Budgeting and finances are the most unpopular topics of discussion. Unless you are trained in the art of financing, this concept can seem complicated. It doesn’t have to be that way. Anyone who has a smartphone has access to hundreds of free or paid budget apps. These can be helpful and easy to understand. We recommend following these steps before downloading one of those handy apps. This way, you have all your information in front of you, making it easier and more efficient to walk through the requirements of these apps. We recommend using a spreadsheet program or another similar system to record everything.
List everything you owe
Most Americans owe lenders in some form or another. Make a list of all of your debt:
- Who do you owe?
- How often do you make payments? (generally monthly)
- What is your minimum monthly payment? (If you pay more than the min-write that.)
If you want to go the extra mile, include what your interest rate is on each of these loans. It’s important to stay aware of these as they may fluctuate. Also, this is important to know if you are considering refinancing.
When are they due?
Student loan → $X/Month → % Interest → due XX/01/20XX Car payment → $X/Month → % Interest → due XX/01/20XX *This does not reflect the total amount due, just your monthly payment* If you only can make the minimum payments, for now, that’s o.k. We’ll revisit this list later.
List your monthly expenses
Everyone has monthly subscriptions, expenses, and/or ‘dues.’ Write them down by name, what the monthly payment is, and the day they are due. Rent → $X/Month → due XX/01/20XX Utilities → $X/Month → due XX/01/20XX Subscriptions (such as streaming or news subscriptions) → $X/Month → due XX/01/20XX Gym Membership → $X/Month → due XX/01/20XX
Add your monthly debt & expenses
Add these two numbers together- place it at the top. This is the chunk of change you will be expecting to pay every month.
List your monthly income
Write what your monthly income is. If it fluctuates, look at the past six months, add them together, and divide by 6. This is your mean income. This goes to the top of your list.
Categorize your spending
This is probably the most time-consuming but undoubtedly, the most important step. Take a look at the last 3-6 months of your spending habits. Jot them down into categories and what their totals are. Example:
- Gas → $X → July/20XX
- Groceries (food items only if you can) → $X → July/20XX
- Going out to eat → $X → July/20XX
- Shopping → $X → July/20XX
- Beauty products/vanity* → $X → July/20XX
*If you find you are spending a lot each month on certain products, like beauty products in the example, make it a category. This can go towards any particular hobby or interest you spend money on. The more you can categorize, the more you will be able to analyze your spending habits.
Face the facts
At this point, you are either patting yourself on the back or sobbing. Hopefully, you didn’t have to pick your jaw up off the floor. Either way, you have officially graduated from Millennial Budgeting 101! Now, put all that extra cash in a savings account! If you’re still struggling to comprehend your ridiculous spending habits, it’s time to reevaluate. Do you need Hulu, Netflix, HBO, and Cable TV? Get rid of what you don’t need. And stop buying what you can’t afford.
Make your budget
Now that you have the numbers in front of you and you’ve gotten rid of the things you don’t need, it’s time to set budgets. Remember, the goal is to save money every month. Every category needs to have a cap, and you need to stick to that cap.
- Income = X
- Expenses = X
- Spending
- Gas = X
- Groceries = X
- Going out to eat = X
- Shopping = X
* Remember this is ALL you’re allowed to spend each month.*
Now you have your basic budget formula (Income/month – Expenses/month – Spending/month = Savings/month)
Manage your budget
This is where you get to explore the different apps and stay on top of your finances. You can also use spreadsheet programs and save them to a cloud to use on the go. The importance is to watch your spending and, at the end of the month, look at the numbers. Another suggestion is to save your receipts throughout the day and enter those numbers in the evening or the next day. Look for budgeting apps or other technology-based tools that work for you to help manage your budget. Remember, the goal is to save money at the end of each month.
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