Budgets, saving, and investments, OH MY! Life starting out can be insane especially when it comes to budgeting however it must be done. Budgeting can be daunting, most specifically, when you have absolutely no idea how to do it. Add in all the essential expenses that come with life in general and we have a recipe for Adulting 101. That being said, I am oh so excited to bring about Adulting 101 content. As someone whose new to and figuring out adulting life, it has been a demanding yet rewarding process. And, I am more than excited to share my experiences with y’all too!
Budgeting When Starting Out
1. Where to Start?!
Now, where do we even begin?!?! Let’s just say that we must know how much money you will be making monthly and go from there. Your monthly salary can be calculated in a few different ways and depends on various scenarios:
Hourly: If you are paid hourly, then your calculation will be based off of how many hours you anticipate to work each month. Realistically speaking, I would calculate this based off of an average, give or take a few days off and potential holidays.
Base Salary: Otherwise, if you are paid on a base salary basis, then your income will be consistent each month and at each paycheck. You can easily divide your annual salary by 12, in order to retrieve your monthly salary and by 24 for your bi-monthly salary.
Either way, you WILL be taxed on your income at each paycheck. I have found the best way to calculate my take home pay from websites such as SmartAsset (linked here) aka my newfound budgeting best friend. There, I can even include pre-tax deductibles such as health insurance, life insurance, dental insurance, vision insurance, 401k savings, emergency room visits insurance, etc. and how much each costs (we’ll get into ALL that later!) and factor that into my take-home pay, too. The best part about SmartAsset is that is specifically allows me to specify my City, State (yes, every State has a different set of tax brackets than the next), and and whether or not I would be filing taxes individually or jointly. Luckily, thanks to SmartAsset, I have been able to best estimate how much I would receive from each paycheck and do it in a personalized and pretty accurate manner.
2. Determining Benefits
Your job may have some perks to it – benefits! Typically, your employer will send out a benefits brochure if you are eligible to receive them. Benefits included that you may be able to receive can be health insurance, vision insurance, dental insurance, 401k retirement plans, life insurance, amongst many others. Most benefits offered by your employer allow you to either accept or decline which benefits that you decide to actually use and if you do accept them how much coverage you would want from them. Personally, I highly recommend getting the best coverage possible with these benefits and see it as a worthy investment in yourself and for your partner or dependents that you may been looking after, too. Luckily for you, your company will list the costs of each of these benefits and the majority of them are pre-tax benefits. So, essentially, you are paying yourself!
401k retirement plans are a great way to save for your best retirement life. Fortunately, 401k retirement plans are a pre-tax benefit and investment. Essentially, you are paying yourself and preparing for your future. Although you may not even be thinking or retiring anytime soon in your life, starting to save for retirement as soon as you can is uber-important. Most people do not start saving for retirement once they start out after college. A 401k retirement plan can be offered through your employer and they may even contribute to it too. Statistically speaking, it is suggested that one saves between 5%-15% of their annual income towards retirement each year. It is oh so important to be able to know that when you retire, you can retire comfortably and maybe take that cruise to Alaska on a whim and be able to without work demands, despite it probably not being anytime soon in your life.
It is important to note that most employer benefits will be taken out of your paycheck before you are given your take-home pay. Then, from there, I would calculate your benefits, most of which are pre-tax on a site, such as SmartAsset.
3. An Overview of Expenses
Below, I have listed a variety of expenses that may be included within a monthly budget. This budget accounts for take-home pay only, this is after pre-tax benefits have been taken out of one’s paycheck. ***Please note that this is a sample, generalized estimates on how much one should spend monthly and it is not in any manner a reflection of my own income and budget.***
- Rent (no more than 30% of monthly take home pay)
- Personal Care Items
- Student Loans
- Credit Card Payments
- Car Payment
- Emergency fund (it is important to be able to save up 3-6 months of living expenses in case anything happens)
- Gas/Any necessary transportation expenses
- Car Insurance
- Cell Phone Bill
- Internet Access & Cable
- Streaming Services (e.g. Netflix, Hulu, DisneyPlus, HBOMax, PrimeVideo, Spotify Prime, Apple Music)
- Monthly Subscriptions (e.g. Ipsy, FabFitFun, Amazon Prime)
- Personal Savings Accounts of your choice (e.g. Travel Fund, Designer Clothing Fund, Gift Fund)
- Mutual Fund(s)
- Charity donations
- Church/place of worship donations
I keep a note of everything that I chose to spend my money on and how much I have budgeted for it each month. I am also the type who writes things down as specifically as I possibly can, to help my brain think as clearly as I can. Additionally, I also leave some money leftover from it all so that if I go a bit over budget on one thing or another, then I am set. Personally, I chose to write out my budgets as per every paycheck of mine. Do whatever works for you, but make a note of it all and keep that budget loud and clear in your brain.
Now, these are just some of the many ways that you can spend your take home pay. Some of these listed are essential and others can be ways to treat yourself, because you deserve it! Through it all, it is important to note that everyone has their own preferences that are unique to themselves and only themselves. There may be something that you may find important to include that I haven’t mentioned and vice versa. Whatever your budget and financial priorities may be, remember that everyone is different and has varying financial goals. Only focus on your own, because they are the most relevant to your life.
4. Implement it!
Here we go! Now, your work on your budget is done. But, it is currently the time to implement your budget – let’s get going!
5. Tracking your expenses
When implementing your budget, it is super essential to be able to track your expenses. Personally, I use Google Sheets. Google Sheets has been a LIFESAVER for me, especially that I can calculate right in the sheet and track my budget successes and goals. It all comes to life that way, too!
Crafting a budget can be a challenge, especially when it comes to the adulting life. On the same token, it is key to be able to make the best financial decisions for yourself and for your future. One day, your future self will thank you!
XOXO – Katie <3