Budgeting is an essential skill for anyone who wants to be a financially stable adult. However, most high schools don’t teach students about how to create a well-balanced budget. If you’re planning on leaving the nest anytime soon, here are a few budgeting basics to keep in mind as you start out.
1. Be sure to save every month
Although it requires discipline, the first rule of successful budgeting is to save part of your income consistently. No matter how tight your budget appears to be, try to cut other expenses before you stop putting money into savings. As a rule of thumb, you should try to save 20% of your money each month. By getting into the habit of saving as a young person, you’ll set yourself up for success later. You never know when you’ll have an emergency expense that requires you to dip into these funds!
2. Make educated guesses
Let’s face it. You may not always know exactly what your income and expenses will be in any given month. Thus, making educated guesses when creating your budget is incredibly important. As a rule of thumb, you want to underestimate your income and overestimate your expenses. By doing so, you’ll ensure that you cover all of your expenses, even if your income is on the smaller side.
3. Differentiate your ‘wants’ and your ‘needs’
While it seems obvious, differentiating between wants and needs is challenging for most young people starting to budget. If you find yourself having trouble with this, start by adding up your fixed prices, such as your rent or insurance. After that, calculate how much you anticipate spending on needs with more flexible costs like groceries or gas. If you still have some money left over, you can then start budgeting for your wants, such as going out to dinner with friends or shopping for new items.
Whenever we talk about finding jobs, my dad tells me, "If you love what you do, you'll never work a day in your life."