Budgeting Tips
As you begin exploring new paths towards financial freedom, we encourage you to increase your financial knowledge along the way. Increasing awareness regarding financial terms and methods can alllow one to effectivley begin credit-building, saving, budgeting, and more.
Track your Income
Know how much money you make (from a part-time job or a monthly allowance). This will be the basis of your budget.
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When you earn more (like when you get a raise, work more hours or get birthday money) increase your savings instead of your spending.
List Spending Categories
Make a list of your expenses, for example Monthly Needs (Gas, phone bill, lunch), Memberships (Gym, Netflix, Spotify), Savings (for future purchases or long-term goals).
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Monitor your spending habits by using a printable tracker or spreadsheet.
Pick a Strategy
Check out the following strategies. If your budget is not working for you, adjust it!
Listen to your parents, attend financial literacy workshops, maybe your bank or college has experts who can guide you with your finances.
50/30/20 Rule
50% of your monthly income will go towards your bills. These are payments you must make to keep your services (like your phone), or other needs (like transportation expenses, rent, credit card payments, etc.).
30% of your monthly income will go towards your wants. These can be dining out, going out with your friends, your memberships or subscriptions (like Netflix, Spotify, or the gym), taking a vacation, or going shopping.
20% of your monthly income will go towards your savings. This can be your emergency piggy bank, saving for something specific (like a car or new laptop), or college savings.
Example: Let's say you are a student earning $1,000 a month. You use $500 to pay your bills, you set aside $200 for your savings, and now you have $300 left to spend.
Envelop Budgeting
With Envelope Budgeting, you divide your money into different categories and place them into different envelopes. Once the funds run out in that envelop you can no longer spend in that category.
You will need to set your categories (it can be as many as you'd like!). You can set as many categories as you'd like. For example you can have an envelope for all of your bills, or different envelopes for specific ones (gas, phone, utilities).
You will need to set your spending limits for each category (and stick to them). Prioritize your needs, bills, and responsibilities. The rest can be divided by your wants and future savings. Once the money in an envelope runs out, do not borrow from other categories.
Example: Let's say you are a student earning $1,000 a month. You have allocated an envelope for your phone bill ($65), one for your rent ($200), and one for your car insurance and gas ($100 + $100). You decide to add $100 to your savings envelope, so now you have $435 left to spend for the month (roughly $108 a week).
Zero-Based Budget
In Zero-Based budget, you will need to account for every single dollar, leaving a balance of $0. This doesn't mean that you need to spend all of your money until you have $0. On the contrary, using this method allows you to account for future savings, as well as meet your needs and wants.
Your spending allotment can reset or change each month, but with this method, you need to account for everything. You can use a monthly tracker to know how much money is left from your earnings and then decide what part of that will go towards your savings or wants.
Example: Let's say you are a student earning $1,000 a month. After paying your bills ($465), you will allocate the remaining of your money ($535) to either your savings or spend it (for instance, if you decided to save $335, you would have $200 left to spend).
Reverse Budgeting
With this method, you will pay yourself first. You will put aside a specific amount for your savings, then you will divide the rest among your needs and wants.
Perhaps there are short-term or long-term goals you want to achieve (like buying a laptop or buying a car).
Example: Let's say you are a student earning $1,000 a month. You decide to pay yourself $400. With your remaining $600 you can divide it between your needs, e.g. $300 and have $300 left to spend on wants.