06/ 14/ 2014
I didn’t actually begin sticking to a budget until my mid-20s. It wasn’t like I was completely unaware of my spending (I watched my bank account and didn’t go into any credit card debt). But creating and following a budget made me much more conscious of where my money was really going, helped me feel in control of my finances and made me better at saving money.
Let’s be clear: I am in no way a professional financial planner nor do I have any accreditations. However, I am interested in finance and have learned a little about budgeting over the years, so that’s what I’m planning to share with you.
Before I go any further, I must give a major shout out to my beautiful and patient mother—my financial guru. She’s taught me so much about managing money and much of what I’m sharing I learned from her, so thank you, mom! Here are my tips for creating a budget.
Establish spending categories. Of course these will differ from person to person, but some common categories are:
Determine your monthly income. If you’re salaried, this is easier to define.
For you freelancers, I know it’s a little harder to determine. When I was freelancing, I figured this out based on the annual pretax income I needed to make in order to survive (if you’re planning to move to New York City, this research by Dr. Amy K. Glasmeier at MIT should help you figure that out).
Side Note for Freelancers: it is vital that you understand what business and personal deductions you can take on your tax return. It is also important that you save a portion of each paycheck towards taxes (my tax preparer recommended 20% or 30% depending on how conservative I wanted to be). Check out this article, which gives a great introduction to planning for tax season—helping you avoid paying an enormous sum to Uncle Sam at the end of the year.
Break it down by percentage.
There are several ways to do this. My mother recently told me about the 50/20/30 Rule featured on Learn Vest. This is an excellent approach for anyone who is single, young and wants to stay on track, but doesn’t want to have a lot of expense categories.
Financial enthusiast Dave Ramsey recommends the following breakdown:
Charity: 10-15%
Savings: 5-10%
Housing: 25-35%
Debts: 5-10%
Food: 5-15%
Transportation: 10-15%
Medical: 5-10%
Personal: 5-10%
Recreation: 5-10%
Clothing: 2-7%
Keep in mind though that everyone is different. You may find that you actually spend only 22% of your monthly income on Housing and 10% on clothing. That’s fine, use these percentages as a baseline, and alter each one to fit your lifestyle.
SPENDING IN NEW YORK CITY
One of the best parts of NYC is having a myriad of options to choose from! Do you want to ride the subway everywhere or save money by biking? Or do you want to pay more in cab fare? Yes, NYC is definitely one of the most expensive places in the world; however you can make it work on any sort of budget because the options are limitless.
To help give you some sort of idea, this chart details what an average single person spends on certain categories:
WHEN BUDGETING ALWAYS…
Plan your budget from one month to the next. Every month is different, so plan accordingly.
Track your expenses. Budgets don’t work unless you take the time to keep a clear record of your expenses. Here are some phone apps you may consider:
I don’t personally use one, but I have some friends who recommend using budgeting software. You Need a Budget is supposed to be great and very user friendly.
Be realistic. You may think you can go month after month without buying new clothes, but the truth is, you will want to buy something eventually. I think building a good budget is very similar to following a balanced diet—you have to treat yourself every once in a while! Every time I’ve really restricted my spending, I often over indulged later on, so really think logically when setting up your budget. If you don’t end up spending it, you can always save it!
Here are some resources I’ve read or follow:
Books:
Websites:
Hope this post helps you plan your budget no matter what city you live in! Feel free to ask any questions and I’ll do my best to help.
—Jaime
Hey, Jaime–Just read this post (been on vacay) and wanted to say thanks for such great info. Maybe you SHOULD be a financial planner! Of course I have a question–hope you won’t mind. I’ve been doing a lot of rental searches online, and even a studio seems to run around 1800-2000$ in Manhattan, so I’m guessing the figures in your chart are if you have a roommate or two? Have a great weekend.
Hey Emily! No worries–questions are welcome. Yes, my chart factors in roommates. It helps a lot to have someone to live with as, I’m sure you can tell, living alone is expensive! Good luck with your search.