Okay, now that you theoretically have money (or will soon) we can start to talk about what to do with it. This is actually my favorite part of being an adult. Making a budget and figuring out exactly what you have to spend where. This is the real base of everything else in your life, it's how you know what you can afford to do - and then do it!
Budgeting. This is the key to living within your means, staying out of debt, and having extra cash to spend on fun things. The budgeting tool I use is Mint. No, I'm not paid to endorse this website, I really do just love to use it and think it's the best budgeting tool out there (it even has a smart phone app!). There's lots of categories you have to budget for but first lets focus on the things I said awhile ago in a prior post. Shelter, Food, Clothing, Transportation, and Health-Care. Let's also throw in a short term savings fund and a long term savings fund like retirement. And yes, it's important to start saving for retirement now, even if it seems a million years away from now.
Okay. Let's say you make minimum wage here in Pennsylvania. Some of you don't think you can survive on this but trust me, you can. Let's break it down. If you work 40 hours a week on $7.25 an hour, this is what everything will look like:
Hours Per Week: 40
Hourly Wages: $7.25
Total Gross Income Per Year: $15,080.00
Total Net Income Per Year: $14,577.20
Total Monthly Net Income: $1,122.00
Total Bi-Weekly Net Income: $561.00
Total Weekly Net Income: $280.50
If you're not sure what Gross or Net means, basically Gross means everything you would earn before taxes and deductions and Net means after those are taken out, so Net is what you get to take home. Depending on where you live your taxes can change pretty drastically so it's best to do research on what your taxes look like in your area before you start using my numbers and budgeting for yourself. The tool I used to find these numbers was from this simple conversion calculator. Again, be sure to do your own research on what your actual net income will look like based on your income, location, taxes, and etc, but for now, we'll use what's above.
The two big things you want to look at are generally the Bi-Weekly income (for me it's actually Bi-Monthly) and, more importantly, Monthly Net income. The monthly number will tell you exactly how much you have to spend each month. That's it. No more, no less.
So now you have $1,122.00 to work with each month. With this thousand and some odd dollars you need to make it stretch to at least cover your 5 basics from above. A quick look at local apartments for rent near me tells me that the cheapest apartment is listed about $450 a month plus gas and electric for a small 1 bedroom apartment. (It'll be a shitty apartment, no doubt, but it'll do the job.) Gas for this building is $0 in the summer because most things are run on electric but in the winter it will probably be around $100 a month. If you split your money up and save for the winter, you'll be putting aside $50 a month for gas, and electric usually never goes above $20 for an apartment of this size.
What we have so far:
Income: $1,122.00
Rent: $450.00
Gas: $50.00
Electric: $20.00
Left over: $602.00
So now we have $602 to work with for the remaining 4 necessities. You took a big chunk of your paycheck out just with rent and utilities but bear with me; you can budget for everything else on $600. The next biggest thing should be transportation. At this income I don't suggest buying a car so finding local transportation is important. The local bus and train system in Pittsburgh has passes for various length of time needs but a pass for a month is $97.50. Let's assume that if you can't get a co-worker to drive you, you'll be taking something similar for a similar price. Take your $97.50 out of the remaining $602 and now you have $504.50.
Now you have a place to sleep and a way to get to work. Food and clothes come next. To start, budget very small for clothing. Save the amount each month if you want or use it at stores like goodwill but to start, set aside about $25 a month for clothing. It's not a lot, but it'll get the job done when you need it to. Food is important too but dining out is expensive. Set aside $125 a month for groceries. That's not a lot either but it's actually more than enough for someone who's sensible about what they buy. I lived on that for more than enough time.
The last of the 5 necessities you need to save for is Medical Insurance. If you're not eligible to be under your parents coverage any more (you can covered by them if they let you until the age of 26) then your cheapest option is averaged about $36 (or less!) per month in my area for your premium (this doesn't include deductibles or co-pays if you get sick though, so be careful). A good tool to find out what plans you can apply for are at this website. Now that we have all of our 5 major costs out of the way, lets add it up.
Rent: $450.00
Gas: $50.00
Electric: $20.00
Transportation: $97.50
Food: $125.00
Clothes: $25.00
Medical: $36.00
Total: $803.50
Total left over subtracted from monthly income: $318.50
Wow! I bet you didn't think you could come away with over $300 in your pocket every month with a minimum wage job! It's only when you start to add in the other non-necessities that that pocket change gets smaller. Phone bills, internet, going out to eat, movies, and all that other stuff really starts to add up so when you do decide to do those things, make sure you budget for them. It is so incredibly important to live within your means. That means no taking out credit cards to pay for things you can't afford. No "Well I'm sure I'll make the money up later this month or next month!". And no "But it was just so (pretty, cool, new, nice, etc) and I deserve to treat myself!". Yes, you can treat yourself but dammit just listen to me and budget for it! Now if you were me, you'd put most of that $318.50 into savings accounts.
Savings accounts will do exactly what their name's say, save! They generate income for you just by leaving it there. It's always wise to have an emergency fund for unexpected disasters so start by putting $100 of that into your emergency fund. (This suggestion is actually a very strong one. There's a story in progress about my having to use my emergency fund, and boy am I glad that it's there.) Put another $100 in a retirement fund. It's not a lot now but you can always increase how much you put in later and trust me, when you're 70 you'll appreciate that you started putting away that $100 when you were so young. Now you have $118.50 a month to do with as you please! Save it for vacation, go to conventions, get cable or internet! You can add in budgets for furnishings, entertainment, basically whatever you want that's fun. This is a great place to start, and I hope it showed you that living on even the smallest amount of money is do-able. It's not so scary when everything's lined out in front of you like this. So get started! Make your own budget now! Let me know how yours works out and what you added and took out!
My Story:
I went back and looked at all my logged finances from my first three months living income and spending on my own. At the time I was just finishing working for the daycare and transitioning into nannying so everything fluctuated a bit. Here's the summary of the median amounts of all expenses for those three months:
Income: $1,808.00
Public Transport*: $100.00
Auto Insurance*: $108.50
Auto Payment*: $200.00
Auto Gasoline*: $41.00
Utilities: $34.33
Student Loan: $216.66
Music: $12.66
Groceries: $175.66
Furnishings: $90.66
Rent: $525.00
Hair: $0.00
Pet Food and Supplies*: $26.00
Clothing*: $42.00
Uncategorized**: $716.66
Short-term Savings: $288.00
Long-term Savings: $147.00
* Indicates that I didn't have these expenses every month. I stopped using public transportation after a month and bought a car so for two of the months logged there are auto insurance, payment, and gas instead. I also adopted a cat in the third month. The numbers in the lines are those of the median of however many months I had that expense. So two months of auto insurance divided by two. Or one month of cat expenses divided by one.
** Uncategorized is outrageously high because in the second month I bought a car as stated above and spend quite a pretty penny on it. This was a saved for item and has sense skewed my numbers to show you here.
If you add up and divide all of my transportation expenses by two, it comes to a rough $225 per month for those months. If you do this and ignore the uncategorized which was planned and saved for, I come out spending just under my income for each month. Not bad!
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