Budgeting is one of the most important skills young adults need as they enter the world of financial independence. Whether you’re going to school, getting your first job, or starting out on your entrepreneurial journey, learning how to handle money is necessary if you want to build wealth and avoid falling into debt.
This guide will outline some of the best budgeting tips for young adults. Find a way to use them in your financial life.
Understand Your Financial Goals:
First things first, before you can start budgeting, you need to know why you’re doing it. Defining your financial goals will give you clear direction and motivation. What do you want to accomplish? Here are some goals you might set for yourself:
- Paying off student loans
- Building an emergency fund
- Saving for a down payment on a house
- Starting a small business
- Traveling and seeing the world
Understanding your “why” will help you prioritize — money that you save to pay off student loans will be allocated differently from that which you need to save for travel across the world. Your personal financial goals should be divided into short-, medium-, and long-term categories. This will give you a roadmap for working on your goals and will help keep you motivated.
Track Your Income and Expenses:
Budgeting starts with awareness. If you do not know how much money you bring in and how much suddenly gets withdrawn from your account, it becomes easy to overspend. So, the necessary step is making a list of all the income you receive. Your sources of income could be your salary, freelance work, or a side-hustle you are running. Also, if you do not keep track of your monthly expenses, you have very little defense.
That’s why you also have to track your monthly expenses. There are many apps and tools for expense tracking. Try using platforms like Mint, YNAB (You Need A Budget), and PocketGuard to automate tracking. They also track your spending pattern and categorize them to identify whether you should make spending adjustments.
PRO TIP: Small transactions are not so small at the end of a month. You might be spending a lot of money on gas station snacks. So keep track of all your expenses. Yes, even that $3 coffee.
The 50/30/20 Rule: A Simple Budgeting Framework
The 50/30/20 rule is a straightforward and effective way to manage your finances:
50% for Needs:
This includes essential expenses like rent, groceries, transportation, healthcare, and utility bills.
30% for Wants:
This portion is for non-essential items that enhance your life—like dining out, entertainment, or hobbies.
20% for Savings and Debt Repayment:
Allocate this towards building an emergency fund, investing, or paying off loans and credit card debt.
This method is flexible and can be adjusted depending on your unique circumstances. For them, paying off student loans aggressively may require moving some “wants” into debt repayment.
Build an Emergency Fund:
An emergency fund is your financial safety net. This is money you save for emergencies—a medical bill, a car repair, or a loss of a job. By having this money set aside, you do not have to rely on credit cards or loans during emergencies.
Aim to save for at least 3 to 6 months of expenses. To establish this fund may take a while, save consistently—whether it’s $20 or $50 from each paycheck. You can automate this process by having set up a direct transfer from your checking account to a designated emergency savings account.
Avoid Lifestyle Inflation:
As you’re dealing with newly arriving bucks, it’s very tempting to switch lifestyles: you buy a new car, move into an upscale apartment, or indulge in continuous spending at expensive restaurants. Lifestyle inflation is the term for this, and this would gradually rob you of some comfort or your capacity to save.
It would help if you frequently learned not to allow yourself to spend lavishly once lifestyle inflation pops in because your income grows. Prefer saving or investing when you get raises or promotions before letting your expenses go up. This way you will become wealthy much faster—while you relish and enjoy your deserved successes.
Limit Credit Card Use:
Credit cards can prove to be a double-edged sword for young adults. On one hand, they could help build credit, earn rewards, and help with cash flow. If not more responsibly, however, credit cards can certainly lead to debt escalation.
Tips on how to use credit cards wisely:
- Always pay your bill in full at the end of each month so you do not have to pay any extra charges.
- Use your card exclusively for planned purchases, such as utility and grocery bills, rather than impulsive buys.
- Monitor your credit utilization ratio. Keep it under 30% of your credit limit to maintain a decent credit score.
If the balance is being carried, pull all the stops to pay it off as quickly as is humanly possible. Credit card debt can grow alarmingly large, in part due to its extremely high interest rates; that makes it one of the most expensive forms of debt.
