In Part 1 of “Money Management Help for Millennials”, we discussed millennials lacking of a basic financial education. In this segment, we will discuss spending without a plan. Budgeting for millennials seems to be a challenge. A recent survey showed that the majority of millennials check their bank account balance at least once a week, but more than half rarely or never plan out monthly spending in advance. The word “budgeting” can be scary, but think of it as a way to plan where you want your money to go, instead of a way to track where your money has gone.
Millennial Money Trap: To Budget or Not to Budget
Problem: Spending Without a Plan
Spending without a plan is a serious concern. If you don’t know where your money is going or where it needs to go, then you will find yourself in a financial pickle one day. Millennials should take a more hands-on approach with their cash through a budget.
Solution: Creating a Budget
Creating a budget can seem like such a headache, but if you can fight through it, it will be worth it in the long-run. Determining what you can and cannot afford is key. You can’t spend money that you do not have or earn. Going beyond your budget can often lead to high credit card debt.
- With a budget planner, you can breeze through bill payments without breaking a sweat
- Knowing where your money is going and how much you need to cover your expenses.
- Helps you become more aware of your income and spending habits
How to Create a Budget
Steps to create your budget:
- Identify and calculate your fixed expenses.
- Fixed expenses- money going out that doesn’t change from month to month and are non-negotiable, this includes the absolute necessities. Examples: rent, health insurance, car insurance, car payments, mortgage, , etc.
- Track spending on variable expenses.
- Variable expenses- Money going out that changes from month to month depending on your lifestyle. Some variable expenses are absolutely necessary, such as food costs, whereas others count as discretionary spending, like entertainment.
- Build your savings.
- The easiest way to put money away is to contribute to a 401K or individual retirement account. In your monthly budget, deduct this money from you income right away so you don’t think twice about spending it.
- Eliminate debt.
- Just like with retirement saving, set aside a percentage of your income so you can put it toward eliminating your debt. This is also helpful should you encounter illness, job loss, or other financial crisis.
Once you have identified your fixed and variable expenses, you can use a budgeting worksheet to help you figure out your finances and goals. By creating this worksheet, you can have all of your earnings and spending organized in front of you so that you can make educated decisions about your money placement.
Not Having Financial Goals
A budget can help you align your spending with your goals. But you must first have goals. Unfortunately, many young adults don’t know what they want and this is a money trap that millennials should avoid. If you do not know what you want in life or where you are going, then you cannot work towards anything. Having a goal gives motivation for the future and direction. Calculate how much your goal will cost you and create a plan to achieve them. Including this item for saving in your budget is a good idea.
In our next segment of “Money Management Help for Millennials”, we will discuss the importance of degree and the problems with too much or not enough credit card debt.
Jana Hart- Extension Agent- FCS/4-H