Budgeting Basics

Generally, from 16 to 22 years old, we work jobs that fit into our school schedule that typically provide irregular hours and irregular income. When we think about trying to create a budget and figure out where our money is going, it gets stressful because it is difficult to know how much we should budget for. Let me give you a few tips that work for me and I look at constantly, even today being that some weeks I work 25 hours, and others 15:

Baseline Income

I am the type of person who likes to be in control of things in my life and I try to limit the unknown. Because of this, as soon as I get hired for any part time job, I talk with my manager to find a baseline number of hours we both think will be doable every week. I use this income as my “minimum budget” to see how much wiggle room I have after taking out groceries, gas, and monthly bills (mainly Apple Music and Chegg as I am fortunate enough to not be paying loans or insurance at this point in my life).

Emergency Accounts 

Assuming that your minimum budget covers your monthly expenses; if it doesn’t then you need to take an objective look on where your money is going and how well your job complements your needs. On those weeks when you work more than the minimum, be smart with your money. I suggest putting money aside from every week into an emergency account. This account will be money that you can draw from when you work less than the expected minimum due to holidays, tests, or any unforeseen event. It should be a separate savings account that won’t be touched unless it is an emergency, hence the name. Everyone, at some point, has an emergency, whether it’s a flat tire, flights home to see grandma in the hospital, or a heavy exam week that you want to take off to study for. This account should grow to at least a few weeks of expenses, but the larger the better.

Retirement

Compounding is one my favorite concepts in finance. Here is an image to illustrate its effect:

Investor 2 started investing the same amount, $5k/year, just 10 years later than investor 1 and had to keep investing that same amount for 30 years just to end up 175K behind at retirement. Investor 1 only had to invest this same amount for 10 years to end up ahead. I think this speaks volumes, don’t wait on opening a ROTH IRA and investing whatever you can now. You will be so glad you did when you reach retirement and have an extra million plus (invest for longer than 10 years and you could have an extra couple of million).

Review Monthly & Stay Flexible

When your making variable income, it helps to review your expenses monthly to see how your account looks compared to what you expected. This also lets you think about the month ahead and plan for anything out of the ordinary, like a planned vacation.

The most important things in budgeting are discipline and flexibility. I say this because I know we are in our prime time of our lives and should be living, not worrying about our finances. But in my experience, in order to really live in the moment and be in the best head space, my expenses need to be in order. Often, you have to give up something now to reach the goals you have. I have found that the best skill to possess at our age is the ability to say no and think twice about what we say yes to. It sucks missing out on things but it’s way better knowing that what I do during those times I say no is leading me to a much more fulfilling life.