According to an RBC poll, more than 80% of young adults believe financial stability is central to their overall happiness. Luckily, getting started is surprisingly easy. And the more you do it, the easier it gets. The poll also found that when young adults engaged in their finances, they are more likely to be confident in their ability to save (83%) and invest (60%).
To help you have more control over your money, we go over the importance of budgeting, how to build and maintain a basic budget and the different financial tools you can leverage.
Why is a budget important?
Creating and maintaining a budget is a powerful financial tool with many benefits. For one, it identifies your sources of income (when you have incoming money) and your expenses (when the money goes out of your account), usually on a monthly or yearly basis. That way you can stay on top of how much you earn and where you spend it the most and identify if there are ways to increase your income.
Arming yourself with this information can help you determine whether your spending is aligned with your financial values. This is key to understanding if your spending habits make you happy or feel dissatisfied.
How to create a budget
Now that you know the upside of budgeting, let’s get into how you can start building a budget. The good news is that budgeting doesn’t have to be complicated. With a few simple steps, you can create a budget of your own. Many people like to use a spreadsheet or budgeting app, but it can be as easy as writing the following information down on a piece of paper.
- Income: Calculate the total amount of money you bring in from all your income sources. List all your sources of money, including: scholarships, gifts, income from a full- or part-time job, a side hustle or dividends from your investments.
- Expenses: Next, determine what you spend your money on and list the total cost of each item. The most common spending categories for young adults can include: housing, transportation, food, health and fitness, subscriptions, memberships and entertainment. It can help to write a spending diary and go through last-month’s bills to ensure you don’t miss anything. And if you will likely owe any income tax at the end of the year, include that too.
- Savings: Make a list of the money you will put aside each month in savings, including money for your emergency fund and any savings goals you are working towards, such as a vacay next year.
What a basic budget looks like for young adults
Now that you know what to include in your budget, let’s have a look at a basic budget that includes all the items discussed above.
|Line item||Monthly amount|
|Rent and utilities||$2,178|
|Food (dining out/groceries/takeout)||$290|
|Net cash flow||$140.36|
How to monitor and adjust your budget
Now that you’ve put together your budget, the net cash flow shows how well you are managing your finances. If you have extra money left over at the end of the month, that means you are on the right track and spending below your means.
On the other hand, if you see that you have a negative balance, this signifies an opportunity for you to adjust your lifestyle. It doesn’t mean you have to give up your favourite latte every day, nor does it mean that you have to make big sacrifices. It’s about taking small steps, so it doesn’t feel like a drastic change to your way of life.