The 10-second version: Building a budget will help you balance your spending with your income and build up your net worth over time. Using budget tracking tools like Mint will help you visualize what you are spending vs. expectations in real time and maintain your spending goals.
Okay let’s dive in:
I have some income, but have all these expenses…how do I save it?
The first step I’m taking is to build a budget.
I have a few constants that I can immediately plug in:
(+) My main source of income
(-) Rent. You should try and make your rent less than ~30% of your take-home pay
- So if you bring home ~$3000/month after taxes, you should aim for your rent to be no more than ~$900
- Don’t forget to budget utilities, internet, and parking, although this can be exempt from your 30% calculation
(-) Insurance
The rest of my expenses are variable:
- Food & dining – by far my biggest category
- Restaurants
- Fast food
- Alcohol/Bars
- Coffee shops
- Groceries
- Gas & Fuel
- Entertainment
- Gym membership
- Laundry/Dry cleaning
- Shopping
- Lyft/Uber
- Haircuts
I would recommend doing this manually in excel or using an app like mint. This will allow you to create a budget and then track that budget against your actual spending patterns. It directly connects to your accounts too, so you don’t have to plug anything in manually.
This gets more difficult as a consultant on a travel project, but there are 2 potential ways around this:
- Have a separate credit card (and you should be using a credit card…not a debit card) that you use for expensed items and don’t include that account in mint
- Track your “net income” on a monthly basis and know that both your spending and income will be inflated by offsetting amounts based on how much you expense each month
With the money you have left, I would recommend maxing out both your 401K and IRA as soon as you are financially able (more to come on this topic) as those savings are tax-advantaged and because you are so early in your career that will pay major dividends down the road. You can contribute up to $5,500 in your IRA and $19,000 (starting in 2019) in your 401K. Don’t worry if you can’t max both out completely, but make sure to take advantage of any company matching for your 401K first. No point leaving money on the table.
