Remember those days as a kid when you’d receive a crisp $20? Forget squirreling it away for a rainy day. You went to the store that afternoon and blew it on something only minimally worth it, like an Ace of Base CD.
Oh wait, that was just yesterday.
Let’s face it: It can be a hard to transition from a college student borrowing money from mom and dad to actually managing our own finances.
Suddenly, there are bills to pay, and maybe more mouths to feed. But, there’s also Netflix to watch and Amazon Prime, right?
So how do we balance it all? The answer lies in creating a budget.
The good news is that there are plenty of tools out there to make the process a little less painful. That means fewer tiny Excel cells and more straightforward financial guidance.
Today, we’re breaking down how to finally set up a budget for yourself, so you can start making that hard-earned cash work for you.
Ready to learn more? Let’s go.
1. Find Your Money Drains
There’s a reason everyone looks forward to payday. In an instant, your bank account fills back up like a tank full of gas, and you’re ready to hit the road and start spending.
To start creating your budget, sit down and determine where your income is going every month.
Start easy and tally up the bills that you can expect. Write down the amounts you pay for your rent or mortgage, utilities, cable, phone, insurance and more. These are your fixed expenses.
On the other hand, your variable expenses are everything you don’t really have to spend money on but choose to anyway. Some people like to call this “fun money.”
Pull out those receipts buried deep in your purse. What do you put your extra cash toward? Are you going on daily coffee runs or paying for a weekly yoga class?
Both fixed and variable expenses can be money drains. Identify them so you can start plugging those unnecessary leaks.
2. Understand Your Debt
Do you only think about your student loan when you receive that dreaded bill in the mail? What about your credit card debt?
We get it. You’re in the middle of one of the busiest and most stressful seasons of your life and thinking past next week can be a challenge. Yet, it’s time to think long-term for a second.
Make a list of your outstanding debt. This might include your car payment, apartment lease, or your credit card.
If you’re still paying off your education, consider re-financing your student loan. You could not only lower your monthly payments but also adjust your interest rates in your favor. Review your options on a site like Lendkey, which allows you to compare student loan rates and puts you in touch with a community of lenders.
Make sure you’re aware of the loan terms for each of your debts. See if you can re-route any of those flexible expenses and use them as additional principal instead.
Snowball Versus Avalanche Methods
There are two simple ways you can go about reducing your debt. You can either tackle it with the “snowball” method or the “avalanche” method.
In the former, you’ll take care of all your minimum payments, then devote any extra money to eliminating the debts with the smallest balances. When your first debt is absolved, still budget out those old monthly payments, and combine them with any extra money to pay off the second-lowest debt and so forth.
The avalanche works much in the same way, though you’ll focus on the debts with the highest interest rates first.
Whichever method you choose, the idea is to keep an eye on those numbers and invest any leftover income toward shrinking them.
3. Reduce Where You Can
Sure, you love your beauty box subscriptions, but do you really need seven of them? What about your home decor obsession? Could you channel your inner Joanna Gaines without buying every piece of rustic farmhouse decor you find?
With so much at our fingertips, it’s easy to be tempted by excess. Take a look at any area in which you’re frequently dropping your cash, and see if you can cut back even just a little.
While you’re at it, make sure you’re not losing money at work. Double check your benefits plan to see if you really need the amount of coverage you signed up for.
Do those documents look like they were written up in Wingdings to you? Ask your HR representative to translate. Then, when open enrollment comes around, make any necessary adjustments and appreciate the difference in your pay stub.
4. Plan to Contribute
We know what you’re thinking: “It’s a struggle to stay on top of my monthly expenses. How can I be expected to start paying for my retirement already?”
In reality, any money you can save now will put you one step closer to those glorious, empty-nesting golden years. By starting today, you can help ensure you’re summering in the Hamptonswhen you hit 65 and not still fishing for pennies under the couch.
See what your employer offers in terms of a 401(k) plan and consider upping your monthly contribution. Frankly, it’s hard to miss money you never see and it’s a more than worthwhile way to save. After all, it’s an investment in your future, and besides making time to binge-watch Season 2 of Stranger Things, what’s more important than that?
Saving Today and Savoring Tomorrow
Financial planning is far from glamorous. It can be confusing, complicated, and overwhelming at times, and that’s totally OK. You aren’t expected to have all the answers at once, and taking your time to figure out your best path is wise.
It starts with putting pen to paper and taking a good look at your money. See where it’s coming from, how you’re spending it, and where you’d like it to go in the future.
To continue learning about all things business, education, and finance, check out our blog for further articles.