When you first take a look at your budget, it can be a little bit daunting. Especially if you've never set one up before. You look at all the things you need and want to spend money on and your head starts to hurt, even when you're a budgeting pro.
When I moved into my first apartment last August, I had to readjust my budget from what it had been for the last year. I had to up my rent payment and add in things like groceries and utilities. Even though I make a fairly substantial salary and knew that I had plenty of money to cover everything, I still almost had a panic attack. I looked at how much I had to spend on things I needed and then looked at what I had left to spend on the discretionary items (translation: those things you want but really don't need), and it was really scary and didn't look plausible.
After arriving home from the leasing office after signing our lease, I sat in the kitchen with my parents and started bawling. I was stressed to the max because after reworking my budget with my new rent and other expenses thrown in, my budget looked so tight, I thought there was no way I'd be able to pay for everything. That's a pretty scary thing to think about after you've just signed a 12-month lease on an apartment.
And that's when my parents told me to sit down, calm down, and breathe. Then my dad pointed me toward a wonderful resource as he and my mom headed off on a date.
Percentages Are Your Friend
What my dad showed me was a percentage table. It's definitely not a new concept to me, but it might be for you, especially if you've never really budgeted your money before.
Essentially, people for the most part agree on what percentage of your paycheck should go toward different categories of your life. These vary based on your income, whether you are single and living alone, single with a roommate, married, or have kids. There are a lot of different resources that you can easily find online that give you a starting point for how much money you should allocate toward different categories in your budget.
This one from CNBC is pretty simple and very easy — you put in your take home pay and it does all the math for you. This list from Debt Free Destiny gives you three different percentage recommendations.
The most important thing to remember about these things, however, is that they are recommendations, not hard and fast rules. You can use these percentage recommendations as a starting point for developing your budget and raise or lower categories as you see fit because, for you, some of the recommendations may be very high or very low.
When I saw down and did all of my percentage recommendations, I looked at the recommendation for clothing and laughed. I didn't spend that much on clothing in three months, much less one. So I adjusted the number down and moved the extra into another category that was somewhat lacking.
Make Your Budget Livable
The next thing to remember when developing your budget is to make sure that it's something you can actually live with. I spent a year living with my parents as I hunted for a job, got myself established professionally and personally as a responsible adult, and made sure I was financially stable. Because they charged me a much lower rent than I would find anywhere in this area (yes...they charged me rent, and I'm glad they did) and I didn't have to pay for things like utilities and groceries, I was able to save a lot of money.
When I revamped my budget to add in my new rent and other expenses, it was really hard for me to let go of the amount that I'd been saving. I somehow thought it was practical to essentially double my rent (and then some with utilities) and add in a few new expenses, still save as much as I'd been saving, and also live and enjoy myself on occasion. The result was a hyperventilating, sobbing me. Not a good thing.
After I looked over my budget with the percentages in mind, I adjusted things, but I still wanted to make sure the budget was practical, so I had my parents (in all their financial wisdom) look over it for me. I wasn't super stressed and sobbing anymore, but my mom pointed out to me that my budget was still somewhat impractical.
I had stubbornly refused to knock my savings down much at all, and so I was still spread very thin when it came to many of my discretionary spending categories. My mom pointed out to me that part of the reason I lived at home as long as I did was so I could save more and that I shouldn't expect to be able to save that same amount once I moved out. She cut some of my bigger savings categories down a bit, and spread the newfound extra money around into some of the discretionary spending categories that were previously looking pretty sad.
It was hard at first, but I realized that my mom was right. Saving is important, but so is not putting yourself on a budget that you'll never be able to maintain.
Have you ever used the percentage method to set up a budget? If not, how do you go about determining how much to put into each category?
Previously on Financial Fridays: So, What's a Budget?
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