Welcome to the real world, where you are responsible for your own well-being. Mommy and daddy aren’t going to take care of you anymore. To do this, you need to earn and spend money. However, money has a way of disappearing when it’s mismanaged, which is why you need to learn how to make a budget. For a beginner like you, you should start with something like the 60/40 budgeting method.

The 60% of Budgeting

To start, you should set aside 60% of your monthly income, after taxes, towards your expenses.  Sounds simple enough, but what should be considered as an expense?  First, anything that you need to survive should be included in this section, including food, clothes, utilities, insurance, rent or mortgage payments, car payments, and loan payments.  Second, anything that you pay for monthly, including cable and internet, gym memberships, Netflix, magazine subscriptions, and Amazon Prime.  Finally, any additional taxes including capital gains and property gains taxes.  If you’re self-employed, you should include your income taxes in this section as well.  What if there’s money leftover?  It’s your choice what you do with it, but it would be smart if you saved that money.

The 40% of Budgeting

So, what about the other 40%?  This is the part of your income that you should save.  You may save your money however you wish.  However, if you don’t know how you should save, you may want to try this.  First, take 10% and put it into a retirement account like a 401(k) or an IRA.  You should never touch this money unless you have no other choice.  It may start out small, but it will grow over time.  Second, put 10% into a taxable investment account, like a mutual fund or stocks, for long-term savings.  This is money that you have no intention of using except under special circumstances, which may include emergency medical bills or big planned purchases like a car or a house.  It also gives you a place where your money can gain interest, making you more money.  Third, put 10% into high-yield savings account.  This is your emergency fund, but may also be used for things like gifts and vacations.  Finally, the last 10% is considered fun money.  It’s not technically saving but it allows you to be fiscally response while also having a life.

The 60/40 budgeting method isn’t a strict budgeting system and can be adjusted according to your needs.  However, the most important thing is that you have a budget.  Now that you have one, go forth and be an adult.  For more information, please contact us.