Budgeting

Budgeting is one of the first and simplest steps to obtaining financial freedom. Many see it as a restrictive task, but in reality it is a way to visually map out one’s future. Whether you need to save for future trips, gifts, or even a nice item for yourself, budgeting is the way to go. Especially for young adults or college students, budgeting allows us to avoid over-spending at a party and ensures that we have food to eat until our next paycheck. 

So, how does one budget effectively? The first step is to calculate your income. This can be split into monthly or daily increments, but make sure to use a consistent timeframe within your budget. Then, compare this income to your expenses. The two types of expenses you have to track are fixed and variable. 

• Fixed Expenses: These are expenses that you MUST pay at a certain time. Common examples are rent, loan payments, and internet, but some individuals also allocate a fixed expense towards basic necessities such as food and water. 

• Variable Expenses: These expenses would fluctuate month-to-month, and may change in magnitude for certain occasions. Some variable expenses could be entertainment, travel fees, or eating out. 

After tracking your income and expenses, you want to set a few goals for yourselves. Without a goal, it is hard to keep the motivation to follow the budget, thus you should set a couple major(such as paying off student loans or buying a house) and minor(such as buying a new watch) financial goals. 

To help you stay organized, you can also refer to a couple budgeting methods. These are some of the most common strategies

The 50/30/20 Budget: This is a strategy where you allocate 50% of your net income(income-expenses) to your needs, 30% to your wants, and 20% to your savings

The Pay Yourself First Budget: This is the idea that for every time period, you first add some money to your savings account. Then you pay your bills, and with the rest of the money you are free to do whatever you want.

The Zero-Based Budget: This is a plan where you spend all your net income every year, leaving you with zero dollars by the end of the time period. This can allow you to consistently spend money into useful allocations. If you ever find yourself with more money than you need, you can allocate that money to savings. 

Remember, budgeting is a skill that grows with practice. Start small, be consistent, and don’t be afraid to adjust as your priorities change. You can make your own budget through things like Excel or Google Sheets, or you can utilize budgeting apps such as YNAB, Mint, or EveryDollar.  With a clear budget in place, you’ll not only avoid unnecessary financial stress but also build a strong foundation for achieving your dreams. 

“A budget is more than just a series of numbers on a page; it is an embodiment of our values” - Barack Obama