My parents did try to teach me the value of money when I was a kid. They set up a savings account for me and I was encouraged to put some of my allowance away each month. But, I didn’t always save and there were no great consequences if I decided to spend my money on magazines, games or going out with friends instead.
That’s the thing about being a kid. You may have some awareness of the value of money but if you don’t budget from your allowance, you’re still going to have a roof over your head and food on the table. I always found that mom and dad could be persuaded to part with a little extra cash if there was a movie I just had to see. It was a big shock when all that changed and suddenly I had to budget like an adult if I wanted good things in life.
Why budget like an adult?
Managing your budget like an adult isn’t easy, but it has to be done. I realized this as soon as I got my own apartment. I wasn’t that much away from being a kid; only 19. For a while I thought that I could still go out partying whenever I wanted, and shop for designer clothes.
I remember when I finally realized the truth. It was only just over half way through the month and I had $20 left to buy food and other essentials. Fortunately, my mom helped out, but she made it clear that I needed to manage my finances better in future.
I started to look out for advice about how to do this. There’s plenty of good advice and support out there. Today, I’d probably recommend Personal Capital as a good choice. There’s plenty of ongoing support there which you need when you first start trying to manage money as an adult. This doesn’t just apply to people in their late teens and early twenties. Trust me, I’ve met several people in their thirties who are still clueless when it comes to managing money properly.
The thing is that no-one gets the life they want if they don’t manage their budget well. It’s one of life’s necessities. So, here’s how I went about improving my budgeting skills. Hopefully, these tips can help anyone who’s reading this post.
Know what income is available
Make a list of all the money coming in each month. I got commission in my first job so I used to count my basic income and then average out the amount of commission I earned, to get a monthly figure. Always use after tax figures because the whole point is to work out what cash is available to meet discretionary and non-discretionary expenses.
Make a list of expenses
After my expenses well exceeded my income during that first month in my own place, I quickly learned that listing expenses is important. I didn’t have a clue that buying all those take-outs, a new TV and a pair of new boots was going to leave me unable to afford to eat. This may sound unbelievable, but expenses mount up quickly and it’s not long before the bank of mom and dad is being asked for a loan.
Like any bank, lending from mom and dad can’t go on forever, so expenses need to be well-managed. Start by listing non-discretionary expenses, such as rent or utility bills. Then list discretionary expenses such as eating out and clothes shopping. It’s these discretionary expenses that can be cut back.
Make saving easy
It was a big shock when I first listed all my expenses. I could see why I was broke before I’d even gotten through my first month on my own. I went through all of my discretionary expenses and cut back on anything that wasn’t absolutely necessary. I didn’t cut all the fun out of my life; I just started acting like a sensible adult for a change. Discretionary expenses that may be able to be reduced include:
- Gym membership.
- Cinema trips.
- Eating out.
- Clothes shopping.
- Fast food.
Within the first few months of managing my budget like an adult I was saving $80 each month. That may not sound like a lot, but it was a big deal to me and I was so proud of myself. After all, around 65% of Americans say they save nothing or very little, so starting a regular saving habit means you’re a step ahead of many people.
I’d suggest that anyone does what I did, and set up a direct debit into a savings account from their checking account. Doing this means that you don’t miss the money you’re saving. You just get used to budgeting without it.
Keep track each month
Never just take a budget for granted. It’s not something that can just be put together and forgotten about. Income and expenses change, so budgets need to be looked at monthly. I also find it useful using Mint to manage all my finances in one place. It’s a lot easier to keep track of everything this way.
It’s also possible to keep track of everything using an Excel spreadsheet, but online management tools do most of the work for you. It’s all about whatever works for the individual. The most important thing is to treat a budget as a living document and manage it each month.
I loved becoming an adult in many ways. I enjoyed the fact that I could start making all my own decisions, and do what I wanted to do. However, it took just a few weeks to realize that it’s a double edged sword. Making decisions brings responsibilities, especially when it comes to managing money. Not taking on these adult responsibilities can mean ending up with a ton of debt and no food on the table. Fortunately, I learned my lessons early and I live a relatively comfortable life as result. Others can do the same if they start managing their budget like an adult today.