The title here says it all. Each and every person should take the time to develop a budget that works best for them. While this may take some time in the beginning, once you get used to it you'll find yourself acheiveing financial goals. Here's a look at my budget, and how I developed it. (Please keep in mind that what works for me might not work for you)
1. Track your expenses to get a baseline of how you spend
It's hard to start budgeting without having an accurate idea of where and how you already spend your money. Thanks to websites and apps, writing down each and every transaction in a little notebook is a thing of the past. If you've got an account with a major bank, open a free account with Mint here. Mint will securely link up to your bank accounts and credit cards to track your finances and spending in one place. You may think you've got an idea of where your money goes, but little transactions add up, so you might be surprised.
Here's a little chart of my past 6 months of spending as tracked by Mint that helped me to create my budget:
While this is just a general chart to visually understand my spending, you can get accurate numbers of how much you spend in categories that you can tailor to your needs. This step will show you where you may spend too much (say, eating out at restaurants) and give you a baseline of how you could improve your habits.
Tip: Mint.com tracks your spending best when you use credit or debit cards instead of cash. If you enjoy paying with cash, try using cards for just a month or two to get a good baseline for your budget and then revert back to your preferred habits, or track your spending the old-school way with pen and paper.
2. Determine your net income
Tabulate paychecks and any other sources of income so you know what you've got to work with. If your income isn't steady, give your best shot at a safe estimate and build a bigger emergency fund to cover tougher times. If you have gigs that give you extra cash here and there, try to exclude those from your budget as it's always better to under-estimate.
Here's what I've got going on:
1) Bi-monthly paycheck #1 (architectural intern): +$1141
^^ fun fact: Architects don't make as much as you (probably) think they do. I live in San Diego (high cost of living) and only make $39,500/year (before taxes) which is pretty standard, even for a Masters degree and a few years of work experience.
2) Bi-monthly paycheck #2 (part-time sales associate): + ~$80 (this fluctuates)
3) Google Adsense payment (every other month): +~$150
(from my monetized youtube video)
My total net income per average month= ~$2517 (this includes 1/2 of the Google Adsense payment)
3. Subtract paycheck deductions (PAY YOURSELF FIRST)
One of the best things you can do to assure you achieve financial goals is to pay yourself first. You can do this by immediately transferring money to a personal or work-sponsored retirement account or a savings account as soon as you get paid. You want to create the illusion that this money is not part of your monthly spending, and that it is untouchable until you meet the conditions you set for yourself. This may be a percentage amount or a dollar amount.
I set aside 15% of each paycheck from my full time job to go directly into an employee sponsored Roth 401k (retirement account). Since I can't touch this money until I'm retired (otherwise I'd be heavily taxed on any earnings), it's untouchable to me. This saves me $242/paycheck and brings my monthly income down to $2033.
4. Budget "necessary" things first
These are things that you feel you need to have in your life. Sure, you may be able to live your life without a car or cell phone, but this is your budget and your preferences.
Mine are:
-$600 loan payment ($283 of which is mandatory)
-$600 rent (Projected rent cost, as I only pay $300/month for this summer as a house-sitter)
-$200 food
-$75 car insurance
-$90 cell phone
- $25 health expenses
- ~$170 gas (I use 3 tanks per month on average)
_______________
Total necessary bills/expenses = -$1760
5. Calculate what's remaining and continue budgeting
$2033 (monthly income available to spend from step #3)
-$1760 (bills/expenses so far from step #4)
________
+$273 remaining
That means I've got $273 left to spend on "other stuff" like entertainment and shopping, or things that come up like oil changes or pet expenses. While that's not a lot of wiggle room, I still do my best to try to save a little bit of this leftover money to put towards my emergency fund, and add any extra income to that savings as well.
It's important to factor in that 1-2 times per year I get 3 paychecks a month (since I'm paid bi-weekly, not bi-monthly), so I can use that extra income of ~$2000 to put towards my loan debt or savings.
6. Start using your budget
If you've already begun using Mint or another app/software, go ahead and plug your budget in. You can easily track your spending through the month and tell it to alert you if you hit your limits. You can also create savings goals and access charts that help you to understand how you spend your money.
Here's a snapshot of my Mint page currently where I bare it all.
Note: the budget varies slightly from the one above because I currently pay less in rent, and the accounts on the left don't not include my trust fund account or my work-sponsered Roth 401k.
When you work hard to earn what you can, it's comforting to know that you are in control of where that money goes. I choose to allocate 43% of my income to my debt/future savings. If I had no loans and no intention on saving for my future I'd have an extra $1,000/month to spend. But I've determined that these things are more important to me, and developing healthy spending habits this early could only be beneficial in the long run.
