Budgeting 101 for adults: A guide for young adults

What is a budget and why is using a budget beneficial?

A budget is a financial tool that helps you manage your income and expenses by tracking where your money goes. It’s a way of planning and controlling your spending to make sure you live within your means while saving for future goals.

For young adults, budgeting is especially important. It allows you to:

• Gain control over your spending: Tracking your expenses helps you identify where you may be overspending and adjust accordingly.
• Achieve savings goals: With a budget, you can allocate money for things like an emergency fund, retirement savings or a vacation.
• Avoid debt: A good budget can help prevent credit card debt by making sure you have enough funds for your expenses.
• Make informed decisions: When you understand where your money is going, you can make smarter financial choices that align with your goals.

Ultimately, using a budget helps create financial discipline and builds habits that lead to long-term financial success.

Start by tracking your income and expenses

Young adults often face unique financial challenges such as paying off student loans, navigating the high cost of living and learning to manage their income effectively.

The first step in creating a budget is understanding your financial situation. Track how much money you’re bringing in each month and where it’s going. Make sure to include every source of income, whether it’s from a full-time job, side gigs or other sources.

Then, list your monthly expenses, including fixed costs like rent, utilities and loan payments, as well as variable costs like groceries, entertainment and dining out. By tracking both, you’ll get a clear picture of your financial life.

A simple way to allocate your money is by following the 50/30/20 rule:

• 50% to needs: This includes essential expenses like rent, utilities, groceries, insurance and transportation.
• 30% to wants: These are non-essential expenses like dining out, entertainment, shopping and travel.

• 20% to savings and debt repayment: This portion of your budget should go toward building your savings plan and paying down debt, including credit cards and student loans.

This rule is flexible but helps ensure you're covering the most important financial areas while also making room for fun and future savings.

Create a savings plan

One of the most important components of budgeting is having a savings plan. Saving for the future is essential for building wealth and achieving long-term financial goals.

To begin, start with determining clear and specific savings goals. This can include things like:

• Saving for an emergency fund
• Building retirement savings (like a 401(k) or IRA)
• Paying off high-interest debt
• Saving for a major purchase (such as a home or car)
• Going on a vacation

Once you’ve determined a specific goal, begin to find ways to automate your savings. Set up automatic transfers to your savings account each payday, so you’re saving without thinking about it. Treat your savings like a regular expense that comes out of your income, just like rent or bills. Automating your savings ensures consistency and makes it easier to reach your goals.

If you have high-interest debt, such as credit card balances, prioritize paying it down as part of your savings plan. The interest on debt can quickly add up, leaving you with less money to save for future goals. Focus on eliminating this debt as soon as possible to free up more money for savings.

Understanding your financial plan

A financial plan is a comprehensive roadmap for your financial life. It includes budgeting, savings, investments and retirement planning, all aimed at helping you achieve your financial goals. While creating a financial plan can seem overwhelming, breaking it down into manageable steps makes it much more achievable.

Your financial plan begins with a deep understanding of where you are financially. List all your sources of income, assets (e.g., savings, investments) and liabilities (e.g., loans, credit card debt). Knowing this will help you plan for your future and make decisions about how much you can save and invest.

Next, set clear and realistic goals. It’s important that these goals are measurable and aligned with your values. Whether you want to buy a house, start a business or retire early, make sure your goals are specific and attainable.

Finally, create a timeline. A financial plan is only as effective as the timeline you set for your goals. Create a timeline for when you want to achieve each goal and break it down into smaller, actionable steps. This helps make big financial goals more manageable and keeps you motivated.

Budgeting for young adults: Taking the first step

For young adults, getting started with budgeting and financial planning can feel intimidating. However, the earlier you start, the more you can benefit from the power of compound interest and the greater financial freedom you’ll have in the future. Remember, budgeting doesn’t have to be rigid or restrictive; it’s simply a tool to give you control over your financial life.

By implementing a budget, sticking to your savings plan and setting clear financial goals, you can build a solid financial foundation. Start small but stay consistent. Over time, you’ll see the benefits of your hard work and enjoy the peace of mind that comes with knowing you’re on track to achieving your financial dreams.

Whether you’re just starting out or looking to improve your current financial situation, follow these budgeting tips and start building a financial plan that will set you up for success. A budget is more than just a tool—it’s a key to financial freedom.