What’s the first thing that comes to mind when you hear the word ‘budget’? It’s probably something negative, right?
If budgeting is stressful for you or makes you feel like you’re limiting your lifestyle, you’re probably not doing it right. You’re also not alone. Budgeting isn’t always easy.
This is why it helps to think of a budget as just a spending plan for your money: a way to organize and stretch your dollars so you can live comfortably within your means. Budgeting can help you feel more in control of your money, avoid debt, save more, and meet your financial goals quicker.
Did you also know that budgeting changes with age? It’s true. We all go through different stages in life as we get older. Here’s how budgeting might look for you if you’re in your 20s, 30s, or 40s.
Budgeting in Your 20s
Your 20s can be an exciting time in life. This is when you’re finally starting to feel like a real adult and you’re probably either in college, working, or both.
If you went to school, there’s a good chance you may leave with some student loan debt. It also marks a time when you may be deciding if you can afford to live on your own, starting an emergency fund, and working your way up in your career. There’s no better time than now to set up a free bank account and a retirement account. And, while you’re at it, start budgeting so that you can start saving more money.
Because you are likely also working to increase your income, it’s probably best to using the 50/30/20 budgeting method. With this budgeting method, you dedicate 50% of your income toward essential living expenses like your housing, food, bills etc., and 30% to flexible spending and wants like cable/Internet, your gym membership, and dining out. Finally, you’ll put around 20% of your income toward debt and savings.
Keep in mind: these percentages are just a guideline. You can certainly save more than 20% of your income if you want to and have the means to do so. The idea is to develop a habit of allocating your money so you have enough to meet your needs and wants.
Budgeting in Your 30s
Your 30s brings a whole new load of changes that will affect the way you budget. You may still be paying down debt, but you also may be considering drastic life changes like starting a family, buying a house, or moving across the country for work.
Aside from the basic expenses in your budget, you may have to start thinking about saving for a down payment on a home, childcare costs, replacing your car, or making a career switch.
By this time, you’ve made a lot of mistakes in your 20s and learned more about yourself. You should also be at a point in your life where you have a clear understanding of your values and short-term goals. For these reasons, line-by-line budgeting may work well for you.
But, you can also start using a value-based budget which is a looser form of budgeting. With a value-based budget, you create spending categories and amounts based on your values after you’ve covered all your important living expenses. After you’ve scrimped and saved during your 20s, you may feel like you’re ready and able to spend more on what’s important to you – whether that be health, travel, spending time with family, growing a business, and so on.
When you spend based on your values, you also tend to spend less on unimportant things and more on things that matter to you.
Another budgeting option is an all-cash budget. This is great If you’re sick and tired of being in consumer debt and want to ditch living off your credit cards. Using an all-cash budget is one of the best ways to trim your spending so you can stop accumulating debt and pay off your existing debt faster. With this type of budget, it’s impossible to overspend.
Budgeting in Your 40s
In your 40s, your top financial priorities will likely shift once again. Retirement and saving will be among some of your top concerns, especially if you don’t want to work for the rest of your life.
You may also be interested in saving for your kids’ college expenses or diversifying your investments. You may even be looking for a way to make extra money or put more of your paycheck toward retirement savings. At this time, you might still be paying down your mortgage and dealing with home maintenance expenses.
The good thing: you likely have a much better idea of what’s important to you. This makes you a perfect candidate for the zero-sum budgeting method. With a zero-sum budget, you give every dollar a purpose so that you don’t have any money leftover at the end of the month.
This is a super intentional and organized budgeting method where you make use of every dollar you earn. This way, when you subtract your expenses from your income, you should get a nice even zero.
A zero-sum budget helps you make the most of your income so you don’t have the option to waste money on impulses. You can still budget for fun expenses like dining out, travel, date nights, etc. Yet, you are planning your finances so that you’re spending and saving more consciously.
Focus First on Your Budgeting Needs
There’s no one-size fit-all solution when it comes to budgeting and it has a lot to do with your age and where you are in life currently. That said, the budgeting styles mentioned above aren’t reserved for specific age groups.
You can use any budgeting method that works best with your goals and current needs. Just realize the way you manage money and organize your finances may change as your goals and lifestyle changes.