Budgeting 101

When I was in college my budget was simple: spend as little as possible.  I had to save every cent to pay for tuition.  During the semester and summers I would scrimp and save.  Then when the tuition payment was due, I would clean out my bank account paying for it and start again.  If it wasn’t rent or food, I couldn’t afford it.

I lived that way for close to a decade.  Just a hair above the poverty line.  I don’t have to live that way anymore but it is a hard habit to break.  I feel guilty about spending even $50 on a non-necessity.

Our budget isn’t that tight anymore, but we still budget and try our best to stick to it.  Not making a budget is a one-way ticket to poverty.  No matter your spending power, you need a budget.

What is included in a budget?

All your money.  Money in, money out, and money saved.

Every cent should be accounted for in your budget and you should have a strategy for any leftover money in the budget at the end of the month.

Knowing where your money is going and how much is going there can be a huge weight off your shoulders, especially when you are starting out.

Know Your “Why”

Sticking to a budget is much easier if you know why you have the budget in the firstplace.  Just knowing where your money is going is not enough motivation to stick to a budget.

When I first started budgeting, my motivation was getting out of college without debt.  Taking a loan would have made launching into my post-college career difficult.  I did the math and knew it was possible for me to graduate debt free if i worked throughout college, took a minimum number of credits per semester, and did an average of 4 hours of babysitting/ tutoring on top of everything.

My budget was tight, but it was worth it to graduate debt free.

You need to find a similar goal.  Something worth sacrificing a little for now so you can have the future you want.

Cash or Digital

Everyone is different, so everyone budgets a little differently.  I like to keep track of everything with apps and savings goals.  My cousin likes to use cash and divide it into categories for the week.  My husband likes to keep an order of magnitude of what he can spend in his head, and then redoes the budget every few months to see how he did.

Everyone has their own strategy.  Take a moment and think about what your strategy is going to be.  While you are thinking about it, consider:

• Are you going to make your budget by week, month, or year?
• Are you impulsive or conservative?  If you are impulsive you should deal in cash, if you are conservative you can deal in cards.
• What are your goals?
• How easy does your budget need to be?  How diciplined are you?
• How much time do you have to keep track of things?
• Does your lifestyle favor cash or card?

Now that you are done thinking about whether cash or cards will work better for you, it is time to actually create a system for creating and sticking to your budget.

Figure out your Income

You need to know how much you can spend each month.  That means you need to know your takehome pay.  

There are 2 ways to do this: look at your pay stubs, or calculate it based on your base salary/ pay per hour.  

If you have pay stubs you will get a more reliable picture.  Take 2 or 3 paystubs and average them.  The average is your average takehome pay for a payperiod.  Then multiply your average by he number of payperiods in a month.  

For example:

If I took home $240 my first week, $300 my second, and $275 my third for the same hours worked, then my average is (240+300+275)/3 or approximately $270.  There are 4 weeks in a month, so $270*4 is $1080.  $1080 is what I have to work with every month.

If you haven’t started yet, and you don’t quite know what your take home pay will be, you can calculate it.  

Start with your base pay, let’s say it is $12 per hour.  Multiply that by that by the number of hours you will be working per week.  If you are doing something which earns tips, don’t factor those into this calculation.

So if you are starting with $12 per hour, and you are working 20 hours a week; that is a base pay of $240 per week.  

Next, use the take home pay calculator to estimate your take home pay.  Using the previous example, I get $219 per week, or $876 per month.  

Whatever your number is write it down.  Internalize it.  This is the maximum amount of money you can spend a month without going into debt.

Track your spending

Once you know how much you can spend, you need to find out how much you are spending.  The best wasy to do this is to track every cent you spend, write it down, and then tally it all up at the end of the month.  

For the best idea of what you are spending, you should track your spending for 3 months.

Yes, 3 months.  Making a budget is not something you should just do one weekend. 

If you mostly use credit or debit cards, you can pull your last 3 months from your card and use a budgeting software to figure out how much you are spending per month and what you are spending it on.  If you are going to use software or apps to figure out and manage your budget, jump down and read the subsection about apps first to help you pick.

