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A 6 step guide for a millennial budget – Free the Nickel – Medium

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How to build a simple and kickass financial plan

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Budget. budg-et. budge. it. This word is just gross.

Being on a budget sucks. It implies a deliberate effort to limit yourself.

Instead of a budget, let’s call it a financial plan. A plan is a detailed roadmap to help you accomplish your goals. So let’s make a financial plan.

Step 1: Know how much money is coming in

You know what your salary is, but do you know how much of that you take home? Your take home pay is the amount deposited into your bank account each pay period.

I’m going to be real with y’all — I didn’t know what mine was. I had a general idea, but when I downloaded my pay stub I realized I was off by kind of a long shot. As a self-professed personal finance connoisseur, this was disturbing.

Once you pull the number, calculate your take home pay as a percentage of your gross income. Gross income is your pay before any taxes, deductions, and withholdings.

For example:

  • $100,000 annual salary
  • $4,167 gross income twice a month ($100,000 / 24 pay periods)
  • $2,900 take home pay twice a month
  • $2,900 take home pay / $4,167 gross income = you take home 70% of your gross income.
  • Your annualized take home pay is $2,900 * 24 pay periods, so $69,600.

As you go about your life, learn to interrupt the thought, I have $100,000 to do with as I please! You actually have less than $70,000.

I live in California, and state income taxes are hella high. A big, jealous high five from me to the folks that live in one of the 7 states without state income tax (looking at you, Texas and Washington friends).

Step 2: Know how much money is going out

I know. This is the pandora’s box you’re probably not dying to open. But you just have to. At least every once in a while.

The quick-and-dirty approach is to open your most recent bank statement. At the top, they provide a monthly summary:

  • Balance at the beginning of the month
  • Deposits (how much money entered your account that month)
  • Withdrawals (how much money exited your account)
  • Balance at close of month: Beginning month balance plus Deposits minus Withdrawals

You will want to look at the Withdrawals summary for the past few months (if you have transferred money to other accounts or made investments, exclude that from the total). How much do you spend a month? Free tools like allow you to track monthly spend with little to no effort.

The best way to take an honest, deep dive into your spending habits is to track it for a month by hand. It sharpens your awareness on habits you may not even know you had.

Don’t know what tool to use? No sweat. I built an easy-to-use daily spend tracker for you.

Step 3: Identify patterns in your spend

What categories are you spending the most money on? Are you spending absent-mindedly, or are your purchases bringing you a lot of value?

Marie’s asking… does it spark joy?

Research believes that millennials spend more than other generations on comforts and conveniences. I see nothing wrong with this, as long we still hit our overall savings goals.

For the average millennial, eating out is a huge spend category. Turns out, half of us spend more at restaurants than we do saving for the future. How much value are we deriving from this? Are we eating out for enjoyment or out of laziness?

Source: CNBC Make It

If you want some inspiration, or to feel solidarity about your situation, or even to gloat a little that at least one person sucks at money more than you do, check out Refinery29’s money diaries.

Lastly, if you already feel like you are watching every dollar you spend and making good choices, you may need to tackle a bigger lever to make a dent in your cashflow: like finding cheaper housing.

Step 4: Make a plan

What habits do you feel capable of changing? A few examples to get the brain juices flowin’:

  • Add up how much money you spend on lunch during the work week. Maybe last month you purchased lunch 15 times for an average of $12 per lunch. That’s $180/month. Did you get $180 of value out of those meals? Try cutting this down to 8 lunches out a month, which will save you $84.
  • You purchase four $5 coffees a week. That’s $80 a month. Can you make coffee at home, and reduce this to one coffee out per week? This will save you $60 a month.
  • Do you find yourself looking at the clock, realizing it’s 8pm and you haven’t had dinner yet? Instead of ordering UberEats, try to keep your fridge and pantry stocked with the essentials, like eggs, cheese, pasta, and sweet potatoes for easy, cheap, last-minute meals.
  • Transportation costs add up fast. In a night out with friends, you only bought one drink at the bar, but you spent $15 on Lyft each way. Try using public transportation, walking, or biking instead.

As for your plan, list out all the categories you spend money on and then pick a target monthly spend in each. I’ve built a free, easy-to-use, customizable planning tool for you.

As a first pass, don’t go too big on cutting expenses, or you will set yourself up for failure. Pick 1–2 categories to tackle at a time. Then the next month, pick 2 new categories. For example, month 1 focus on reducing your restaurant/coffee/bar spend, and month 2 on reducing your transportation costs. This is all about developing the muscle for sustainable spending habits.

Fortunately, a lot of strategies for cutting expenses, like drinking less alcohol or cooking at home more, not only save you money but are good for your general health too.

Your modified habits will build over time, and in just a few months, you’ll have cut your “mad money” spending in half.

Step 5: Track actual performance against your plan

You planned to only spend $20 this month on coffee. How’d you do?

Don’t forget to update your spend diary to track your progress on a daily basis.

Step 6: Modify your plan

How did it go? Did making these changes lessen your quality of life?

Maybe you really hated packing your lunch everyday, and instead decide you’re going to save that extra $200/month by biking to work instead of taking Lyft. It’s all about understanding the tradeoffs and prioritizing what’s important to you, while accepting you can’t have it all.

Maybe, it didn’t feel all that difficult to make these changes. Maybe you want to get more aggressive! You go, Glen Coco. Get after it.

If this feels like a lot of work, I understand. This may be the first time you’ve thought about money in a minute (or maybe ever), so tackle it one step at a time. Today, start with identifying your take home pay. Tomorrow, figure out how much you spent last month. The day after, make a pass at building your financial plan (it doesn’t need to be perfect first try, or even second or third). The only wrong approach is to not do anything at all.

“The confidence competence loop”

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