Did you know that the overall cost of goods and services has risen, on average, about 3.5% in recent times? In many cities, the percentage is far greater. This is putting young people at a supreme disadvantage. It’s crucial for young people to start managing finances early on if they want to set themselves up for financial stability in the future, but many don’t know how to start. We’re here to help. Read on for a few budgeting tips for young people.
1. Track Spending First
Before you start writing down your budget, you need to track your spending. You can do this week-by-week, but we recommend tracking for an entire month if you want an accurate look at your current spending. After you get a good idea of how much you spend, you can start making changes.
Track every purchase, no matter how small. Because you’re tracking all of your purchases, we recommend not tracking during the holiday season. After all, it’s likely that your spending will be more significant until after the holidays are over (and that’s okay).
Write down the costs of all of your bills, reoccurring subscriptions, and anything else that’s going to stay static (or almost static) every month. Track how much you spend at the grocery store and how much you spend on other necessities like clothing and toiletries.
Track all of your excess or “luxury” spending as well. It’s likely that this changes month-to-month, but it’s a good idea to have a baseline. Add up everything and see what number you land on.
2. Create a Written Budget
After you know how much you’re spending, it’s time to create a written budget.
First: how much money does your household make each month? Take note of your net income and write it down at the top of your document. Subtract the money that you’ve spent during the last month and see how they compare.
If you’re happy with the result, you may not have to move forward. If you know that you need to be saving more money, however, move on to the next step.
Separate your budget into categories. Most people recommend starting with the 50/20/30 rule, but you can make changes to this after you start getting the hang of maintaining a budget.
Under your “necessities” category, write out the amount that you have to spend on bills. This number isn’t going to change. Then, set a budget for food, clothing, and necessary items that is lower than your current spending.
Allocate 20% of your money to savings or paying off loans right away.
Keep your budget with you. At first, it’s helpful to continue tracking every purchase, so you’re more mindful about your spending. After a while, it will become second nature.
3. Spend Less on Food (Here’s How)
Many young people struggle to save money when it comes to food. Food costs are rising worldwide, but that doesn’t mean that you have to overspend.
Look for items that are “luxury” food items and remove them from your weekly spending. You can add them back later when you figure out how to budget. This includes things like name-brand foods and takeout.
Take advantage of loyalty programs at grocery stores. You can often get personalized coupons that allow you to save money on items that you need every week.
If they’re available, use bulk bins. You can often find simple necessities like pasta, rice, and dried beans for far cheaper than they would be if they were pre-packaged.
4. Cut Luxuries and “Extras”
Until you’ve gotten a handle on your finances, it will benefit you to cut out many of the extra things in your life that you don’t need. Your goal is to live within your means so you can reach financial security.
First: look at subscriptions. How many subscription services do you currently have? Between streaming services, game subscriptions, and subscription boxes, many people are spending far more money than they think because they aren’t tracking that money.
You don’t have to cut out all of them, but cut out the ones that you’re not using as often.
If you often go out for drinks or order takeout food, this is a good time to reevaluate that habit. There’s nothing wrong with having fun with friends, but don’t do it so often that you’re spending more than your 30% “extra” budget. Prioritize and consider spending that money on something that you want more in the future.
When it comes to clothing, don’t give in to the temptation to buy new clothing every season. Not only is this a bad financial decision, but it also contributes to the harm that comes from fast fashion.
5. Automatic Savings and Investment Deposits
You’re never too young to start saving and investing. Many young people struggle to save money because they don’t know how, or they aren’t good at remembering to set money aside. Set up automatic deposits so you can put that money away as soon as you get it.
You should have a basic savings account at a reliable bank so you can save money. A good bank can also help you with managing finances. That said, savings accounts don’t often offer great interest rates, so adding in some reliable investments is important as well.
Look for safe stock opportunities. Avoid volatile or “trendy” stocks. While they often have high yields in the short term, they’re “high risk, high reward,” and most young people aren’t able to risk that much money.
If you deposit this money automatically, you’ll start building wealth with no effort.
Start Using These Budgeting Tips Today
These budgeting tips can help you save money and hopefully reach financial security in the future. Saving money starts with creating a budget. Sticking with that budget is the hard part.
Are you always on the hunt for more information about business, banking, and finances? Subscribe to cfi.co today to get 4 issues of our print magazine sent right to your door every year.0