NO-BRAINER BUDGETING
By Julie Laviolette
You’ve gotten your first paycheck and visions of concert tickets, new running shoes and a really good espresso maker are dancing through your head. Financial independence feels fantastic, right?
Before you clink the champagne glasses to celebrate, stop and take a breath. Making your own money is one thing; keeping it is another. It’s so, so easy to run through your cash if you randomly spend it and don’t have a plan.
Try a few simple budgeting tips and get the experiences you want now, plus the financial security to achieve your long-term goals.
Here are some tips:
Count up your cash
Figure out how much money you have coming in each month. If you are a freelancer or your income fluctuates, add up your income this month to determine out how much you have to spend next month.
Identify needs
Now make a list of your “needs” and your “wants.” The needs are the critical things you must pay for each month: food, rent, utilities, transportation costs to work and student loans, for example. The wants are everything else: tickets to the football game, a new outfit, a fancy bottle of wine.
Big picture it
Add up the cost of all your needs. This is what you have to set aside each month to keep the lights on. The goal is to have enough money coming in to cover your needs, with some extra left over. If your monthly income doesn’t cover your needs, you’ll need to make some adjustments, like working more hours, getting a second job or reducing your living expenses by getting a smaller place or a roommate.
Organize yourself
Now it’s time to divide up where your money will go each month. Think about a row of imaginary jars. The biggest jar, and the largest chunk of money, is for your needs. You will have smaller jars for an emergency fund, future goals like retirement or buying a car, and of course, fun money. Carving up cash into categories will prevent mindless spending and an empty bank account.
Track your spending
Speaking of mindless spending, it’s alarming how quickly your money flies out the door a few dollars at a time. Keeping tabs on how much cash you’re spending on lattes, Uber rides and happy hour will help you make a plan. It’s easy to do with online tools that track expenses on your credit, checking, savings and investment accounts.
Create an emergency fund
This is what you will dip into if you fall and break your arm, if your car breaks down or your cat gets sick. A good rule of thumb is to have 3 to 6 months of income built up. It’s especially important if your income fluctuates. How do you do this? A little at a time. Try putting aside 10% of every check in your emergency fund “jar.”
Plan for the future
A retirement fund may sound like the perfect thing to put off. You have plenty of time, right? Exactly. That’s why it’s smart to put a little aside for retirement now. Years of small investments and the magic of compounding interest will pay off with retirement on your terms, with the money you need to live the life you want.
Use credit cards wisely
Credit cards can be a great convenience, but they can also get you into serious trouble. As you establish credit, look for no annual fee cards that offer rewards like points on your favorite airline or cash back. Remember the spending limits from your budget and charge only what you can afford to pay off. You don’t want to pay credit card interest on a jar of peanut butter or a tank of gas.
Make good habits now and you’ll not only pay the bills, but keep your debt down and set yourself up for future goals, whether it’s buying a house, traveling or getting behind the wheel of a new car. Taking charge of your money is the real path to financial independence.
