Whenever I talk with friends or peers about what I do, I essentially get asked the same thing, “How do I save?” Which leads to the question, “do you have a budget?”
Often when talking to friends about finances, I find most millennials don’t have a budget. This is likely because they don’t even know where to start with creating one. Young adults are often starting their careers while also paying off student loans or debts accrued while in school. They struggle to get out of the living “paycheck to paycheck” routine because it feels like they’re constantly trying to keep up with the incoming bills.
Many of my friends are surprised to find out that having a budget can help them track their spending and reduce their debt at the same time. This is simply because it makes you cognizant of your financial situation as a whole.
The first step is simply documenting your income and expenses each month. This allows you to see where you have wiggle room to pay a little more toward a bill, put more toward your emergency fund, or splurge on that fancy dinner. Writing everything down in a budget not only shows you what you do have but it shows you what you don’t have.
As much as we don’t like to admit it, we can’t always afford things that we want. Maybe you can’t afford that new phone or the newest pair of Nikes. Capturing your expenses and seeing it visually often helps put things in perspective. Plus, it cues you to save more by budgeting money toward your emergency fund or student loans – leaving room for the Nikes or new phone down the road.
Now, I’m a believer of spending a bit of money on yourself each month. But it’s important to know how it will affect your budget first. One great way to do this is to allow a portion of your income to be an “allowance” to spend on unplanned purchases such as coffee, eating out, shoes, or whatever makes you happy.
Knowing why it’s important to have a budget, let’s look at practical ways to get started. In true millennial style, there are a lot of great websites or apps you can download such as Mint and Acorns. The You Need A Budget app calculates where you’re at monthly as you spend.
Managing your budget the old-fashioned way can also be a great solution. With the envelope method, you use envelopes to split up your expenses, having an envelope for “groceries” and “utilities.” Don’t forget your “allowance” one for treats! And my personal favorite is a basic spreadsheet. Whatever the method, the important thing is to start one.