When you’re starting out, budget planning can be challenging. Your income is probably low, you’re new at budgeting and you don’t have any assets. Yet, the basics of budgeting are the same for everyone whether you’re dealing with college textbook expenses, paying for your children’s braces or saving for later years. If you practice the basics now, you’ll take charge of your future and enjoy peace of mind no matter the circumstances.
Follow the Money
A budget is a spending plan. Before you can make a plan, you need to know your current situation. People often think they know where their money goes. Instead, after tracking spending, they discover two things: small expenses add up and they are spending more on some things than they expected. Keep track of the money you spend for a month, no matter how small the amount. Expenses represent choices you make, sometimes without thinking. You’ll approve of some choices. Others you’ll decide to change.
After tracking your expenses, sort them into categories such as school expenses, videogames or eating out. Total each category and calculate what percentage of spending each represents. Some expenses -- rent, for instance, if you don't live with your parents -- you must pay. These nondiscretionary expenses are often fixed at or around a certain amount so they’re easy to anticipate. Other spending is at your discretion and often not a fixed total. Look for savings opportunities in the flexible and discretionary spending categories. You need food, but not fast food. You don’t need ATM fees or cable television.
Subtract all the expenses from your monthly income, which includes money from a part-time job, allowance from your parents and school loans or grants. If you have enough money to pay all the nondiscretionary expenses, the important discretionary expenses and save something, move on to fine-tuning your spending. If not, you need to cut back in some expense categories. If you rely on student loans, grants or scholarships, beware the feast or famine syndrome, where you binge-spend when money comes until you run out and can’t meet expenses. Use the totals in the expense categories you calculated to put aside the money you'll need each month until your next "payday." Treat savings as a nondiscretionary expense.
If you receive lump sums from student loans or grants, put the amount needed for upcoming living expenses into a savings account. Then your money earns money until the time comes to spend it. Begin saving for the inevitable future crisis -- a replacement for a lost cell phone or unpaid sick time after you start working. Put a dollar amount on savings goals and budget for them. If you need to save for something specific such as a down payment on your first car, realize that putting money into savings is like making advance payments, only you earn interest.
Living within your means may take a lifestyle change. Shop and work close to where you live to save on transportation expenses. Instead of eating out, learn to cook and invite friends. Take advantage of coupons, loyalty programs and shop for the best deals. Don’t cut out all splurges; it can lead to impulse shopping. Instead, budget for important indulgences. If you can, give yourself a weekly or monthly cash allowance that you can spend however you like. When it’s gone, though, stop spending.
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