As a young adult in today's world, your blossoming social life may take precedence over your need to budget. However, spending your money wisely now can free up extra funds for your future. The objective is to be responsible and ultimately have a comfortable retirement. In order to attain financial freedom, it's important to set realistic goals for a practical budget which you can stick to – now. Here are some tips on budgeting for young adults.
Before you can have an efficient budget, you must develop a healthy emergency fund for costly expenses that you cannot foresee. An emergency fund typically can cover anywhere from three to six months of expenses in the event of misfortune or an accident. In order to compile an emergency fund, establish a savings account and add to it on a regular basis. If you are working, deposit money automatically directly from your paycheck. You must put aside funds any way you can. Bonuses, tax refunds, and gift money can all be stored in a separate savings account to help you reach your goal. Although it may cramp your lifestyle to put all extra money aside, the reward will outweigh the labor. If you don't have emergency funds in place when you need them, the unexpected events of everyday life will make successful budgeting virtually impossible.
Make it a point to pay off your debts as soon as possible. Debt can ruin your chances of landing a good job since many employers are beginning to check a candidate’s credit history before extending a job offer. Debt can also prevent you from living a happier life. In your graduate years, cut back on expenses to live within your means and achieve your goals. Move in with parents, downsize your car or use public transportation, and don't purchase anything on credit that you can't afford to pay for in full the same month. No matter how tempting it may be, don't take out unnecessary lines of credit. The more debt you accumulate, the more interest you will have to pay back to the lender.
Create a Budget (and Stick To It)
Build a realistic budget that you will be able to stick to each and every month. First, calculate your monthly “net” income from your wages. Then, document how much you will be paying every month for fixed expenses like car payments, housing, and loan payments. Next determine your variable expenses (those based on consumption) that can be altered such as groceries, utilities, and cable. You can save money on groceries by couponing and looking for sales. There are also ways to cut utility bills by becoming more aware of what you are using. Unplug appliances at night, lower the thermostat in the winter, find a better deal on cable and your phone or opt for cheaper forms of entertainment like Netflix and Hulu. Once you determine what you would like to spend, put everything down on paper. Hold yourself accountable for your spending actions.
Don't Cut Corners
When you are living on a fixed budget, it can seem smart to cut any extra expenses that you don't deem a necessity. However, items like health insurance and 401k's are not the exception to the rule. Although you will be paying money for them each month, having health insurance is a necessity and can save you thousands of dollars in the long run. Even if you are generally a healthy person, you never know what problems can arise in the future and a very basic medical procedure or brief hospital stay will cost thousands of dollars. Putting money into your 401k will help to accumulate funds for your retirement. It would be foolish not to invest into your 401k since many employers offer a “match” of dollars which is a percentage of your contribution. Never turn down free money. Although it may be tempting, do not borrow from your 401k.
It is possible to be debt free and achieve your financial goals. For more information about personal finances, visit RISLA's Financial Literacy site. Make your young adult years the most productive years of your life.