What’s the feeling you get when you receive your first Paycheck– Euphoria, exhilaration, and excitement. This is especially so for Gen Z who is starting out on their first jobs. You’ve been fantasizing about this day for years now, the day when you can finally call yourself financially independent. You throw a party, you gift yourself a gorgeous little something, you pay the rent for your small apartment and clear all your pending bills. And with still a week left for the month to be over, you realize your account is empty! That has happened to most of us, right?
If you’re still at the start of your career and unsure how to manage your money wisely, this post is for you. If you’ve been working for a couple of years and even then find it difficult to fix a budget, then you should read this too. Also, if you have planned your budget but something doesn’t seem to be working right, read on to figure out what you might need to change in your plans.
Budgeting Hack 1: Divide Needs vs Wants
Draw up a list of things you need every month. ‘Need’ would specifically mean those things you cannot do without – house rent, electricity, internet, car fuel, student loans, etc. These amounts are more or less fixed every month and should be easy to calculate. Groceries should also come under this list. This will give you a clear picture of how much money you exactly have in hand to play around with.
Now, from this extra money, put away some amount as savings. In your beginner’s joy, you will not really understand the importance of this, but remember what the wise old grannies have always said – Life is not a bed of roses. No matter how perfect your life seems right now, there will be monsoons along the way and savings will be the only way to tide through it.
Post dedicating a part of your paycheck as savings, whatever you have left is the amount to fulfill your ‘wants’. These are flexible and can vary every month. It could range from anything like ‘I WANT that Zara dress right now’, to buying a new piece of furniture, or throwing a birthday party.
Budgeting Hack 2: The 50-20-30 ratio
Source: The Balance
An easier way to understanding how to divide up money for your ‘Needs’ and ‘Wants’ is to go by the widely popular 50-20-30 rule. This means that 50% of your salary should be dedicated to essential expenses. This method will help you make serious decisions like which apartment and car you can actually afford versus which you would like to possess. Renting an expensive apartment and cutting down on your dietary requirements is definitely not a sustainable or mature way of leading your life.
Put 20% of your income into savings. This will require considerable research. Where to invest and how much is a discussion you should have with your family or more preferably, a financial advisor.
The ‘Wants’ section is the 30%. This should solely be invested towards your personal pleasures without any guilt. The whole point of studying for so many years and then slogging for so many hours in the office is to give yourself those little joys of life. Travel, explore, shop, party, and enjoy responsibly.
Budgeting Hack 3: The Zero-based Budget- Spend only what you earn
Credit Cards can be a vicious trap for beginners. The moment you start thinking that you can spend a little more than your 30% allotment for fun stuff and pay it next month by spending less, you have pretty much doomed yourself. Spend not a penny more than your income. It is not unwise to keep a credit card but use it only for some serious emergencies, not for shopping or on dates. Basically, the sum total of your income minus the sum total of your expenses should be zero.
Budgeting Hack 4: Bare- Bones Budgeting
If you can exercise some serious discipline for the first few years of your career, it could bring some much-needed peace of mind later. Bare-bones budgeting means dividing your entire income to only ‘essentials’ and ‘savings’ categories. Keeping no money for ‘fun’ can sound horrendous but you can repay your student loan or buy an apartment of your own much sooner than you would otherwise.
Does that mean you will have no fun? Not really. You need to simply re-define what fun means to you and engage in activities that do not require much money. For e.g., painting, playing an instrument, walking in parks, going for cycling treks, or having a small picnic by a river or mountain close to your own home can be very enjoyable ways to spend quality me-time without spending a lot. Figure out what pleases you.
Budgeting Hack 5: Cash Envelope System
The system for budgeting here remains the same as 50-20-30 but you convert everything to cash transactions. You can pay off your rent, loans, and bills digitally. After that, create separate envelopes for each category (like grocery, travel, dining out, etc.) with a certain amount of cash in it. Don’t spend more than what is available in that envelope. You might need one or two months to efficiently regulate as you may not be immediately aware of how much you spend on groceries every month.
Don’t redistribute money from one envelope to the other in the middle of the month. At the end of the month, if you have some amount left in any of the envelopes, pamper yourself with a parlor visit, an expensive dinner, or whatever suits your fancy for having done a good job with budgeting. If you are on the disciplined side, then add this amount to your savings.
No budgeting system is difficult if you understand the need for managing your expenses wisely. If you believe in living life only for the present moment without a care for tomorrow, then every budgeting hack will be a failure. Always remember that you are doing this for yourself and not for anyone else. Don’t treat budgeting as a punishment for being poor or middle-class. This is simply a mature lifestyle worthwhile for everyone. From time to time, keep rewarding yourself to keep the motivation levels up.