Question #20
“How do I figure out money? Like, budgets and stuff?”
Dear Y,
The answer to this will vary a bit depending on where you are in life, but here are some general principles that might help you figure stuff out.
Pay yourself first. I talked about this in detail here, but the general principle is that you have money that goes directly to savings and/or retirement without even hitting your main checking account. Even if you can’t afford to save much money, or you need to transfer it out occasionally, building the habit of saving is good to do. When you’re young, this won’t be much, but as you make more money, you’ll have the habit set already
Know how much you need to spend. This is really what a budget it for — to know how much money you need each week or month so that you’re prepared to pay your bills. Create a list or spreadsheet of all of the things you have to spend money on each month: shelter, food, internet, transportation, etc as your base, so that you know how much money you absolutely have to have. The Budgetnista calls this your “Noodle Budget.”
Know how much you actually spend. Use a budgeting app like Mint, or a spreadsheet to keep track of the ways you actually spend money. You might think you only spend $300 on food, because you don’t count the coffee and pastry you get once per week when you’re in a different neighborhood, or the monthly brunch with friends, and you underestimate how many times per week you actually order food delivery. Think of this not as a judgement of your choices, but as information for you moving forward. Knowing how much you actually spend will help you shape your budget and evaluate how your spending aligns (or doesn’t align) with your priorities.
Know how much you want to spend. This is something I had to figure out on my own. A lot of the financial gurus try to tell you how you should be spending money, instead of how to adapt your finances to how you actually want to spend money. It’s totally fine that you don’t have the same financial priorities as a 54-year-old white guy, and therefore you probably will not have the same budget. If being able to get your nails done every two weeks is important to you, put that in your budget, instead of a budget for a car, if you take public transit in your city. If your priority is to start a business, save money for that instead of putting everything extra towards retirement. Know what is necessary for your own life, and design it accordingly.
