Whether you are a starving college student or a recent graduate with a mountain of debt and a low-paying entry-level job, balancing your budget is an essential life skill.
Creating a balanced budget can be a fairly simple, straightforward task that only requires organization, diligence and the most basic accounting skills. Even if math has always been your least favorite subject, fear not. When it comes to budgeting, you learned everything you need to know in school.
These five tips can take you from economic anarchy to an orderly universe in which you can actually start building wealth:
Keep Precise Records
Research or information gathering was always the first step to completing those dreaded term papers. Similarly, the first step to setting up your personal budget is determining how much you make and how much you spend. Save up all those pay stubs, utility bills and coffee shop receipts. No expense is too small to be tracked. It’s time to get organized!
Start with how much money you have coming in each month. Use your net salary, the amount that actually gets deposited into your bank account. Then tally up your current monthly expenses by category. These categories can be the basic three – fixed expenses (such as rent), variable expenses (such as e.g. utilities) and discretionary expenses (such as movies, restaurants, apps, etc.) – or you can get more specific with subcategories.
Make a List of Expenses and Prioritize Them
This is where your Psychology 101 comes in handy. Remember Maslow’s Hierarchy of Needs? Examine all your expenses through that lens and then rank them in terms of importance. Food, water and shelter are non-negotiable; they are essential to your physical well-being. Utilities like heat and electricity probably rank not far behind. Health insurance is another universal, but everything else is probably particular to your lifestyle.
Avoid Common Pitfalls
Make sure you have included expenses that only come around annually or semiannually, like that pesky car insurance bill. Divide them by 12 or 6 as needed to make them fit your monthly budget.
What about unexpected or emergency expenses? How do you account for the unexpected? Disaster can and will strike, usually in the form of car repairs or medical bills.
Also, be sure to be realistic about how much you spend on groceries, gas and other weekly expenses. There are many smart ways to reduce costs – buy generic brands, clip coupons, call and haggle with your Internet provider – but these are just tinkering around the edges. Something like auto fuel, however, can be tricky. It’s hard to foresee spikes like we’ve experienced the past few years.
Work on Paying Off Debt
A quick Google search will come up with loads of effective tactics for reducing debt, from debt snowballing to avalanching. Most strategies have a few common elements. Make a list of all your debts organized by amount and interest rate. Obviously, you will want to pay off those with the highest interest rates first.
As a student or recent graduate, you are in the thick of the lean years. There is a lot to consider when getting your career off the ground. Don’t let your personal finances hold you back. Create a budget and diligently abide by it as outlined in these tips, and you should see your financial situation slowly, but steadily, improve.
Erin Palmer is a contributor to U.S. News University Directory, a leading resource for business degrees online, social media training and internet marketing certificates from accredited colleges, as well as a growing collection of education articles and career videos.