Budgeting is one of those things that I think no one really enjoys doing, but it has such a big pay off in the end. I am firm believer that all of us young women, whether attached or single, should be in control of and knowledgeable about our finances. And budgeting is the number one way to achieve that.
There are many different approaches to making a budget, but I personally like to use the 50/20/30 approach, predominately because it is the easiest.
It breaks down like this:
50% of your monthly income after taxes goes to "Essentials." "Essentials" are things that you literally cannot live without, such as rent, groceries, utility and car payments, car maintenance, etc. Each of these should take up only a fraction of the 50%. For example, your rent should never be more than 30% of half your take home pay, groceries should come out to about 10%, etc. Things like cable and internet, though, do not fall into your Essentials category, because you can actually live without them, as much as that seems to not be the case.
20% of you monthly income should go towards savings. Whether that is a savings account or a mutual fund or a retirement account such as a 401k, this amount is non-negotiable. This amount will build over time, and will help you deal with unexpected expenses, such as hospital bills or car repairs. Eventually, you can use these savings to put towards a house, higher education, or retirement. I would also suggest not putting away more than 20%, because that can be a big chunk out of your paycheck, which can leave you feeling like all you're doing is saving for the future rather than living in the moment. After you've put the money away, though, don't touch it! The only time to use the money is when you are spending it on the goal you were saving for in the first place, or an emergency. The shoe sale at Saks does not count as an emergency, though :)
Finally, 30% of your money is fun money. This is what you spend on the fancy cable package, a night out on the town with your girlfriends, that really expensive pair of shoes that you have been eyeing, or your monthly haircut/wax/manicure. When you think about it, 30% is a hefty amount of money to spend on realistically whatever you want. However, knowing the amount that you have to spend in a month/pay period can make you wiser about how you spend. Do you want to buy the $500 leather jacket, or get a mani/pedi once a week? Are the three different shirts worth it, or would you rather save that money up for something more expensive? Now, I am all for shopping, but I do think that one pair of $400 shoes, that will last you a lifetime, are definitely a better investment that 4 pairs of $100 shoes that will fall apart with trends and time.
If you're looking for a more in depth look at personal finances, check out the book Financially Fearless, by Alexa von Tobel.
Until next time,