Do you really need a budget in your 20's?
With today's record low rates, home owners are being tempted into buying a home. How important is it to budget while you're in your 20's?
No matter what age you are, it is unequivocally a good idea to have a plan for how you spend your money. For young adults in their 20's, becoming independent is a much sought after goal. However, the costs that can pile up can be a stressful burden to many. Living in an apartment, paying bills and maintaining an active lifestyle can stop some from saving for down payment on a new home, or even prevent you from putting money away for retirement.
Having a well thought out budget will prevent you from spending your entire paycheque - after you've covered your costs of living (rent, bills, etc...). You'll be able to set money aside for future needs, such as retirement and financial emergencies.
Here are a few steps you should consider in order to prepare a solid budget.
STEP 1: LOWER YOURFIXED COSTS
Most people think that correcting or altering their everyday consumption is the starting point in planning a good budget. Buying a cup of coffee or lunch will not bankrupt you. Living in an apartment, paying amortgage, driving a car or making a big debt loan payment is much more problematic.
Thinking of living with a roommate who could help spread your essential living costs, such a rent is a strategy you can employ to help free up some additional income to help repay some of your student loans or credit card debt. Avoid moving into a luxury apartment or home that will increase your housing costs to 30 per cent or more of your income.
STEP 2: FOCUS ON SAVING
Some of your paycheque should be put away into a savings account until you've got a good amount for any unexpected, financial expenses, such as medical costs or car repairs. Some more money should be put towards aretirementsavings plan and thirdly, another account for financial goals you'd like to meet. Goals such as a down payment towards a new home, or a vacation.
Setting up an automatic deduction from your main account will allow you to accumulate savings without the hesitation of moving money every time you get paid. Test out your lifestyle with an automatic deduction process in place to see if you can adjust to the lower, disposable income.
STEP 3: RE-EVALUATE
If you are having trouble saving money, the problem may be that you cannot live on the amount you are earning. Consider looking for a new higher-paying job, or look into additional part-time work in order to increase your monthly income.
You can also look at your previous month's bank and credit card statements to review whether some of your expenses are a bit out of control.
No month of spending will be exactly the same and you can't always plan ahead for unexpected events such as a friend's birthday or wedding. Focus on maintaining a balance in your budget.