Ask an Intern: Building a Budget



pexels-rodnae-productions-7491011There comes a point in life where budgeting begins.  No matter how big or small the item you are saving for, there are things you will want to factor in if you are planning to pay on your own for the first time. When you were younger, it may have been that new video game or concert you saved up for, but now it’s more than just leisure activities and the odd impulse buy.

It can seem overwhelming having to pay for all your necessary expenses for the first time on your own. However, having a detailed budget will keep you on track to meet your goals and pay your bills each month. There are great financial tools and account features you can use to assist in setting spending limits each week. Mapping out your individual costs is the first step to building your budget. The next step is identifying which costs are necessities and which are luxuries. When it’s all put together, you can adjust how much money you need to meet your necessities, pay your bills, and still have fun.

The Line Items

Rent:  A necessity, and one of your largest expenses, is where you will live. Rent is a large portion of your budget when you decide to move out on your own. A good rule of thumb is for rent to come in at 30 percent or less of your total budget. Choosing somewhere to live that is cost efficient for your area is a good place to start. You can decide between an apartment or a house, knowing that costs can vary for different reasons. In the our Ask an Intern series, we posted a blog about Your First Place, laying out the positives and negatives for each housing option and the basic payments such as utilities, Wi-Fi, and lawn service.

Insurance:  Medical, dental, car, and health insurance are other large financial outlays to budget closely. You can save a large amount of money over a lifetime simply by choosing a provider that you can trust, has good history, and offers the best plan that you can afford with the highest coverage. Seeing what insurance plans your employer provides is something to consider when deciding between job offers. You may be comparing salaries or offers from multiple potential employers. Don't forget to consider whether the position offers benefits like insurance. This could be additional money on the table you don't want to walk away from.

Transportation:  Your mode of transportation presents another set of payments that must be factored into your budget in most areas. Car insurance, gas, and even a car payment may be some of the expenses that you will have to include in your budget each month. The cost of fuel is a line item that can easily add up and fluctuate from month to month. Don’t forget your car tag renews each year; factor that cost in your budget too.

Clothes: It might not be the most important line item, but clothes are something to keep in the budget to a certain extent. These would be clothing items that are more of what you need in your closet rather than items you want. If you are starting out your first full time position, you may have to invest in a more professional wardrobe. However, you don’t have to break the bank to achieve this. Refer to our Decode the Dress Code article to learn how to start building your first professional closet.

Pet Care:  Have any furry friends? Considering the cost of vet appointments (checkups, vaccinations, medications) is part of basic pet care, you'll want to earmark this as a category in your budget. Pet insurance is something to look into if you find that you and your pet are at the vet often. Do they need regular grooming appointments? Depending on the size of the pet, how often will you need to buy pet food? These are all extra bills that can add up very quickly if you are not prepared for each month. Providing Your Pet a Happy Home discusses all of these items in further detail.

Memberships/Subscriptions:  Memberships and subscriptions are components of a budget that may not be as expensive as your other payments. However, when too many unused memberships or subscriptions pile up, they can deduct from an overall budget more than you realize. This could be anything from your gym membership, video games, television streaming services, magazines, and many more. Consider the costs of these payments, if they worth the extra dollars each month, and how often they are used.

Emergency Funds:  Accidents happen, and sometimes there are emergencies or unexpected events that need to be taken into consideration. Setting up an emergency fund with a larger sum of money within your budget can ensure you have plenty of funds if (or when) you need them. Let’s say you blow a tire; that is a dip into your emergency fund. Need a root canal? Your insurance will pay a large portion; however, you will probably pay out of pocket as well. Experts suggest having an amount equal to 3 to 6 months of your expenses set aside as a goal for your emergency fund.

Cell Phone:  The cost of your cell phone is determined by your provider and your monthly plan. Depending on what plan you have, the cost of your bill could go up or down each month. It is best practice to round up to factor in extra costs if your bill tends to fluctuate monthly.

The Necessities:  Two components that are pretty much unavoidable when budgeting are food and hygiene/cleaning items. These are basic necessities of daily living. The cost of your groceries each month will need to be calculated, as well as any other items that you feel you use regularly and run out within a month’s time. Look at how much you purchase in groceries to determine how much discretionary spending can go to dining out which is more luxury than necessity.

Entertainment:  Entertainment costs can be a valuable part of your budget as long as it is adjusted for times of leisure outside of your necessities. This could be anything from buying a ticket for a sporting event, vacation costs, going to the movies, and many other fun activities, including dining out with friends. Although they are not a large part of your budget, entertainment expenses are something to consider as a healthy part of your cost of living.

Student Loans:  Recent statistics indicate 69 percent of graduating college students took out student loans. If you took out a student loan, be sure to stay on top of paying these bills. Take a close look at the impact student loans will have on your budget.

Put it all together-The Budget

Your budget will consist of the total of all your required monthly payments. Start by creating a spreadsheet listing your specific types of payments and expected costs. If the payments are different for each month, or are not exact, round the cost up to a higher number, so you can prepare for fluctuating prices. Add your costs for all months to get your annual cost of living. Your overall total costs will let you see if you are going to exceed or meet your budget. You may want to increase or decrease some of your expenses. As you add or subtract from these expenses, your monthly and grand totals will adjust.

Budget Worksheet Sample

Don't be intimidated by the topics of budgeting and wealth management.  Rather, stay mindful of all your expenses and try to make the best decisions by deciphering what are needs, what are wants, and what is doable. An added benefit to following a budget and paying your bills on time, is you will keep a good credit score.

Overall, budgeting provides you with the peace of mind that you know you will be able to pay your bills and accommodate your needs with no problem, no matter what life throws at you. With the use of these helpful tools and our services, your fist budgeting experience can be made simple and effective.

We Can Help You Budget at Bank Independent

Bank Independent offers a variety of Essential Student accounts designed specifically for young adults between the ages 15 to 25.  You can open yours today, online!

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Bank Independent does not endorse, nor is responsible for the content in the linked 3rd party websites. Bank Independent's privacy policies do not apply to these linked websites.