Budgets. The daunting thing that almost all 20-somethings try to avoid because well adulting sucks sometimes and money talk is stressful. But creating a fool proof budget does not have to be daunting or take hours on end. Budgets come in many shapes and sizes and it’s important to remember that there’s not a one size fits all budget system.
Creating your budget is key to paying off debt. It will show you where you’re overspending, under spending and help you visualize where your money goes each month. Automated systems such as Mint do this for you (note** not an affiliate link this is a free service that I strongly recommend and use myself). You can sync your online accounts with this and it will sort your transactions to the best of its ability then ask you to do the rest. I must say this is a huge time saver and helps you get organized quickly.
Of course, you can do this the old fashioned way. Grab those paper statements (if you get them), print out the digital ones you get and start sorting. Once you have identified where you’re money is going, it’s time to start building your budget.
This is my preferred budget of choice. Having a set dollar amount is hard for me to stick to and percentage based simply works with our lifestyle better.
When building your percentages, you must consider the following things:
- What percentage of your monthly income goes to household expenses (rent, utilities, water, cable etc)?
- What percentage of your monthly income goes to groceries?
- What percentage of your monthly income goes to savings? Emergency fund? Paying of debt?
I personally use 40/20/40 as my percentages and it looks like this.
*Note we do not pay rent as housing is included with my job, the most commonly used percentage is 50/30/20
40% for “must have” items
- Board for the horse
- Health insurance
- Retirement 401K contributions
- Dog food
- Bills (cell phone)
These “must have” items are the non-negotiable things you need to have. Imagine you are stripped down to your emergency fund, what things would you NEED to have?
20% for “want” items
- Cable bill
- Eating out
- “Splurge” grocery items (protein powder and bars for example)
These “want” items can include other things such as gym memberships, clothing, coffee, etc.
40% debt payments/savings
- Student loans
- Credit Card Bills
- $500 a month into savings (& extra through digit* an automated savings service)
- Emergency funds
This section is higher for us because we are serious about paying off these debts FAST. Other things might include mortgages or car payments.
What I like about this is you can change the percentages to meet your needs. Additionally, if you have extra unexpected income for example, you can split it among the categories accordingly or use it to pay off debt. I also find it more “user friendly” and less intimidating than your “traditional budget”.
Other budgeting options include tracking spending to the dollar and creating set dollar amounts, the snowball method, cash envelope systems are only a few of the most common.
What IS important is that if you’re on a mission to be debt free, which if you’re reading this I am assuming you are, that you are taking proactive steps to take charge of your money. You can take control. You must. Ignoring your debts will not make them go away. Living above your means will not help. You can do this, I’m rooting for you!
What budget system do you currently use? Share below!
Ready to jump in and start using a percentage budget? Download my FREE Beginner Budget Guide Worksheet here.
* indicates an affiliate link, I strongly recommend those items I chose to be an affiliate with. Since joining Digit on 2/17 I have saved an additional $57!