How do I set up a budget?
Where do I start?
This is one of the questions that I am asked frequently; especially by recent college graduates.
Typically, once you have graduated and you snag your first job, you begin to think about all this money you will have. For the most part it will be the most steady income you’ve had all your life.
When I was in college I worked two jobs and at one point, I had three jobs.
My income was variable and most of it went to bills like my student housing and meal plans, which weren’t included in my tuition.
Whatever was left went to fun like shopping and hanging out with friends; though I have to admit I used to have fun with much less cash than I do now. Pre-gaming and/or house parties were cheap ways to get the night started.
But now I tend to drive myself out and spend money while I’m out.
Or I will take a cab and spend the money on that.
Ahh, the life of a responsible adult. 😉
Now that you have graduated, you are thinking about how to hang on to this money that you will have, especially if you lived as a proper college student; in the land of scarcity.
This is a good mentality to start out with.
Anything can happen while you are employed and until you have at least two years of experience under your belt, you are on equal footing with other recent college graduates.
This means if you lose your job in the first 6 months to a year, you might as well be considered a recent graduate. For this reason it is important to set up a spending and saving plan.
And that’s where a budget comes in.
A budget is a roadmap for you to determine how you want to spend and what you plan to save.
It’s important to remember that a budget is only as flexible as you are. You create your own budget. Your budget is dynamic and can and should change as your circumstances change.
I started my working career with a 3 year budget to get me through credit card debt repayment and so I could pay off my car.
That budget will change drastically at the end of the 3 year period because I will have a major chunk of funds to either save or spend as I wish.
A budget has three major parts; long term savings, short term savings, and spending.
The purpose of a budget is to help to regulate your cash flow. Proper cash flow management will keep you from being broke.
There are times when unexpected expenses arise and cash flow management is difficult. Short term savings or a credit card, can both help with cash flow management.
A simple budget divides income into these three main buckets.
If you can divide into these three buckets then you can create a budget.
But I don’t know how much I spend!
Let’s assume that you’ve been at your job for a few weeks or even a month now. By this time you’ve had time to settle in.
You know what to expect when your paycheck arrives and you have an idea of what your expenses are.
But for some reason, you find yourself living check to check. Living check to check means that once your check comes in, it is automatically parceled out for bills and other expenses and you spend whatever is left.
In order to end this bad habit, you have to form new good habits. Here’s what you can do…
This is an excerpt from the Young Finances Toolkit, an ebook and interactive guide from Young Finances with budgeting basics, budget templates, videos and simple tips to start investing available here.
Want a copy? Click here!