Budgeting in Your 20’s and 30’s
Chances are you were not born in the house of Steve Jobs or Mark Zuckerberg. Nor do you earn money like Bill Gates. So what should we young people do to make sure we live a comfortable life today and save for future expenses during retirement? I too like you struggled a lot in budgeting. Not because I didn’t make enough money, but because I wasn’t being smart about spending my money.
When you are young (and stupid) you tend to take your newly-independent behind to exclusive department stores to spend a pretty penny. I did that and I am paying the price (don’t worry I didn’t get broke). So today, my post focuses on what I have learned from my father and mentors about budgeting a salary. I think this will be beneficial for many young people just starting on their career paths.
I learned this trick from a fashion blogger and I thought it was smart. She said divide your monthly income into three portions: Your Past, Your Present, and Your Future. This is exactly how I am going to teach you to divide your salary and expenses. So here goes:
This portion is for long-term planning not next month or next year planning. From my very first job at 15 years old, I have been putting money away in Social Security. In United States by law, the employee needs to set aside money for this government retirement plan-no ands, ifs, or buts. However, experts advise to set aside more money for the future. The ideal monthly percentage is 10% of your monthly income. Stuff like saving for a dream home, your children’s education and wedding, retirement, and any unforeseen expenses should be considered. It is highly recommended to put in money in your company’s 401K plan or look into an IRA for your saving needs. These are great plans, because what you put in is not taxed but in fact if you prematurely take money out, you get penalized; hence, a great incentive to all those spenders out there to look into these plans.
This is the second thing to focus on. This portion of your salary covers your previous months spending (or previous debts); in order words, money you have already spent. Things like credit card bills, rent, utilities, car insurance or payments, home upkeep, etc. This is a no-brainer: Spend smartly so you don’t get into debt.
After you set aside money for your future and pay your bills for past spending, the remaining is what you are free to spend as you please. The expenses could be trips/vacations, clothes, charity, eating out, home décor and upkeep or any other splurges. If I could give you one tip only that would be to track spending or write down the spending as you spend. Online tools like Mint are great for someone who needs extra help in figuring out their spending habits and how to save. However, they are not free. This is something I did which was very helpful- make a color-coded (One color for each type of spending such as home, car, clothes, vet, etc.) excel spreadsheet. I did that one year and it provided me with such insight as to what I like to spend my money on.
Also, many blogs would tell you to not splurge on any expensive items (even if it is for your home or kids). While that is sound advice, I know human nature; once in a while, we like to spoil ourselves silly. So I say go ahead splurge, but be smart about it. There is a difference between impulse buying and stuff that you adore and are proud to own. A friend once told me that when she goes shopping, she takes photos of expensive items she desires. After she goes home, she thinks about it, looks at the pictures, and after a few days of contemplation decides whether it is worth splurging on. This spending technique shows there is a thought process that goes into it and you tend to splurge on something that you truly desire and want in your life; maybe it is a super cool home grill or a pair of killer Jimmy Choo’s, you name you will not starve your soul (or pocket) if you spend wisely.
Well, I hope this post helps my followers. Love you! Why? Just because…