Most of us gain financial independence in our 20s. At the end of each month, you get your salary and you feel satisfied knowing you can spend it on the things you want. Keep in mind that financial independence comes with increased responsibility. So you will want to keep track of your expenses to be able to freely enjoy your salary while also saving for hard times.
One word that will solve all your problems; Budgeting. You may think that you are too young to budget but believe me, the sooner, the better. You will be able to know exactly where your money is going…
The Importance Of Budgeting
1. Budgeting Helps You Control Your Spending
When you have a planned budget, you will be able to control your spending. When you do not have a budget, you tend to overspend on things like eating out or going on a shopping spree. You will want to look for budget-friendly activities…
For example, if you eat out at least two times a week for a total of $ 20, that’s $ 80 spent monthly. Budgeting will allow you to keep track of your spending habits, and you won’t be financially anxious.
2. Budgeting Helps You Avoid Or Get Out Of Debt
Who does not want to stay out of or clear all of their debts? The new iPhone 13 is out, and you really want to switch to this new version, but you do not have enough money, so you sign up for the payment plans thinking that it is wise – congratulations you are now in debt.
If you cannot pay cash in full, this means that you cannot afford it. Don’t buy items that you cannot afford.
3. Budgeting Helps You Prepare For Emergencies
There are a lot of unexpected events that we have to face in our lifetime, and most of the time, these emergencies cost a lot. If you budget a part of your salary towards an emergency fund, it will save you
major headaches in the future.
Setting Up Your Budget.
1. Estimate Your Income.
It does not matter if you get paid weekly, every two weeks or monthly. You need to calculate your income for the month. When I am talking about income, it is the net income without tax and other payouts. Once you know your net income, you can proceed by listing your expenses.
2. List Your Monthly Expenses
This list will be mostly fixed, made up of rent, healthcare and childcare costs for some. They are quite often the biggest expenses you will have.
3. On-Off Expenses
The ‘on-off’ expenses will be made up of entertainment, eating out and the like… Expenses that most of the time fluctuate and are not as significant as your monthly expenses. Your car insurance will be in this category, too, as it is not a recurring expense.
Saving may be difficult for a young adult, but I can’t stress this enough, saving is important. It does not matter if you start small; you will be able to add up over time, you just need to start.
There are different budget methods that you can adopt. For example, the 50/30/20 or the envelope method, choose one that suits you the most. If you think that budgeting is only for the old, change your mind. It will help you to gain control over your finances. You might make a few mistakes along the way, but do not be too hard on yourself; next month, try to do better. Let us know in the comments at what age you started to budget…