Since the age of 16 when I got my first minimum wage job as a line cook, I have been exchanging money for other things. Material things, like a cell phone, new American Eagle jeans, an iPod. Part of the fun (and point) of working those 20 plus hours per week was to do just that — sometimes I would go to the mall immediately after and end up spending the entire paycheck in one day. Now that I’m older I have (for the most part) controlled those impulses for instant gratification and new gadget toys, but those checks still disappear almost as fast as I get them. Now that I have entered adulthood (or young adulthood), most of my money is exchanged for recurring bills. Phone plans, cable, credit cards, car insurance, Netflix. Most of the time I barely end up with more than $10 by the time my next paycheck comes. How did I end up this way, and how can I get out?
The problem was that I did not have a plan. I had no inhibition about what to do with my money, or how to organize my bills properly. I also did not keep track of my money. Once I noticed this, I decided to write down my income versus bills and see precisely why I ended up in debt or close to it every month:
INCOME $1000 per month
restaurant job, 30 hrs per week: $250/wk (estimated. sometimes I work more, sometimes less.)
BILLS $920+
3 credit card payments approx. $250+
car insurance $110
cell phone $60
gas approx. $100+
food approx. $300+
misc expenses (bars, liquor, shopping) $100+
Once you write everything down, it is easy to see where your money goes most of the time.
- My bills, including variable expenses, only added up to $920 per month in theory, but I said before that I barely end up with more than $10 by each week’s end. Obviously there is a spending problem.
- I notice that I do not allot set amounts for the variable items I’m spending money on (such as gas and food and going out), and therefore I end up overspending. I also need to figure out exactly what “misc” consists of. An easy way to do this is to put all your money on your debit card and then look at the online statements from your bank. They will list each transaction and most banks even categorize it for you automatically based on the store you bought it from, e.g., they can easily tell that Stop & Shop is a grocery store.
- Some banking websites have even gone a step further and created pie charts and other visuals detailing your spending habits. Take advantage of these tools to see how you spend your money, and you will see what types of purchases are sucking money.
When you begin to set certain amounts for types of purchases, that becomes your budget.
- First, write down set expenses that are the same per month, such as your rent or mortgage, utilities, car payment or insurance, or your cell phone (having the right plan can prevent monthly bill surprises for your phone bill). If you typically pay your credit card companies the same or similar amount each month, you can put that as a set expense, too. Don’t forget to include smaller payments, such as a gym membership or Netflix account.
- Next, write down a detailed list of all the things you spend money on outside of these set bills. This list can include: clothes, groceries, eating out, bars/liquor, movies, cigarettes (or other vices), gas, even magazines. Keeping track of your habits with your debit card (or saving every receipt) will help you decide the right categories.
- Add up the amount of your total monthly income (after taxes), and find the difference of that from the total of your set bills from the first bullet. This is the amount you have left for everything else, such as the items in the second bullet.
- Divy up the amount you got into the categories you made based on previous activity and importance. Do you know you need a certain amount of gas every month for commuting? Write that number down next to the “gas” category. Have a severe habit of cigarettes that are nonnegotiable? Don’t forget to add in your vices. Going out to drinks or the club counts too (don’t forget parking fees and cover charges in addition to your drinks). Be strict here, you do not need to go out every weekend. Nor do you need to eat pizza three times per week. Keep writing down numbers to ensure each category has enough money for what you need or want for the month. But save some money. We’re not done yet. We have to add the most important part of a budget: paying yourself!
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