Budgeting will help you identify your spending habits—good and bad—so you can figure out any expenses you can do without and have a true picture of your cash flow in and out. Knowing your finances in this way will prepare you for unexpected expenses or financial setbacks. Don't be afraid to try different types of budgets until you find the right one (or a combination of methods). Your budget doesn't have to be perfect—it just has to be right for you.
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Money management (budgeting) is one of the most important skills to master early on in your life.
With the current upswing in cost of living Non-Essential spending must be reduced until your salary/wage increases. Salary/wage increases are reactive to cost of living, not proactive by the government and employers.
When spending money on Non-Essential items ask yourself the following questions:
1. Do I really need this?
2. How often will I use it? (daily, weekly, yearly?; or will it sit on a shelf and collect dust).
3. If I do not buy it or truly need it what Essential category can I utilize the additional money towards (Savings/Retirement, investment ).
There are 2 categories of spending:
Essential and Non-Essential.
Here is the breakdown with approximate percentages of how to utilize your take home pay.
Housing (25-35 percent)
Transportation (10-15 percent)
Food (10-15 percent)
Utilities (5-10 percent)
Insurance (10-25 percent)
Medical & Healthcare (5-10 percent)
Saving/Retirement, Investing, & Debt Payments (10-20 percent)
Personal Spending (5-10 percent)
Recreation & Entertainment (5-10 percent)
Miscellaneous (5-10 percent)
I hope this helps you identify and understand the basic process of budgeting.
Numerous excellent resources are available, tailored to your interests. You can listen to Suzie Orman's podcast or watch entertaining TV shows such as How to Get Rich (Netflix), Get Smart with Money (Netflix), and Extreme Cheapskates (TLC). Dave Ramsey is another fantastic source who might have a show, but he definitely offers a helpful website with tools and has authored several books.
I trust these resources will make your financial learning journey more enjoyable. Best of luck!
In addition to what was already suggested, I would add:
- set up a direct deposit into a savings account. The amount doesn't matter right now. Put it there and forget about it. You won't miss it and since it's not tied to a debit card, it's not as easy to spend.
- live within your means. Don't spend money you don't have right now. ( if there's an item you really want, save for it. Don't borrow just so you can have it now. You may find that "must have" becomes less important with time.)
- learn to say no. Your friends may want to do something that costs more than you can afford. Say no, and plan a more budget friendly activity for next time. (This won't feel great in the moment, but it feels better than being buried in debt later.)
This doesn't mean you can't splurge on things. It just means knowing your limits.
The fact that you asked the question is a great first step. Good luck!
The very first thing I would do is make yourself a monthly budget. There are many good apps/online tools you can find online. Many online tools can help you categorize certain expenses and they usually have graphics that can help you visualize your progress. You can also do it the old fashioned way on Excel.
After you set up a budget the next best thing you can do is sleep on it and really ask yourself if you need the item. I would encourage you to really think through what you will use the item for and for how long. Also, think about the big items in life you need to save for such as a house, possibly kids, retirement, etc. You are never to young to start saving for these big ticket purchases in life.
The last thing I would do is don't compare yourself to others. One of the most dangerous things is comparing yourself to people and thinking if they can have it so should I. Don't fall for that trap of "keeping up with the joneses" because comparing yourself to people and their things is not a good idea. It will only lead to misery and feeling like you are failure.
Hope some of the above provides insight.