Find high/ low points

Once you have your tracked spending, it is time to evaluate how much you are spending in each category.

Sort your spending into categories.  Common categories include: 

• Housing
• Food 
• Utilities
• Hobbies
• School/ Tuition
• Clothing 
• Eating out

Next evaluate if the months you were tracking were normal.  Did you eat out more often than normal?  Did you track November- January and wind up tracking the holidays?  Was there a one off event like a wedding you spent money on?  Are there any categories you missed entirely? I only buy clothing twice a year, it is easy for me to miss something like that in the budget.

You are going to want to level out any categories you spent too much on and add a little to categories you skipped entirely.  For categories you skipped, think about how much you spend when you do spend in the category, then divide that amount by 12 and that is your monthly budget for that line item.

I only buy clothing twice a year.  It is easy for me to miss clothing in my budget.  I spend around $200 on clothing for myself per year, mostly to replace worn out items.  $200 / 12 is $16.67.  I round that up to about $17 per month.  Then I save that $17 to apply to clothing for myself.  

Write Out Necessary Expenditures

Start creating your budget by itemizing things you need and cant change.  These things are: housing, utilities, and food.  They are non-negotiable.  You can’t live without housing and food. 

Ideally, everything in this category should be around 33% of your take home pay.

Stop laughing!  I know it isn’t really possible, especially when you are starting out.  If you can make it work, that is the goal.  At this stage in your life if you can make necessary expenditures at around 50% you are doing great!

Pay Yourself First

After you have your necessary line-items accounted for, it is time to pay towards your goals.  Make a minimum amount in your budget you need to save for your ideal goal.

For me, I needed to save approximatly 10k a semester.  That means I needed to average $1667 per semester.  I leveraged my breaks to hit that average.  Working 2 jobs in the summer, winter, and spring breaks, I would save every spare cent I earned.  In the summer I could put away 4-5k in savings, the winter would net me another thousand.  Spring and Thanksgiving breaks would get be another thousand.  So my breaks would bring in 6-7 thousand dollars.  

So if I wanted to save enough for tuition, in each of the 8 months I was attending classes, I would have to save about $500 a month.  That is much more doable during the school year.  So that was my goal.  To save at least $500 per month.

Whatever you need to save for, put that line item in now so you have that money available in the budget.

Don’t Forget Fun

You need to have a line item for hobbies and fun.  Not having this line makes it impossible to stick to your budget.

You need a stress release.  It is imperative you have the ability to occasionally go out to dinner with your stuy group and blow off steam, or catch a movie with a friend or potential paramore.  

Do your best to include at least $20 a month on fun.  But remember not everything fun costs money.  Let me know in the comments if you want fun ideas to relax that cost nothing at all.

Write your budget

It is time to write out your budget. In the beginning, it is likely you will only have money for your bare necessities, savings goal, and just a little bit of fun. Don’t be discouraged.  It will get better.

My budget in college was nothing but necessities for a long time.  I would trade in other people’s coke rewards to get movie tickets, or spend my day in the museums instead of doing something that might cost money.  

It was worth it.  I graduated debt free and have moved all over the country following jobs afterwards.  My peers who graduated with debt had to figure out if they could afford to move to new places because of their student loans.  A lot of my friends had to turn down their dream jobs.

Whatever your goals, the sacrifice of staying in budget is worth it.

Apps to help you keep track

Sticking to your budget is much easier if you can track how you are doing in real-time.  There are all kinds of apps that can help you track.  Check out this article for more: The 7 Best Budget Apps for 2020.

If none of that works for you, you could also just write it down and track it by hand or use a spreadsheet like google docs. 

Wrapping it all up

Budgeting and sticking with it is hard.  Most adults have a really hard time with it.  The smaller your budget is, the more important budgeting is.  

When you start out in the world, your income is very small.  It will feel like a lot, but you have to make that dollar stretch.  Take the time now to figure out a system you can use in your daily life, then keep it forever.  

Yes, forever.  You will never stop needing to budget.  Even billionaires budget.  After all, if you don’t know your budget how will you know how much you have spent.  

Are you worried about making rent when you go to college? Let me know in the comments below. And don’t forget to like and share!