Manage Your Money
Part of becoming an adult is taking control of your own finances. As a child, it is easier to not know what's going on. Maybe your parents took you out to dinner or covered some of your living expenses.
Managing your money sounds daunting, but it doesn't have to be. If you create a budget, you'll know how much money you spend and what you are spending it on. With this knowledge you can decide to make changes.
Below you will find advice on budgeting and saving to help you take charge of your finances so that they don't take charge of you.
By knowing how much money you have, you can plan for trips, save for work clothes, or splurge on a night out without feeling overwhelmed.
Figuring Out Your Cash Flow
A "cash flow" basically tells you what's coming in, and what's going out. The cash flow will also tell you how much you typically spend and what you are spending it on.
To figure out your cash flow, start by keeping all your receipts and logging your weekly spending in a small notebook. Keep the notebook on you at all times so that you will not forget to log spending any cash.
After doing this for a month, sort your expenses into categories. These categories may include:
- Utilities (water, electricity, etc.)
- Food (including groceries, dining hall swipes, eating out)
- Self-care (like haircuts, nails, the gym, etc.)
- Health care (including insurance, co-pays, medication)
- Transportation (public transit pass, car payment, insurance, gas, repairs, and tires)
- Entertainment (movies, video on demand, events, music)
- Gifts (birthday, family, friends, graduation)
- Life insurance
- Savings and Investments (including retirement, which should be as high as 15% of your income)
- Credit card or Debts
On another page, you are going to do a bit of math:
- Write your checkbook balance.
- Write the amount of cash you have on hand
- Write down the amount of income you expect to receive next month.
- Add these numbers to get the total money available for you to allocate for your next budget plan. You will use both (1) last month's total expenses, and (2) total money available to help you plan your budget for next month.
Making A Budget
Basically, your budget is your spending plan. How do you want to spend your money? Take into account what your usual spending patterns are. Then plan out how much you want to allocate to each of your needs.
If you tend to overspend, start out with a weekly budget. This involves keeping track of how much you have allocated in each category for the week and, when you make a purchase, subtract it from the allocated category. Make sure your chart is up-to-date each day.
At the end of the week see how you did as far as sticking to your spending plan. By doing this, you can alter your spending habits or your next spending plan so that you can have a balanced budget. The goal of the budget is to accurately assess how much you have, how much you are going to spend, where the money is going, and ultimately that you are not spending more than you have.
At the end of the week, your total money available (checkbook balance + cash + income) minus your total expenses should be 0 or a positive number. Once you are more familiar with your spending habits, you can make monthly budgets.
If you are trying to save for a something big, like a vacation, you can make changes by cutting out money from different portions of your budget and allocating it to what you are saving for.
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Saving money is important. Having extra money saved (the suggested amount for an emergency fund is three months of your salary) gives you more freedom and security. It could help with a down payment for a car, for renting your first apartment, or to get you through a time of unemployment.
Anything saved above the three-month emergency fund could go toward a dream vacation or help you when an unexpected cost or emergency happens.
How to Save
Saving is the easiest when you pay yourself first. This means you put some portion of your paycheck directly into your savings account before you even think about using it to pay for living expenses.
At least 10 percent of your paycheck go to your savings account each month. This way you are not saving so much that your lifestyle must change, and you are saving enough so that your savings account will steadily grow.
If you must take money out of your savings, come up with a plan to replace it. If you're constantly taking from and replacing your savings, your savings account won't grow. Instead, only take from your savings when it is an emergency and make sure that you replace it as soon as possible.
What are your Current Savings?
To find out how much you are saving, add up all the money you hold. These areas may include: savings account, bonds, retirement fund, mutual funds, stocks, and other. To find out the rate at which you are saving, calculate total savings income. Remember, aim to save at least 10 percent of what you make.
Saving for Retirement
Consider opening a 401 (k). This is an account that will allow you to take a certain percentage of your paycheck before taxes, and put it away for retirement. There are many benefits to this, including that the money is not taxed, allowing you to save more.
However, there are fees you must pay to discourage people from taking the money out before age 59 ½. When sending money to a 401(k), look into benefits your employer might offer. While this varies, many employers offer to match a percent of the money you put toward your 401 (k). This allows you to double a portion of your savings.
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Megan Brown, public health education intern
Reviewed by: Nancy Brown, Ph.D.
Last Reviewed: July 4, 2013
Below are links PAMF accessed when researching this topic. PAMF does not sponsor or endorse any of these sites, nor does PAMF guarantee the accuracy of the information contained on them.
Opdyke, J. D. (2006). The Wall Street Journal: Personal Finance Workbook. New York: Three Rivers Press.
For More Information:
See our Job Search article.
See our Time Management article.