You finally have financial independence. It’s exciting but scary knowing that no one is going to scold you for shopping too much or going to Starbucks every day anymore… sorry mom.
Unless you sought out financial literacy resources at an early age, you’re probably left with some lingering questions as you navigate this new world of paychecks, investments, savings accounts, and our least favourite, taxes.
Have no fear! Here are some answers to three basic questions you can use to kickstart your budgeting journey:
Why should I make a budget?
Tracking your expenses and following a plan will help create financial stability in your life. You may not be thinking about homeownership or parenthood at the moment, but you might later on. Budgeting now will allow you to prepare for large future expenses so that you’re set if life ever becomes a bit more complicated. Tracking your spending will help identify areas for improvement so that you can spend less on things you don’t need and put money toward what you actually care about. Budgeting can also help you get rid of looming debt and achieve your financial goals faster!
How can I start budgeting?
Start by setting realistic goals. Ask yourself: What do I want my finances to look like in one year? Maybe you want to have enough money to move away from home or treat yourself to a week-long getaway. Write these goals down. Then, jot down your income and expenses. You can either manually track these for a few weeks or take a look at recent bank statements to determine how much you’re bringing in vs. spending. Next, separate your needs and wants so that you’re setting clear priorities for yourself.
Design your first budget by accommodating everything you need to pay for using a spreadsheet or online template. Decide ahead of time what you’ll use each cheque to pay for. This will ensure you allocate enough money for necessities, have put money aside for debt and emergencies, short and longterm savings, as well as the fun stuff!
Remember that things will come up along the way like school expenses, memberships, or medical bills. Set money aside so that you don’t feel financially stressed when unexpected expenses come up at different points in the year.
How much should I spend and save each month?
Use the 50/30/20 rule to determine how much you should spend and save each month. With the 50/30/20 method, 20% of your income should go towards savings and investments, a maximum of 50% should go towards necessities like rent, insurance, your car, and groceries, and the remaining 30% will go towards discretionary items.
Run through this exercise for a few weeks and see how you do. Don’t stress too much if you can’t get the balance right at first. With a bit of practice, you’ll be on your way to financial freedom in no time.