Hi all, Julia here. I am kicking off my first series which will be all about budgeting. I am in the midst of creating my budget for when I start my job in the fall, so I want to take this time to help teach you how to do the same.
This post will be all about how to think about expenses when building your budget. First, I’ll walk you through how to use your past spending habits to help inform your future budget. Then we’ll start grouping our expenses into more helpful categories. Lastly, I’ll give you a comprehensive look at specific categories that I think are pretty common in any twenty something’s budget. You can use that to make sure you didn’t miss anything. Without further ado, let’s get started.
Looking at Past Spending Habits
My first step at creating my budget was to learn about my past spending behaviors. I generally don’t like to restrict myself to a budget that would take too much work or monitoring to uphold or that I may end up breaking anyway. I’d much rather be honest with myself from the start about what I tend to spend, base my budget around that and then adjust accordingly if it is unrealistic given my income.
In order to find out about my past spending habits, I dove into my old credit card statements and separated each charge into categories. Since these statements were from college and my spending habits will mostly likely be different when I’m living on my own, the main categories that I was focused on were groceries, eating out, and shopping. I intend to cook as often as I did in college. Although eating out will likely be much more expensive in Chicago, I was at least able to get a rough estimate of how many times a week I like to eat out. Lastly, my shopping habits will likely change very little if at all. I’ve always let myself shop pretty liberally because it is somewhat of a stress reliever for me and I’ve always been lucky enough to have the funds to do it.
Two Cents Tip: Most online banking platforms offer the option to download your statements into excel form. This makes it easier to go through your charges and use excel to automate the process.
The key here is to find a method that will best inform you what your spending habits tend to be. If you’re not into spending a couple hours to do this manually, I suggest using a spending tracking app for a couple months before you set a budget to get a better sense. You could also just make a budget without doing this exercise if you know that you can be realistic with yourself.
Realistic Predictions for New Spending Categories
Once you’ve learned all you can from your past spending habits, you can start thinking ahead to new things that you know you’ll have to spend on. For me, the biggest categories I had to figure out were rent, transportation and subscriptions.
I had no idea how expensive an apartment was in the city I’m moving too, so creating my rent budget entailed some degree of research. Obviously, if you’ve already been looking at apartments or you’ve secured one, you’ll know how much money to allocate to rent.
Transportation is another thing that will change for me when I move. Since I will be living in a big city, I intend to utilize public transportation to commute to work and then use Uber when public transportation won’t suffice. After looking into it, I found that public transportation would cost $100 for an unlimited monthly pass. I also budgeted around $80 for Ubers with the idea that I would spend $20 each week on them.
Two Cents Tip: Many employers offer transportation subsidies, so definitely look over your benefits package to take advantage of that!
Subscriptions are a category that I’m worried might be significantly higher than I anticipate. Currently, I’m fully taking advantage of my parent’s subscriptions to Netflix, Hulu, Amazon, the works. I also am on their phone bill. We haven’t yet worked out how we’ll split this, but it’s definitely important to have those conversations with your parents so you’re not blindsided when they suddenly take you off their phone plan! Also, don’t forget about subscriptions that will increase in cost once you no longer get a student discount.
Expense Categories
It is important to think of expenses in different categories because it can help you organize your budget and effectively adjust it if necessary.
I like to break up my expenses into three categories:
- Necessities
- Wants
- Annual/one-time
The first two focus mainly on things that occur every month with some predictability. For example, I know that I’m going to the grocery store every week and spending about $200 per month. I also know that I’m subscribed to Apple Music which is around $5 per month (with family sharing).
The third category are things that I spend money on throughout the year, but that I don’t necessarily have a great sense of how this would distribute through each month. For example, the most common thing to include here would be vacations.
Below I’ve broken down each category into the specific expenses that you may incur when you start living on your own.
Next Steps
Once you’ve determined all your expenses and categorized them appropriately, it’s time to utilize this information to build your new budget! In coming articles, I will cover the two other components to building a budget: income and savings. Then we’ll combine all of the information in my pretty freakin’ cool budgeting method that will help you to maximize your income and even gain you ~free~ money!!