Invest in Your Future Early:
Another awesome financial resolution you can establish for yourself as a young adult is to commence early investments. With due regard to the capability of compounded interest, the sooner a person starts investing, the longer they have for money to grow.
Even with a small sum, if you invest consistently, it can create a positive outcome over time. Get into low-cost index funds or mutual funds and contribute to retirement accounts like a 401(k) or Roth IRA.
If offered, take advantage of a 401(k) match from your employer. Essentially, this is free money that gets added to your retirement money! If you don’t know anything about investing, there are so many beginner-friendly platforms that make it easy for you to start, like Robinhood, Betterment, or Acorns.
Cut Unnecessary Subscriptions:
In the frenzy of an activist society, subscription services are the new fad-brokers from streaming apps to meal boxes. It is Jewell’s loss; while many subscriptions can be easily activated, it is hard to differentiate how much one ends up spending in any one month. To that extent, ensure you reassess the subscriptions regularly and discontinue any unused ones or those overlapping with others.
Consider: Do you really need Netflix, Hulu, Disney+, and HBO Max? In the same way, meal delivery services or unwanted gym memberships could drain your budget if not kept in check.
Set Up Automatic Transfers:
The easiest way to save and invest consistently is through automating your finances. Set up automatic transfers from your checking account directly to savings or investments. This way, it’s well out of sight and out of mind, hence curbs any temptation to spend it.
Similarly, by automating credit card bills, utility payments, and even rents, it not only may help you avoid a late fee but also aids you in the long run when it comes to building your credit scores.
Seek Out Discounts and Freebies:
There’s no shame in hunting for those discounts! Websites like Groupon, Honey, and Rakuten let you find deals on everything from groceries to travel. Student discounts abound for a host of services like streaming subscriptions to software and even clothes.
Additionally, make full use of loyalty programs where you deem fit; be it your go-to coffee shop or airline. Several programs extend benefits redeemable against discounts or free products.
Plan for Taxes:
You may find this surprising as a young adult, especially for the freelancing crowd or those with multiple income sources; taxes can catch you off guard. Make sure that this year, as you receive payments, you put some money aside for representing expenses to avoid any desperate last-minute payments during tax time. For freelancers, a good rule of thumb is to set aside 25-30% of your total income for the taxes.
If you are employed under a salary scheme, this entails understanding the tax deductions or credits you might qualify for, like the student loan interest deduction or other education credits. With appropriate tax software or working with a qualified tax professional, this will maximize your tax return.
Travel for Photography Shoots:
Budget wisely when planning trips for photo shoots so as not to go broke. Consider researching expenses for flights, hotels, transportation, and meals in advance. Book ahead for discounts-another option is taking advantage of travel rewards programs to save on flights and hotel accommodation.
Other considerations include equipment rental, permits, and location fees. You can work to stave off excessive spending by prioritizing destinations where the landscape will be wondrous yet affordable so that you can produce multiple photo shoots on one trip with the hope that you will go home with some satisfaction for your investment.
Indeed, an extra budget for contingencies means you may make room for other costs that come up unexpectedly-some weather delays, equipment repairs. This will allow you to remain within budget while capturing beautiful shots.
Find a Budgeting Buddy:
Sticking to a budget is hard enough, but it’s easier if you have someone to answer to, be it a friend, partner, or family member, to keep you motivated by sharing your financial goals and progress with. Who knows, you may learn some new tricks from each other.
Conclusion:
Budgeting should never be restrictive or stressful. On the contrary, it paves the road to financial freedom. Being a young adult, it is always better to learn the habit of budgeting and building good financial habits early so that you may enjoy a secured future. The small steps would include tracking expenses, setting realistic goals, and making a conscious choice about where the money goes.
By taking help of these smart budgeting tactics, you will put yourself in a great position to take control of your finances and set yourself up for long-term financial continuity. It’s not about making much of what you are earning but how well you budget and manage what you have.
