How to Set a First Budget

There is never a bad time to set a budget, but if you have not already, those early days of financial independence are a great time to get started. As a young adult starting college or gaining workforce experience, you’ll find that having a budget in place will play a more impactful role than it has in the past.

Being in such control of your finances for the first time is exciting, but it’s also a balancing act. As you lay the groundwork for your financial independence, setting a budget will help you establish financial habits to keep you in control of your finances for not only these young adult years, but your entire life.

Start with your spending

The first thing to do when establishing a budget is look where you currently spend money. Keep track of all of your expenses for one month, whether they are necessary (rent, groceries, textbooks) or whether they’re for enjoyment (streaming subscriptions, afternoon coffee).

And though you might already have a good understanding of your spending habits, looking at an entire month of expenses will provide a more accurate perspective, and maybe even reveal some surprises. This will also demonstrate where there is room for adjustment.

Make a plan

Once you know your financial habits, put a plan in place for moving forward. This means organizing and prioritizing all of your expenses, not merely trimming down your non-essential costs. Your budget should include your income, your fixed costs (any monthly or recurring payments you owe), calendar expenses you know will come up (think holidays, birthdays, graduations) and of course, your goals.

Once you have these priorities laid out in combination with your recent spending activity, you will start to identify areas you need to change. Additionally, seeing the full picture in this way will give you the motivation to do so.

Don’t forget about debt

While a budget is a forward-looking tool, it is important to incorporate a plan for existing debt. Unchecked, debt can create barriers for your future goals, so make it a priority to bring your debt down as part of your budget-planning process.

And when it comes to eliminating existing debt, there are plenty of tools you can take advantage of to help strengthen your efforts, such as interest-rate calculators, so you’re tackling your debt in the way that is most effective.

Keep emergencies top of mind

There is nothing wrong with saving for the sake of saving, but you will likely have more luck (and motivation) if you save for a specific purpose. And this includes emergencies. While emergencies are difficult to account for, the reality is they do happen.

Make sure to have a designated portion of your budget allocated toward saving for emergencies, and don’t touch this money unless the matter at hand is absolutely an emergency. For example, forgetting a birthday is not an emergency. If an emergency arises, you want to be in a financial position where you have the ability to handle it without relying on credit and going into debt.

Rely on help

Since this is your first go at establishing and following a budget, there will certainly be a learning curve involved. Don’t let this deter or intimidate you, as there are resources and tools that can help streamline your efforts. There are lots of budget templates easily available online.

Customize it

A common misconception is that once a budget is established, it should be set in stone and adhered to no matter what. The reality is that your budget needs to work for you, not the other way around. After all, it’s your budget, so it should suit your lifestyle.

And when adjusting to this newly independent lifestyle, you are likely to be going through some trial-and-error choices. Do you really use the gym membership you are paying for? Do you need a new computer for the next semester? Is your rent increasing at the end of this year?

The bottom line is that your expenses are likely to fluctuate, and that is fine. Your budget should then fluctuate with you. If this means only creating a budget for one semester at a time to better account for your situation, for instance, then go for it. And in addition to expenses, this is true of income also. If your income changes, then the numbers in your budget should as well.

Plan ahead and save

Remember that you will likely have expenses in the near future that you aren’t currently paying. For example, if you are a college student, then perhaps you will be paying down your student loan in the years to come. Or if you are going to be entering the workforce then it is possible you will need to update your wardrobe. Why not start setting aside these funds now?

Planning ahead for these expenses will keep you in financial control. Think of your budget as a roadmap that you can rely on to not only stay financially balanced in the present, but get yourself financially ahead in the future.

Open a savings account for these longer-term expenses. Establishing a budget means putting a plan together to be in charge of your finances, but opening a savings account and sticking with it means acting on that plan and seeing it through.

Start your budget and open a savings account today so you can be in control of your finances tomorrow.

Get your budget going and open a new savings account today.

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