Now that you know how to pay for things you absolutely need in order to survive, let’s move forward and look at the things you want to pay for in order to more than survive.
Whatever you have leftover from your paycheck(s) after you pay for the necessities is called a discretionary income. You can use your discretion (hence the name) to decide what you want to spend it on. It can be difficult to not go overboard or not budget enough for these things–keep in mind what we talked about concerning indulging.
Here’s what I suggest– figure out the minimum you need or want to spend on each of these things, then do the math to figure out if you have any discretionary money left over and then go back and add more on to things you want. Some things are easy, for example, your gym membership is going to be the same each month. Some are harder, for example you don’t need a haircut every month (probably) so that budget will change from month to month.
Now, entertainment is a whole other animal. You need to take a quick second to figure out how often you do fun things and how much they cost. Do you like going to the movies once a week? Do you get popcorn when you go? That’s $15 a week times four weeks is $60 a month for movies at least. Like to go out and eat and drink with friends? Let’s say you get an entree at a mid-scale restaurant. That’s $15 with tax and tip, maybe. Then you go out for drinks with friends at a bar; you get three drinks and buy a round for friends? That’s $40 easily including tax and tip (and that’s at a cheap bar, where each drink is $6). If you like doing this at least once a week, that’s $220 a month for restaurants you have to put aside.
If this sounds too complicated you can do what I like to call the EZ-Fun Method: Income-necessities-known discretionaries (gym, educations, health/beauty costs, travel, finances)= leftover amount can be used for all the entertainment/restaurants/shopping it can get you.
The two that can be most intimidating for people our age is travel and finance–but they’re important. If you go home for the holidays, have a week-long trip you want to take with your significant other when your vacation comes up at work, or if you have a big European tour you want to take, you have to save money for it. Figure out the exact cost of your trip (listen, if you can’t figure out how much a Spring Break trip to Mexico is going to cost you, you shouldn’t go. I don’t care. Don’t forget any shopping you want to do wherever you go.), then divide that amount by how many months you have until the trip date. That amount is how much you have to save a month, which you have to budget for. If you can’t afford to save that much monthly, then you obviously can’t really afford the trip– either push the date back, cut back on some of your other discretionary budget items to prioritize the trip, or get more money.
Financial. What is that doing on your budget? You need to plan to put money away to either make more money or to use later. Allocate $50 a month (or more or less) to investing. Grow that money! Or put some away to save for a special plan– wedding, car, house, huge trip abroad, whatever. Whenever you plan on paying for this special thing, divide the amount you want saved by the months you have until the big day and that’s how much you need to put away a month.
Education (books, fees, etc):
Entertainment (movies, recreation, etc):
Shopping (shoes, games):
Health/Personal (gym fees, doctors, haircuts, waxes, mani/pedis etc):
Financial (investing, loaning money, non-emergency savings, etc):
Notice how savings and retirement wasn’t on the list? That’s because they’re things that you should just do automatically–before necessities and discretionary. You cannot afford not to save and plan for retirement. Trust me. How do you figure out how much you should save and put away for retirement? Luckily we’ve already covered saving.
For retirement, it gets complicated; I’m going to make an entirely separate post about retiring, but for now, just pick a flat amount per month, like $25-100 a month and put it in your savings. When we cover what kind of accounts to put your retirement money in, you can just transfer what you’ve already saved for retirement. Since you’re starting so early, you can afford to put in less per month, as long as you’re putting in something.
Congratulations! You’re continuing to take control of your finances.