Because of all the years I spent in school, I arrived on “the real world” scene a little late. College and law school has a way of distorting your view about the world. Your world revolves around classes, studying, and, let’s face it, not much else that is important. You may pay bills and work a job around your class schedule, but you aren’t really playing by the same rules as everyone else.
About ten years ago, I arrived in the real world. Crashed into the real world may be a more accurate description. I remember my dad telling me right after I started my first “career” job that I should make a budget. I think I was respectful enough at the time not to laugh in his face. I’m not laughing now, in fact, I’m not even cracking a smile. See, like usual, my dad was onto something a decade ago, and it only took a few months of buying shoes galore and then sweating it out when the school loan bill came to realize it. The fact that I had the realization really wasn’t a surprise to me because I have learned that I should always listen to my dad. It goes without saying that he is always right. Please don’t laugh, but my realization was this: Budgets are invaluable.
Budgets give you direction and keep you accountable. Like in most areas of my life I need a goal. Some days that goal is just to get through the day without eating the entire bag of chocolates I have hidden in my bottom desk drawer. I can have big goals with my budget or small goals. For example, not long after buying my first house I decided that I was going to save up to buy a couch so I didn’t have to sit on my futon while I watched television (my parents generously gave me the television when they bought their new flat-screen television). That was a small goal. Paying off my student loan is a much bigger goal.
There are lots of ways to make a budget, but this is the method I use to make my budget:
1. Determine what my income will be on a monthly basis
For some people determining their monthly income may be relatively easy because they are salaried and their monthly amount is predetermined. For other individuals who work hourly and have the potential to earn overtime, this number may be more flexible. Whatever the method, find some way to ballpark the amount you know you will receive on a monthly basis.
2. Determine what expenses I know I will need to pay every month
For example, I know that I will have a student loan payment due every month. I also know I will have to pay my electric, water, and sewer bills. I estimate my utilities based on what I have paid the previous year. There may be a mortgage payment or car payment to factor into your monthly expenses.
3. Determine what I want to save every month
For me I decide what I want to save on a yearly basis and then typically break it down on a monthly schedule. I like easy numbers so I select a certain percentage of my yearly net paycheck, after I have subtracted the mandatory expenses, and then divide that by twelve months.
4. Determine if I want to pay additional on any of my debts
One of my goals is to pay off my student loans and mortgage before the end of the term.
After I have done all of that I then know what I have as surplus to spend on shoes, romance novels, and chocolate. I consider that my reward for creating a budget in the first place.
I also recommend that you review your budget and spending habits every year. What was important to you one year may not need to be in your budget the next year. For example, my sister got married a few years ago and she and her husband saved the year leading up to the wedding for the honeymoon. Obviously, my sister hasn’t set aside that same amount in the years since her wedding since she is not planning to go on a honeymoon every year.
Other people may have a different way to create a budget based on their goals and priorities. It really doesn’t matter how you create the budget, what is important is that you create a balanced budget that fits your lifestyle and still allows you to pay all your expenses so you can enjoy the “real world.”