Sincerely, Leslie
Dear Leslie,
Congratulations on your new job, and embarking on your personal finance journey! You’ve already identified making a budget, which will not only be the best way to ensure your financial stability but will also help reach your goal of getting an apartment. You say you want to be financially stable, and I want you to ask yourself what that means to you. For some, it could mean erasing all debt, while for others it means having emergency savings. It could even mean becoming financially independent from the help of parents or other family members. While everyone’s goals will be different, now that you have a permanent job, I would say that you should try to pay down any debt, set aside at least six months of your expenses in an emergency fund, and start planning for your retirement. Once you’ve decided what financial targets you need to hit to be “stable,” you are ready to make a budget, which will help you achieve them. You’ll want to gather up all your bills and expenses, and take a look at your spending. Ideally, your income should exceed your spending, including any bills you might have. Once you have your complete financial situation in front of you, you can decide how much money you should put towards expenses, savings, and more. Building your budget will also give you a good sense of whether your spending aligns with the goals you have for yourself. If you find it excessive, this budget will help you make the changes you need to achieve your financial goals. If you’re struggling to figure out just how much you should be putting toward savings, or investments, and even expenses, don’t worry. You can use the 50/30/20 budgeting rule to help you get started. This budget allocates half of your income to your needs, like rent and groceries. No more than 30% is designated for your wants, like a vacation or going out with friends, while the remaining 20% is earmarked for your financial goals, like getting that apartment you mentioned, savings, retirement, or investments. Now that you have a permanent job, I encourage you to see if your company offers to match any money you save for retirement. If so, you should take advantage of that benefit. After several months, you can reassess whether this budget formula is meeting your needs. Maybe you’ll want to save more, and dine out less. Maybe your expenses only take up 40% of your income, and not half. With a budget already in place, you’ll be able to make those changes easily. And as your financial situation evolves, I encourage you to revisit your budget often to accommodate new financial goals you might have or changes in your income. And to make it easy, there are plenty of apps and tools that will make a budget for you and track your spending, expenses, and income. Don’t forget to include things that you want into that budget. If you’ve been in a situation that you find financially unstable, it can be hard to give yourself permission to have some fun and spend the money that you’ve earned. But with an emergency fund set up, you should feel more comfortable with enjoying the financial position you are in now. Good luck! -Kristin If you have questions about money, Kristin is here to help. Submit an anonymous question and she may answer it in a future column. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
