Budgeting Crash Course

We know that many of you are starting to deal with your own money and have questions about managing your money. We asked Fidelity Bank to share some key advice.

The financial habits you form now will be with you the rest of your life, so you might as well start working on them now.

Know how much money you are earning

If you’ve already received your first paycheck, you know that your check (net income) will not match the number you get when you multiply the hours you’ve worked by your hourly wage (gross income). Taxes are deducted from your earnings so the amount of your paycheck will be less than what you might have expected.

What other options do you have to earn income? Maybe you work in an industry where you can earn tips, receive an allowance or gifts from relatives, or have a side hustle where you can earn some extra cash?

Keep track of the money you have coming in for at least four months to determine your average monthly income. Now you’ve got the first part of your budget journey figured out.

Know how much money you are spending

You need to track what you’re spending your money on if you don’t want to live paycheck to paycheck. Just like you’re tracking your income, keep a list of your expenses. Include items like transportation (gas, car insurance, RTA passes), cell phone use, coffee, entertainment… you get the idea.

Your first budget

Subtract your expenses from your income each month. Any money you have left is your “discretionary income,” in other words, money you have to spend or save that month after your necessary expenses are taken care of. Next, think about how you want to use that money. Maybe you want to spend 50% of your leftover money on entertainment (movies, video games, etc.), 40% on food (coffee, eating out with friends, etc.) and save the remaining 10%.

Be honest about NEEDS and WANTS

You need to be honest with yourself when you are looking at your expenses. In the simplest of terms, a need is a have-to-have, while a want is a want-to-have. Do you really need that $5 cup of coffee before school? Can you make a cup before you leave your house? Do you really need that new outfit or the latest iPhone? Needs and wants are unique to each individual.

Use a debit card instead of cash

If you don’t want to carry a large amount of cash with you, use your debit card instead. Be careful, the debit card deducts the amount of your purchases from your account when you make the purchase. If you don’t have enough money in your account, the transaction will not go through. Should a debit card not work for you, try a prepaid debit card. These cards allow you to store a fixed amount on the card. As you make purchases, the balance reduces. This can be a helpful way to control your spending; once you’ve spent the balance you placed on the card for any given month, you won’t be able to go over your budget.

The three jars

Get into the habit of splitting your income into three jars. The first jar is for spending, the second is for savings, and the third is for giving. Allocating your income into these jars allows you to take care of immediate needs or wants, plan for future needs or large purchases, and to give back to those less fortunate. It’s up to you to determine how much you want to put in each jar and the amounts can fluctuate from month to month depending on your individual budget. The trick here is to create a plan and stick to it. Mastering this habit will help you effectively manage your money for years to come.

Write it down

If you don’t write your budget down, you won’t follow it. Start off with a monthly budget. Then break it down into weekly budgets. Why weekly? If you overspend, or have a reduction in income, you can adjust your budget immediately instead of having a larger shortfall at the end of the month. Some folks even create daily plans; when they’ve used all of their money for the day, they stop making purchases. The key is to create a plan that works for you.

These are just a few of the items you can start working on now to effectively manage your money. As you get older, budgeting will become more complicated. But if you master these basic concepts, you’re setting yourself up for being in control of your finances in the future.