Yes, adulting is alluring. No sharing the remote with siblings. No nagging about dishes. No parents. Nothing but…freedom? The reality of living on your own isn’t as free as it might sound.
Before you pack a single box, it’s essential that you determine if you can afford it. Step one: learning how to budget.
Creating (and keeping) a budget is a crucial life skill that will impact your financial success in the long run. Like a roadmap for your financial journey, a budget helps you keep track of where your money is coming from and where it’s going. Your assignment? Balance. Your goal? More income than spending. Armed with a well-structured budget, you can ensure you’re spending responsibly, saving for your goals, and avoiding unnecessary debt. Let’s get started.
Step 1: Calculate your income.
The first step in budgeting is knowing how much money you have to work with. This includes any allowance, employment earnings, self-employment profits, and gifts. Make a list of all your sources of income and add them up to get your total monthly income.
Step 2: List your expenses.
Next, create a list of your monthly expenses. These can be categorized into fixed (consistent every month) and variable (irregular) expenses. Fixed expenses include things like your phone bill or subscription services. Variable expenses might include eating out, entertainment, and clothing.
Step 3: Define your spending categories.
Next, divide your expenses into buckets. Perhaps they’ll look like this:
Necessities: These are the expenses that you need for survival – things like groceries, transportation, and rent.
Savings: Allocate a portion of your income towards savings for short-term and long-term goals.
Entertainment: Budget for activities with friends, movies, concerts, and other fun outings.
Random: Account for unexpected expenses that might pop up, like car repairs or medical bills.
Step 4: Start balancing.
Now it’s time to put it all together. Subtract your total expenses from your total income. If you have money left over, that’s great! Perhaps you can allocate more towards your savings goals. If your expenses exceed your income, you’ll need to adjust your spending in certain areas.
Step 5: Track away.
A budget is only effective if you stick with it. Keep track of your spending as the month progresses. There are plenty of apps and tools that can help you track your expenses, or you can simply use a small spiral notebook. Regularly reviewing your spending will help you stay on track and make adjustments if necessary.
Step 6: Adjust as needed.
As changes occur in your life, you’ll probably need to reflect them in your budget. If you have a change in income or expenses, adjust your budget accordingly. Flexibility is key to a realistic budget.
There, you’ve done it, Biz Kid. You’ve considered the real costs of adulting and set yourself up for something even more valuable than freedom from sibling rivalry: financial freedom.
Looking for more budgeting tips? Check out our Financial Basics page for inspiring videos and actionable activities.