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BUDGETING AS A YOUNG ADULT – HOW TO CREATE YOUR OWN BUDGET?

    There are many different strategies that young people can implement into their daily lives to be financial responsible. Budgeting is arguably the most vital technique to apply!

    Budgeting is a commonly used method for saving money.

    But what is a budget?

    A budget is an estimation of revenue and expenses referred to a specified future period of time. It shows how much money you have, how much can you spend on different things or save for other goals. Depending from the needs of the moment individual budgets cane be re-evaluated regularly. Budgets can be made for any entity that needs or wants to spend money, including governments and businesses, people, and households of any income level.

    That is why this technique is suitable for people at any age: teen and young adult can learn how to save for the things they want and at the same time build habits that will benefit them throughout their life. Writing out weekly or monthly monetary boundaries is essential for being aware of your financial situation, preparing yourself for future possibilities and accomplishing financial goals!

    How to create your own budget?

    First of all, it is necessary to identify specific categories for your personal situation, indeed they might be different according to the age of an individual. Examples for categories include: transportation, food, shopping, holidays, savings, and so on. Now, you have to subtracting your regular expenses from your budget such as gym, or club membership for teens and maybe rent or pay TV for young adults.

    Then, it is extremely important to recognize what areas of the budgets are most important and learn what to prioritize. This require critical thinking. For example, people who have more costs such as rent or medical visits, may allocate just 10% of their income to savings, while those with less fees can put even 40% of their budget into savings. There are some methods for budgeting, the most popular one is 50-30-20 budgeting rule.

    The rule splits your money into three simple categories:

    •   Allocate 50% for needs, including all essential payments each month (Housing, Transport, Food, Education, Bills)
    •   Allocate 30% for non-essential spending (Gifts, Restaurants, Social events)
    •   Allocate 20% for savings (Emergency fund, Savings goals)

    As a teen, this might look a little different. Indeed, most teens don’t have to pay for rent and utilities, so their essential expenses should be significantly lower. You can decide to switch these percentages and put essential expenses account for 20% of your earnings, save 50% and spend 30%, for example.

    Budgeting is an efficient way to monitor personal finances and it is an essential tool for young people to keep up with progress and success. That is why it was presented in this article under the European project MAYFIN, whose aim is to bring financial education closer and make it easier for young people.