It can be particularly difficult to manage an income when we’re using our debit cards, credit cards, random cash we decide to take out, etc. It can also be difficult when we’re given a salary, or a wage that never quite adds up to the amount we calculated after taxes, 401(k), insurance, etc. But don’t let all of this beat you down and shy you away from figuring out how to manage your money. It’s not the quickest process to sort through where your money goes before the paycheck and how you should divvy out your money after the paycheck has been deposited, but it is for sure one of the biggest reliefs you’ll experience when you finally feel like you have some control over your income.
I have always been fairly good with money, choosing to pay rent, bills, and groceries before buying a new shirt or going out to eat with friends. However, it wasn’t until I moved to Los Angeles from Seattle for a real, salary paid job that I discovered how complex breaking down a paycheck can be. The biggest shock for me was the fact that my salary seemed OK for a non-profit. After taxes, health insurance, and 401(K) though, my paycheck dwindled much more than I had anticipated. Add on monthly student loan payments and poof, my paycheck kept getting smaller and smaller.
It’s hard and frustrating. Particularly after you’ve put in the time that people suggested you put in and then suddenly you see that your salary is a third of what undergraduate and graduate school cost combined. But then again, this is 2015 and very few students are able to find work straight out of school. So of course I took the job, but not before I made the hard decision to sell my car and rely on public transportation.
I know many of us are in different situations in terms of salary vs. hourly wage, but these tips apply to both sets of incomes. So find a quiet space, grab some coffee or tea, turn on some Billie Holiday, and get ready to break down your budget. Also, get ready to see my income.
1. Get friendly with Excel because it is your new best friend.
I like to work with visuals and Excel lets you see a lot at once in an organized fashion. As you can see, I break my paycheck down per monthly intake, paycheck (which I receive bi-weekly), and weekly. In Excel, create tabs realistic to your lifestyle. For me, my rent includes internet and gas, my work pays for public transportation (as do a lot of employers) and gives out $50 for being eco friendly at the end of the month. Also I’m still on my family phone plan because it’s cheaper to have a family plan than a single phone plan (shout out to my aunts). I don’t have a car for the sole purpose of having a small amount of flexibility with my finances.
These tabs should label your expenditures over each week and each month.
- Utilities: On average how much do you spend in utilities?
- Internet: Look in to splitting internet with your neighbor if you’re in an apartment complex.
- Student Loans and/or Credit Card Payment: Here is where your money will disappear.
- Groceries: This includes food, cleaning supplies, trash bags, aluminum foil, etc.
- Phone: Many of us are still on family plans, because it’s cheaper to have more phones than one. But for those who are paying for a single plan, definitely have a phone budget.
- Health: Outside of your paycheck, if it’s possible, put $10-$25 a paycheck into this fund for cases like dental work, copays, prescriptions, therapy, tampons, etc. You don’t want to run into this.
- Entertainment: Eating out, movies, buying new books, museums, drinks with friends, essentially anything social or fun. Because my job pays for a lot of movies and I don’t drink or go out to eat often, I only put $25 a week into this fund.
- Misc: Make-up, new underwear, birthday gifts/cards, hair dye, haircuts, broken electronics, new music. I generally put $25 a paycheck in this fund.
- Car Insurance
- Car Maintenance
- 401(k): If you’re lucky to have one, which is a rare case. I have one but am not even close to putting in the recommended amount in every month. Anything is something though, so I put $50 per paycheck into it.
- Pets: Food, toys, insurance, health, grooming, whatever you need to spend on your pet. Even if you don’t spend money on grooming every paycheck, putting a consistent amount in this account will help when those moments come up.
- Savings: For me, my 401(k) is my savings so I don’t actually put anything into my savings account. Money leftover from groceries, entertainment, and the monthly $50 I get for commuting to work go into a travel jar that I use for flying to see my boyfriend. Long distance relationships can be costly. Make sure you’re really freaking into the person before you decide to put together a travel jar.
Some of these can be replaced. For instance, instead of Gas, Car Insurance, and Car Maintenance, you could put Transportation for bus or subway passes. And there may be tabs I’m missing. Everybody leads a different life so each tab will have a different amount depending on the type of person you are. The important thing to do during this is to be completely honest about where you spend your money, and ALWAYS budget to the highest amount. I budget $75 for utilities just in case I use a lot of air conditioning or a lot of heat. You’ll find yourself in a real jam by budgeting to the least amount when you bill is $20+ more than anticipated.
2. Go invest in a nice set of envelopes.
Seriously. For groceries, health, misc, entertainment, gas, pets, and car maintenance, get yourself some envelopes because the big secret to not overspending is to take out the money you’re divvying up into these tabs and stick them into labeled envelopes. I spend $100 on groceries, so when I go to the grocery store (after making a list and calculating it in my head, as well as grabbing any coupons I’m able to snag) I have no choice but to spend what’s in my pocket. Again, whatever is leftover is stuck in the travel jar.
It’s so easy to overspend on these things when you use your debit card. Unless you’re an avid checkbook balancer, you should highly consider the usage of envelopes. At the end of the month, you can put the money you didn’t spend on utilities or whatever else into a savings, a new dress, student loans, or wherever else. Again, always budget to the highest amount because you will sometimes need the flexibility that the least amount can’t provide you.
3. Miscellaneous Budget Ideas
- Save on veggies: cut cucumbers and carrots into slices and put them in baggies for each day of the week. It’s about $6 and gives you 2-3 of your daily veggie intake.
- Free Events: I live close to a museum that is free to residents after 3 p.m. and hosts live jazz music outside every Friday. Art/culture places usually offer free events at least once a month.
- Cinemit: Get free movie screenings in your city! Check them out on Facebook.
- Coffee: If you like coffee you should look into a nice coffee machine so as to reduce the amount of money you spend at coffee shops. Check out Allie and Amy’s article on turning your kitchen into a coffee shop.
- Student IDs: If you’ve recently graduated from college, your student ID is still a great source of money saving for tourist stuff around your city.
- Delete Apps and/or Shopping Websites : I had to delete my ModCloth app after I found myself spending too much money on “sales.” Remember, we’re done growing, we don’t need to buy new clothes every time there’s a seasonal change.
- Sell Clothes: Too many clothes? Go sell them at Plato’s Closet or Buffalo Exchange.
- Read: Stake out a great reading spot somewhere outside and whenever you need a change of scenery, take advantage of it.
Money, jobs, student loans, budgeting. All of these things are scary, and we wish we had taken some courses relating towards money management. But that shouldn’t stop you from figuring out what to do with what you have. It’s not the quickest task, but it is the one that will help you out most in life.
Special shout out to my aunts for teaching me how to break down my paycheck realistically and for handing down the secret of envelopes.
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You should absolutely never rely on your 401K as your savings! You are stealing from your future and choosing to get taxed twice with the 10% penalty on early withdrawals. However, with contributing less than 3% on your gross annual salary towards retirement you may never actually get to retire. At a bare minimum, you should set aside 15% for retirement. 20-30% is ideal if you don’t want to work until you’re 70.