It’s easy to keep your finances in order with the right setup and resources (like financial podcasts) once you’ve achieved financial stability for the first time. It’s fun to be able to spend your money on whatever you want. However, with that independence comes a slew of new concerns, such as: Is it possible that I’m overspending each month? Is this what I’m supposed to be doing? Should I be putting money aside? Is it necessary for me to feel guilty every time I purchase a fancy cocktail with a weird long name?
Making a budget will help you answer these and other questions. Giving yourself a financial plan will, believe it or not, simply give you more flexibility, more money to invest, and less worries to think about. Here is the case for starting to budget in your twenties (whether early or late):
Saving money early allows you to get more bang for your buck.
It makes no difference how much money you make. The sooner you begin saving, the more money you will have later. The concept is simple: if you invest your money early, you not only gain interest on that investment, but you also earn interest over time. The longer you wait for your investment to expand, the more money you get out of each dollar. Budgeting is important, but it does not have to be difficult. With these basic measures, you can get started on your budget.
Keep track of your monthly income.
Get all of your sources of income together in one location. What is your monthly take-home pay after taxes? Once you have that figured out (especially if you are a freelancer), you can start making a concrete plan.
Keep track of your monthly spending and categorize it.
Maintain a straightforward approach. Begin with the total expenditures from the previous month. Gather all of your bills and receipts to determine how much you spend per month. Make sense of your spending by breaking it down into categories. Living costs, housing, subscriptions (such as Spotify or Netflix), groceries, medical, loan payments, and entertainment are only a few examples. This assists in identifying places where money is being lost in unexpected ways. Numerous banks and apps offer these type of breakdowns for you.
Make a target for yourself.
Getting your finances in order is a great goal, but it’s also crucial to work for something specific. This encourages us to be meticulous and consistent with our budgeting. So, set yourself a goal of how much you would like to save every month.
Create a budget plan.
To begin, compare your monthly expenses to your net income. Do you have a lot of wiggle room? What do you want to achieve? What are the areas where you could save money? Begin by determining your ideal budget targets for each group. Be truthful about yourself and your way of life. Include going out for dinners or drinks with friends in your budget.
The 50-30-20 method of budgeting: This method is for budgeting newbies, and it works amazingly. The 50-30-20 approach is a good place to start. Spending categories that are too complicated should be avoided. Simply divide the budget into three categories: 50% for living expenses and necessities (rent, food, utilities), 30% for flexible lifestyle spending (entertainment, dining out, travel), and 20% for financial targets (savings!). Rather than giving up your social life, the 50-30-20 Rule gives you a whole 30% of your budget to spend as you please.
If you’re finding difficulty with financial terms, we’ve got you covered with our list of financial jargon definitions.