What is a budget?
A budget is made up of four basic categories: needs, wants, debt, and assets. For example, knowing that rent is due on the 1st and setting aside enough to make sure you don't get evicted would fall into the needs category. That Starbucks daily venti pumpkin spice latte, while the caffeine boost might feel like a need, would fall into the wants section. The goal is to lay out a plan that allows for you to balance the things that make you happy while setting you up for financial success and meeting your long term goals.
Each of these categories will be based on a percentage of your monthly income. The percent will change based on what you want to accomplish. Just out of college with a new car and a handful of credit cards? You will probably need to start paying down that mountain of debt while starting to build an emergency backup savings. Looking to buy a house? A budget that focuses on investments can help you save up for that down payment!
Why should I have a budget?
A budget seems too simple and is easily skipped over with the justification "I know what I spend, I don't need to write it down". In the process of listing out all of your expenses, you will be surprised how much money you waste every month! Automatically putting money aside and investing can get you out of the paycheck to paycheck lifestyle that the majority of people are stuck in. Creating your personalized budget will make debt feel more manageable and give you confidence in the future.
How do I start?
ClinkUp has you covered! Our budget tool was built to make this step as easy as possible with no financial knowledge needed. You can keep it high level by dividing your expenses into your necessities, debt payments, optional entertainment, and investments. If you want to dig in and analyze everything, you can add every expense every month for each category. For example, your necessities might include $1000 for rent, $350 for groceries, $300 for utilities (plus internet), $100 for health insurance, $120 for car insurance; for a total of $1870 in the necessities category. If this needs category is over 50% of your monthly net income (after-tax) you will need to look for opportunities to decrease some of the expenses. Maybe you could get a roommate, learn to cook from scratch to reduce your grocery bill, or find a cheaper internet provider.
Apply the same concept to the other categories to pay down your debt (liabilities) and maximize your investments (assets). Our culture is built around consumption that entices us to spend outside of our means. Learn how to analyse your spending habits and why you spend so much on things you never use. ClinkUp's budget tool allows you to pick budget guidelines that align with our goals. Pick between the starter budget, debt payoff, or investment guidelines to change the percentages of each budget category suggestion. These percentages are strategically aligned to help you in each step of your financial journey.