I will grant you that I may not be as up-to-date on the latest technological gadget, but I do know a thing or two about budgets – including how much college debt you are dealing with these days (my youngest is heading into his senior year at a private college)! Also, I know that even mentioning budgets will cause some of you to panic and click on something else, because honestly talking about your budget is both scary and about as exciting as watching paint dry. Learning to control your budget though, is the first and most important step on the road to financial success.
First, a budget needs to be written down and should account for every dollar that comes and goes through your control. This is known as “zero-based” or “zero-sum” budgeting. Let me explain. Let’s say you make $500 per week ($2000 per month or $24,000 per year). Your rent is $500, your car payment is $200, your student loan payment is $400, and your food, phone, utilities, car insurance, and other fixed expenses (expenses that occur every month) are $750. This adds up to $1850. You feel pretty good about paying your bills, right? But where does the remaining $150 go? A zero sum budget means that you have to figure out where every dollar goes.
If you write down every penny you spend for 2 months, you will find some surprises (I’ve done this with many people over the years and they are always surprised where some of their money goes). I recommend you do this “old school” (with pencil and paper), but if you must involve your favorite mobile device, you can try some of the free apps out there like MINT, Digit, Level Money, etc.
Once you know what you’ve been spending money on, you need to gain control. Here are some steps to consider:
Pay Yourself First – it’s an old adage, but never truer than it is today.Put something aside every paycheck, preferably via an automatic process.Save in at least two places – one for retirement (if your company has a 401k plan with a matching feature, start there to get the matching contribution), and one for emergencies.I believe 10% is a great first savings goal, but don’t give up if you can only start with 1%.Start somewhere and work your way up.
Review every expense and try to find an alternative.Can you add a roommate, find a less expensive place, or (gasp) move home for a while?How about your cell plan?Can you work with your family to be part of a group plan, or form a group with your friends?Many larger companies have special arrangements for their employees to get a discount on their phone service at the large carriers (Verizon, AT&T, etc.)If you have to use your cell phone for work, will your employer reimburse you for part of it?It doesn’t cost to ask…
Eating Out – I’m not saying don’t eat out or have fun, but are there ways to make it cheaper?My older son when he graduated was an expert on finding the best happy hours, 2-for-1 specials, etc.When I was that age and in the army, we did a lot of “pot luck” gatherings with friends.
Entertainment – here, you are only limited by your creativity.There are still a ton of things to do for free, from going to the library to attending free concerts at community parks and local festivals.
Student Loans.This has become one of the largest expenses for your generation, but there are ways to save.There are careers that offer loan forgiveness (certain teaching, medical, social work, and other public service fields) where you agree to work in a needy location in exchange for some loan forgiveness.Some employers are also offering partial loan repayment in exchange for achieving certain benchmarks at work (like reaching a work anniversary, etc.) Loan consolidation is also an option to lower your overall payment, but be careful about this.There are many plans out there but they are not all created equal.I hope to have a future article about the topic of student loan consolidation.
Let’s not also forget to review the income side of the equation. In addition to your current job, are there side “gigs” you can take on to earn extra money – maybe on the weekends? Make sure your employer doesn’t prohibit this. Also, what about trying to start your own business on the side? A lot of successful people got started by working a little on the side until it turned into a full time profession! If you can create a second (or third or fourth!) stream of income, try putting all of that money toward a savings goal or paying down a debt early. Again, a little bit goes a long way!
As always, if you have any questions about the information in this article, please don’t hesitate to email me at firstname.lastname@example.org