Budgeting & Saving 101
Learning how to handle your money responsibly and make the most of your income will make living independently much more enjoyable. For what may be the first time in your life, you get to choose how and where to spend your money. Hypothetically, you could spend it all on new designer clothes or exotic vacations. Most likely though, you’ll be living on a tight budget. And you may be surprised how quickly all your money can be spent, especially if you’re financially independent - AKA no money from the parents. The tough part is having to pay your own bills and other living expenses - insurance, transportation, food, and all the other necessities. We’ll focus on those bills in the next section. If you budget your money well and choose your spots for the luxuries, however, you’ll also be surprised at just how far you can make your money go.
Keep track of your money, and your spending habits.
This is the first and simplest step. If you know where your money is going, you can adjust how you spend it and plan ahead how to save it. There are a number of websites and apps out there that will do the budget tracking for you, as long as you’re willing to link your bank accounts to them (make sure to do your research on their security! - Mint is one trusted resource). Personally, I like self-tracking through a simple excel sheet that I update with my spending every month, which you can download yourself here if you’d like to use my version as a base for your own. By tracking your budget, you force yourself to be aware of exactly where all your money is going. It can also help you catch any mistaken charges or credit card fraud. While those are rare, what is less rare, especially for the newly-independent, is getting a little too loose with your purchases. Budget tracking will help you identify your spending habits, which will make knowing where to cut costs and how much you can save much easier.
Budgeting advice from Jing Xi Chong
Avoid the big costs and money suckers.
This doesn’t mean you can’t get your daily Starbucks latte or go out with friends on the weekends - if doing those things makes you happy, then you should do it. But it does mean recognizing the limits of your income and choosing where to spend it. If you’re not making much money, then buying expensive new clothes every weekend might mean you have to cut back elsewhere. Doing things like frequently ordering food instead of cooking (more on that later) can quickly add up. And if you want to go on that spring break trip with your friends, then consider a range for the total cost of that trip ($200, $300, $400+?) and how much, if at all, you’re saving up for it beforehand. More restaurant outings might mean fewer shopping trips on the weekends. Ultimately, you have a fixed amount you can spend every month and you have to choose where you want it to go. It helps to keep track of your fixed costs too - things like the phone bill, car insurance, rent - so that you know how much you have leftover for “spending money” each month. If you keep track of your monthly spending, for each category like food and travel and clothes, then you can estimate how much you typically spend on those categories as well. The end result is knowing how much savings you’ll have on average each month (or debt, if you’re spending more than you’re earning), which can then help you decide what future big purchases are possible, or how you would need to adjust your current spending to make them possible.
Many strategies for saving - choose your favorite.
There are a number of tools - many of them free - available for helping you save money. Certain apps will automatically take a portion of your income, or a percent of your spending, and deposit it into your bank savings account. With most banks, you can simply set-up auto transfers from one account to another automatically as well. It’s probably a good idea to set aside a little bit every month, if you’re able to do so. However you want to do that is up to you, but setting some rules ahead of time for how much to save (per paycheck, per month, etc. - again, you can decide the basis) makes it easier to be disciplined. You want to have some savings to draw on in case of emergencies or unexpected events that require a large payment on your part. This can be anything like a health problem or car maintenance that you weren’t expecting.
The bonus step is to maximize any 401k/IRA work accounts you may have through your job. While retirement may seem a long, long time away, it’s never too early to start saving for that way-ahead future. Investing and saving for retirement could make for a map of its own, so we won’t get into it here. But if you are interested, here are some websites and guides for getting started.
thumbnail photo created by Valerie Sidelnykov
