The Importance of Creating a BudgetFebruary 10, 2021
One of the most challenging aspects in moving from adolescence to adulthood is learning how to understand and manage your finances. On one hand it’s exciting to have financial independence and to be able to spend money on the things you want, but it also comes with questions such as what should I be saving? Am I spending too much? Can I really afford this rent? To answer these questions and more, learning how to budget is a crucial skill for young adults.
Why creating a budget is important
Setting yourself up with a good financial framework from an early age can grant you more flexibility, more money to spend, and less anxiety surrounding your financial status.
One reason to start creating a budget as a young adult is because the earlier you start saving, the more money you will make in the long run. Regardless of how much money you are making, putting aside some money for savings and investments will yield compound interest. The earlier you start investing, the more interest you will earn over a lifetime.
Creating a budget also helps prepare you for future life events that will lessen the financial burden later on. For example, you don’t want to start saving for a house at the moment you want to buy a house. If you have built up savings over a period of years, it will be easier to come up with money for the necessary down payment.
Your twenties are a time to do all you want to do before taking on too many responsibilities, and creating a budget can help you to prioritize your wants and needs. When you track your spending, you can identify the areas you don’t need to be spending as much money on and instead put that money towards your passions such as traveling. When you budget responsibly, it can also help you lessen anxiety you may have surrounding an unplanned expense or emergency.
Tips for creating a budget
Creating a budget for the first time can feel overwhelming, but it doesn’t have to be. Follow these simple tips to get started:
1. Determine total incoming money: Calculate how much money you have coming in each month from all available income streams. This will be your starting number to work with for your budget.
2. Create a list of recurring monthly expenses: For this list, distinguish between wants and needs. You need to pay your rent and your car insurance monthly, but you only want to have your daily Starbucks. Make two separate columns for your monthly recurring wants and needs.
3. Subtract expenses from income: To determine if this budget is possible, subtract all your wants and needs from your total incoming money. If the recurring expenses outweigh the incoming money, determine what you can cut from the wants section.
4. Develop a goal for savings: A good place to start is the 50-30-20 method. 50% of income allocated to living expenses and essentials, 30% towards lifestyle spending and 20% to savings, debts, and investments. If you can’t carve out 20% for savings, see what you can cut from lifestyle spendings.
After creating your budget, hold yourself accountable to the goals you set but know this process has a learning curve and may have to be modified as you discover more about your financial goals.
Trails Momentum can help
Trails Momentum is an adventure-based wilderness therapy program that offers 18-25 year olds a pathway to successfully transition into adulthood. We provide the people, place, and experiences that allow young adults to gain insight, practice healthy, independence, realign goals, and learn new tools to help them launch into their adult lives. For more information, please call (828) 457-8576.