Millennials are in a unique position. Most are out of college and just entering the workforce, but are in a much different position than previous generations. Higher living costs, stagnant wages, unsurmountable student loan debt—as a Millennial, it may seem like the odds are against you. In fact, according to a study by the National Center for Education Statistics, the average Millennial borrows around $30,000 in loans to afford college. With that said, how is a Millennial expected to save half of their income when half of their income goes toward rent and paying off their loans?
While you may seem overwhelmed with the weak economy, higher costs of living, and student debt, there are ways you can get your finances on track to lead you toward a successful future. In this post, we’ll go over the top budgeting tips for Millennials that are attainable. View our step-by-step budgeting guide below.
Step 1: Determine your after-tax income
Determining your after-tax income is the first step to getting your ducks in a row. Knowing how much money you bring home each month will allow you to control your finances and understand where you’re spending your money to identify areas you can save. Your after-tax income is the money you bring home each month after taxes are accounted for.
While you can use a free budget calculator to determine your after-tax income, you can calculate it yourself. Your after-tax income not only includes your salary and wages but income from other sources, such as:
- Child support
- Cash gifts
- Rental income
To most, a budget may seem like you have to limit yourself, when in fact, it’s quite the opposite. A budget is a detailed blueprint that plans out your finances to help you accomplish your goals.
Step 2: Calculate your expenses
To calculate your expenses, find out how much you spend each month by looking at your bank statements and receipts from the past six to twelve months. Doing so will allow you to get an accurate average of how much you spend each month. This includes calculating fixed expenses that remain the same each month, such as:
- Insurance premiums
- Car payments
Along with fixed expenses, calculate variable expenses that vary month-to-month, such as:
- Dining out at restaurants
- Leisure activities
It’s also important to factor in unexpected expenses, such as a surprise medical bill or car repair, by adding an additional 10 to 15 percent. For example, if you find you spend $1,000 a month, add an extra $100 to $150 to your expenses.
Step 3: Set goals for savings and debt payoff
To be able to set savings and debt payoff goals, you need to determine whether you’re in the red or have an overage. You can do this by subtracting your monthly expenses from your monthly income. If you’re spending more than you earn, it may be time to take a look at your lifestyle and make necessary changes to pay off debt and begin saving for a home, car, or retirement. Once you’ve calculated how much money you save (or don’t) each month, set realistic goals for the future, such as saving $5,000 by the end of the year or paying off $3,000 of your student loans during the next three months.
Step 4: Track your spending
Recording your spending can help you make more conscious decisions when it comes to purchasing something. For example, having to log expenses, such as that $5 coffee, can help you second-guess whether you need a pricey cup of Joe from a barista or if you can make it at home for cheaper. If cutting your spending is unrealistic, consider ways to make additional income, such as applying for a new job or picking up extra shifts.
Step 5: Find areas to save
As you begin tracking your spending, find areas where you can save money and allocate it toward future investments, such as a house, car, retirement, or a vacation. After reviewing your monthly expenses, place each expense into a category, such as:
- Housing: Rent, utilities, property taxes, maintenance
- Monthly debt: Student loans, credit card debt, car loans
- Retirement: 401(k) accounts, traditional and Roth IRAs
- Car: Auto loans, gas, maintenance, or public transportation and ridesharing costs
- Personal care: Clothes, haircuts, shampoo, toothpaste, cosmetics, gym membership
- Entertainment: Streaming services, movies, dining out, sporting events, concerts, social events
When looking at these categories, housing, car, and retirement payments will most likely stay the same. However, you may want to consider moving to a cheaper area with lower rent or property taxes or using public transportation to cut down on gas costs.
Other areas, such as personal care and entertainment, can often be reevaluated. For example, if you’re used to going out on the town with your friends on the weekends, you may be spending a large chunk of your paycheck on expensive drinks and meals. You can limit yourself to one night out on the weekends, or create mixed drinks at home at a fraction of the cost.
Or, if you go out with your coworkers to lunch every day or buy a coffee before work, consider brown-bagging it and making lunches or brewing coffee at home a few days a week. This can save you a significant amount of money in the long run. According to a recent study by Charles Schwab, roughly 60 percent of Millennials claim to spend more than $4 on coffee. Multiply that by 5 days a week, that’s $20 toward coffee a week, or $1,040 a year.
Wrapping Up: Budgeting for Millennials
Budgeting doesn’t have to sound as dreadful as it may seem. Sure, giving up certain vices, like cover charges to bars on the weekend or an oat milk latte every morning, may sound challenging, but this doesn’t mean you have to give up the things that make you happy in life. Instead, budgeting means you should create realistic savings goals by tracking your spending. So, you may have to cut back on certain areas of spending to have more money to play with in the future.
With these five tips on budgeting, you’ll be one step closer to reaching your savings goals, whether it be buying your first home, saving up for a family, or paying off all of your student loans.
Spencer Johnson is a content writer from San Diego, CA currently writing for 365businesstips.com. With a Bachelor of Art in Secondary Education and History and a Master of Art in Educational Psychology, Spencer has a passion for educating readers on a variety of topics. He has over a year of experience in the content marketing industry and enjoys writing about business, education, wellness, technology, finance, marketing, and tourism.