So you graduate and are making $45,000 a year – feeling like a big shot. Or not, because 25% of your monthly income is going to rent and 20% to student loans. After you pay for gas and food – you have about $100 that should probably going to some savings account but that’s boring.
I was talking to my grandma about money and she said to me, “Well, do you have a budget? It worked for us and maybe you want to try it.” What kinda silly, simple question is that? Do I have a budget?! I don’t need that – it’s 2018 my online bank tracks that stuff!
Then I thought I might as well try it. See Tom and I had been tracking our expenses but we never budgeted for them…. We spend – and then come back to see what we were spending on. I think this was a moronic approach to finances on our part. This approach is reactive. The thought process was, “Let’s see what we’re spending too much on and then cut back there.” But what if, from the beginning we just calculated it in? What if we just added once a week DQ into our food budget and then cut on our miscellaneous section by $6?
So I created a budget.
Here’s how I made my budget:
First, I created the section of bills and things my money has to go to monthly. For example, rent or my car payment. I also gathered how much money I actually take home each month, my monthly income, or the amount of money I take home after taxes, my 401k and health insurance.
With all this info I wanted to know what percent of my income was going to each expense. For this I did the following calculation: Expense/Monthly Income.
For example, what I found was that 22% of my monthly income was going towards rent and 10% was going towards my car.
Finally, I totaled up my monthly expenses and subtracted that from my monthly income. Like this: Monthly Income – Total Expenses.
Next I created the “variable life” section. These are the reoccurring expenses that you have but the amounts can differ month to month.
Here I started with food, gas, savings and student loans. These are 3 things I NEED to budget in.
- I drive to work — I need gas. I knew Tom and I carpool to work but some weekends we drive up north… So I guessed.
- Sometimes I get hungry – I need food. And I know I like to eat well and healthy so I budgeted high.
- Then with savings, honestly, I’ve been throwing $10 into an account once a month since freshman year of college. It’s not a lot and I’m up to maybe $400+ but it’s money I refuse to touch.
- Lastly, student loans! I have 4 loans with an interest rate of 6.8%. My other loans have a smaller interest rate – so for now I am less focused on those. It’s my mission to get rid of those high interest loans. So although the bank sends me a bill for only $167, I knew I was going to want to throw more at it than that. Thus my current budget sets student loan payments to 30% and any extra money I come by goes to paying those off.
My grandma told me I need to budget ‘FUN’ like real fun this time – like travel and new shoes. So I thought I’d throw 8% at that every month. (Not a lot but better than nothing.)
March was my first month with this budget and here’s how I did:
- Gas I came in under budget.
- Food I was under budget as well.
- Student loans – I hit right on. (There’s no messing with my mission)
- Miscellaneous Expenses (this is where I budgeted like bday presents, date night and random expenses that pop up throughout the month) – I came in over $100+.
All in all I was $137 over budget. Which I will make up for this month… Overall, I was kinda proud. It was nice to know where every dollar is going vs. where every dollar has been! (Also at my current rate I should have my student loans paid off in six years!)
Here’s how you can make your own budget:
- Figure out your monthly income after taxes.
(I get paid once every 2 weeks – so I took one paycheck and multiplied it by 2.)
- Lay out all of your monthly bills and at the end add them up.
(gas, water, trash, internet, rent, student loans, car payment… etc.)
- Calculate how much money you have left.
Take Monthly Income (from step 1) – Monthly Expenses (from step 2)
- The total from step 3 is what you now have to play with.
- How much do you want to set aside for food?
- For gas?
- For travel?
- For savings?
- Lastly, create a spot for you to organize your purchases throughout the month. Make sure whenever you buy something you write down the amount and file it under the appropriate category. (I do this step so that I know how much I have spent on say, food or gas throughout the month. Then I can easily compare how I am doing with my budget.)
If this all sounds overwhelming and horrible, feel free to reach out and we can create it together! I’ve helped several people get closer to their money goals by making logical budgets. Once I figure out how to attach a file that’s downloadable, I’ll post my budget template up here and you will be able to download it for free. 🙂
In conclusion, I’d say I recommend a budget otherwise as my gma says, “the money goes to the sky.” I’m not really sure what that means but make… a… budget. Just do it. Budgeting is a proactive response to money and amazingly simplifies your life!
If all of this sounds a bit too involved for you – there are plenty of online sites and apps to help you budget. To name a few there are: Mint, Level Money and You Need a Budget (YNAB) which I’ve heard amazing things about!