category per month, download the free excel spreadsheet and follow the steps below.
1. Start by figuring out your average monthly income and record that at the top. This is a set amount for me since I earn a yearly salary, but if your hours vary or you rely on tips, try figuring out your average earnings from the past 3 months. You might want to record a slightly lesser amount, just so that you have a buffer in case you end up going over your budget accidentally.
2. The spreadsheet will automatically calculate your maximum budget for Living & Lifestyle Expenses based on the ratio mentioned above.
3. Fill in the table with the categories you established earlier. Fill in any amounts you know will be the same, like rent, monthly membership fees, insurance, etc.
4. Based on previous purchases, start filling in the table with the maximum amount you want to pay for each category. For example, your grocery shopping might average $250 (that’s usually mine for one person) but you might want to give or take $20.
5. Once you’ve filled out the table and set the maximum amount you’d want to pay for each category, see how it compares with the number the table calculated earlier based on the 50/30/20 ratio. Adjust based on whether you went over or under.
Here’s what my budgeting spreadsheet looks like:
4. Sign Up For Mint
Once you’ve got your budget for each category set, add them to a service like Mint.com. Mint links up with your bank accounts (it’s totally safe) and allows you to keep track of your transactions easily. I just love how you can add a budget and it’ll show you how far away you are from reaching your budget or if you’ve gone over.
Using the categories you established and plugged into your spreadsheet, add each category as a budget in Mint. The great thing about Mint is that it automatically groups your transactions into categories for you, and the majority of the time they get it right (it’s not always perfect).
P.S. This post isn’t sponsored by Mint, I just think it’s a super effective tool.
5. Frequently Check Your Accounts
Once a week.
Now that you’ve done all of this work, you’ll want to stay on top of it to make sure you’re not overspending or whether you need to tone it down a little. Every Monday, I sign into Mint and see my spending over the past week. Some people might like to check every day, but once a week works for me.
At the end of the month.
As you’ll see on the excel spreadsheet, I include a column to record actual expenses vs. budgeted amounts. This will help you see if you over or under-budgeted, and it’ll let you know if you need to make adjustments for next month’s budget. If you ended up going way over your budget, you may need to subtract some of the money you moved over into savings to compensate.
How To Resist Impulse Purchases
1. Don’t Cut Yourself Off.
First of all, giving yourself some wiggle room within your ‘Miscellaneous’ budget will help when it comes to impulse purchases because you won’t feel absolutely awful if you do end up buying something ‘just because’.
2. Keep Your Budget Visible.
Try printing out your budget and keeping it in your bag to reference, or check your Mint account right before you make a purchase.
3. Reward Yourself.
Another great solution if you really want something is to resist purchasing it until next month and work it into your budget. Set yourself a goal and if you achieve your goal, you can buy the item you wanted at the end of the month. If not, the money can go into Savings.
4. Give It Some Time.
Resisting the urge to buy the item for 24 hours is always a good (albeit difficult) method. Chances are, you’ll realize you don’t want it quite as much once time has passed.
How do you budget your money? Have you tried Mint yet?
Photo: Geneva Vanderzeil