I'm a millennial, and I've built an emergency fund and paid off a chunk of my student loans on a below-poverty income. I know how to budget!
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Learning how to budget can be freeing. Think of what you can do! You can build an emergency fund, pay off your debt, or even invest your money.
I have personally learned how to budget as a millennial; I've built up my emergency savings and paid off 30% of my student loans in less than a year on a below-poverty income. I believe I have the qualifications to teach other millennials how to budget despite the financial difficulties most of us face.
Go through the four steps that I have gone through, and you'll be well on your way to budgeting like a champ. Each step is discussed in detail in the sections that follow.
The 4 Steps to Sustainable Budgeting
- Figure Out Your Monthly Income and Expenses
- Study Your Monthly Bank Statement and Identify Unnecessary Purchases
- Write Down Your Plans for Your Disposable Income
- Reward Yourself at Key Benchmarks
1. Figure Out Your Monthly Income and Expenses
You need to figure out your monthly expenses. Take out a piece of paper and list your rent, utilities (water, gas, electricity, pest control, etc.), internet bill, car payment, grocery bill, automotive insurance, medical insurance, phone bill, credit card bills, loan payments, and miscellaneous expenses.
Be sure to list out all of your necessary and regular expenses. Now you should subtract your monthly expenses from your take-home pay. Check to see how much disposable income you have left. You might be surprised at how much you can save if you stick to a budget.
If you are in the negative or have no money left over, you need to cut down on your expenses. For example, you might have to move in with your parents or find a roommate. If you can't find a way to cut out expenses for your monthly budget, consider getting another job that pays more, getting a second job, or negotiating for a raise at work. If you have any disposable income, proceed to step two.
2. Study Your Monthly Bank Statement and Identify Unnecessary Purchases
You're going to have to study your past monthly bank statement. Most humans are emotional creatures, and we tend to buy things on impulse. I printed out my monthly statement and highlighted all of my impulse expenses that weren't in my monthly budget plan.
In this step, you'll figure out where you tend to spend your disposable income. Maybe you eat out at restaurants way too much. I personally had to stop eating out so much to save myself an extra $100 per month.
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After you figure out your impulse expenses, you need to formulate a plan to cut them back. Maybe you need to learn how to cook instead of eating out every day. After you pour over your monthly bank statement and figure out how to create more disposable income, you can proceed to step three.
3. Write Down Your Plans for Your Disposable Income
Writing down clear plans for your disposable income is a huge motivator that will help you stick to your budget. I wrote down my disposable income plans on a piece of paper, and I like to review it when I have the urge to stray from my budget.
My first plan was to have a three-month emergency fund in my savings account. Why did I decide to plan for an emergency fund? An emergency fund will save me from taking out those predatory payday loans that will bankrupt my life with high interest rates.
You can calculate your emergency fund by figuring out your monthly budget and multiplying that number by how many months you would like to save for. After you're done building your emergency fund, you can then decide to pay off your loans and/or invest your extra money. My personal plan is to pay off my student and car loans.
Remember to always have a goal for your disposable income—this will help you stay motivated. Sometimes, I do screw up my budget, but I get back on track when I review my past accomplishments and remind myself of my goals.
It's important to write everything down—it makes everything more real, tangible, and official. For even more motivation, proceed to step four!
4. Reward Yourself at Key Benchmarks
Lastly, it is important to reward yourself after you've accomplished something big. For example, if you've managed to save up a six-month emergency fund, you can buy yourself an inexpensive watch or whatever you want. Just give yourself a small reward.
I have decided to buy myself a silver charm after every $10,000 I pay off on my student loans. Having some kind of reward system will encourage you to stick to your budget and accomplish your goals.
You can budget and knock out your financial goals by calculating your expenses, studying your monthly bank statement, cutting down on expenses, writing down your financial goals, and rewarding yourself.
I hope this article has taught you how to budget and plan financially as a millennial. I would greatly appreciate it if you can leave a comment below. Let me know if you find this process useful, and feel free to share your budgeting ideas and stories as well!
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.