There is a great Forbes article coming out in the August 18th issue (on web now) on how millennials are changing money management. Apparently, millennials are more practical and focused on saving thanks to the recession, but want technology to make it easier for them to do so. The article profiled a few companies catering to these needs.
Unsurprisingly, millenials are also interested in being budget conscious.
The first key is to set actually set a rough budget. Two popular guidelines are to spend around 30% of your take-home pay on rent (this will go up if you live in a city like San Francisco or New York) and to follow the 50/30/20 rule. The 50/30/20 rule advocates you spend 50% of your take home pay on “fixed” expenses (rent, cell phone bill, utilities, cable, car payments, groceries), 30% on discretionary spending (shopping, vacations, eating out, basically anything else), and 20% on savings or paying off debts. With this guideline you’ll also be following Ne-Yo’s fantastic life advice:
“Cause she work like a boss play like a boss
Car and a crib she bouta pay em both off”
The thing is, you can’t just set a budget, assume you roughly follow it, and forget about it. Once you set your budget, tracking your spending regularly is absolutely key to managing and building your wealth. Knowing exactly what you spend helps in three ways:
- It lets you know how much is going out the door each month, for what reason, and whether you need to cut back your spending in any key categories
- If you pay on a credit card it keeps track of all your bills and cash spending in one place, so you always know that you’ll have enough to pay what you owe
- With all of the cyber security and credit card breaches, it keeps you aware of whether what’s on your credit card was really purchased by you or by an identity thief going on a spending spree
I track all of my spending in an Excel spreadsheet which has formulas to tell me how much I spend in each category, and how much each category takes up as a % of my take home pay. I track my spending by month and update the spreadsheet every week or two.
I lump my spending into the following categories and sub-categories:
- Car (why I miss New York…)
- Car payment
- Eating Out
- Alcohol (turns out those bar tabs add up, even if you don’t remember them)
- Beauty (i.e. haircuts, manicures)
Now comes the fun part, analyzing what you spent over the month. I have formulas built into my spreadsheet that tell me how much each category makes up of my take home pay. If anything gets out of whack I can easily spot where the issue lies.
There are lots of ways you can track your spending, and there are even sites that do it for you like mint.com. I personally prefer to track it manually because I think it is more accurate (Mint doesn’t always pick up the right categories), it makes me think more about what I spend, and it lets me check for a credit card breach or incorrect charge since the items aren’t aggregated together.
I would love to send you a copy of my budget tracker template for FREE. Just shoot me an email at firstname.lastname@example.org.