Building Your First Budget: A Guide for Millennials and Gen Z
Starting your financial journey can feel a little overwhelming, especially when it comes to budgeting. Whether you’re fresh out of college, just starting your career, or navigating life on your own for the first time, getting your finances organized is crucial. But where do you start?
Good news—creating a budget doesn't have to be a daunting task. In fact, it can be an empowering experience that helps you take control of your finances, save for the future, and reduce financial stress. In this blog, we’ll walk you through the basics of building your first budget and highlight how Farmers State Bank’s (FSB) online banking tools and app can make budgeting easier than ever for you.
Why You Need a Budget
First things first—why do you need a budget? A budget is essentially a plan for your money. It’s about making sure your spending aligns with your income, setting aside savings, and giving you the ability to plan for both short-term and long-term financial goals. Think of it as the roadmap that helps you get where you want to go.
Whether you're aiming to build an emergency fund, pay off debt, save for a vacation, or invest in your future, a budget is the foundation of financial success. Without one, it’s easy to lose track of where your money goes and end up overspending, leaving you with little to show for your hard work. On the flip side, a well-planned budget can help you feel more secure, confident, and in control of your financial future.
Step 1: Understand Your Income and Expenses
The first step in building your budget is understanding how much money you have coming in and how much is going out. Let’s break it down:
Income
Your income is the total amount of money you earn regularly. This can come from your job, side gigs, freelance work, or other sources like investments or family support. It’s important to be realistic about how much you’re bringing in after taxes. If you’re salaried, this is relatively easy to calculate, but if you’re paid hourly or freelance, it may vary from month to month.
Pro Tip: Always calculate your income based on your net income (after taxes), not your gross income (before taxes), so you get an accurate picture of what you have available to work with.
Expenses
Once you’ve got your income nailed down, the next step is to assess your expenses. Expenses can generally be divided into two categories: fixed expenses and variable expenses.
- Fixed Expenses: These are expenses that don’t fluctuate much from month to month. They include things like rent, utilities, car payments, insurance, and loan payments. These are essential for your daily life and typically don’t change unless you make a significant life change (e.g., moving or switching insurance providers).
- Variable Expenses: These expenses change depending on your lifestyle and habits. They include groceries, dining out, entertainment, shopping, and even things like your monthly streaming subscriptions. While these costs are necessary, they can be adjusted more easily based on your budget goals.
Tip: Many people overlook small daily expenses like coffee runs or casual shopping trips. Tracking even these small purchases can have a huge impact on your budget in the long run.
Once you’ve identified your income and expenses, the goal is to see where your money is going. FSB’s Personal Finance Management (PFM) tool in online banking and the mobile app can help you categorize your expenses and track your spending in real time. This tool helps you visualize where your money is going each month, making it easier to identify areas where you can cut back or adjust.
Step 2: Set Realistic Financial Goals
Now that you have a clear understanding of your income and expenses, it’s time to set some realistic financial goals. Without clear goals, it’s easy to lose motivation or direction. Think about what you want to achieve financially in the short and long term.
- Short-Term Goals: These could include things like saving for a new phone, going on a vacation, or paying off a small credit card balance. These goals typically take less than a year to achieve and often require you to save a specific amount of money.
- Long-Term Goals: These might include saving for a down payment on a house, building an emergency fund, or saving for retirement. Long-term goals take years to achieve, but they’re just as important because they help set the foundation for your financial future.
Once you’ve identified your goals, break them down into smaller, actionable steps. For instance, if you want to save $1,000 for an emergency fund within six months, you’ll need to save about $167 per month. Breaking it down into monthly targets makes the goal feel more achievable and less overwhelming.
Pro Tip: Be realistic when setting your goals. It’s tempting to set big, ambitious goals, but if they aren’t realistic for your current financial situation, you may become discouraged. Start small and work your way up.
Step 3: Create Your Budget
Here comes the fun part—putting everything together! The most common budgeting method is the 50/30/20 rule, which is simple and easy to follow:
- 50% of your income goes to necessities (e.g., rent, utilities, groceries, transportation).
- 30% goes to discretionary spending (e.g., dining out, entertainment, shopping).
- 20% goes to savings and debt repayment (e.g., emergency fund, retirement, student loans, credit card debt).
This rule provides a good framework to get started, but you can adjust it depending on your unique financial situation. For example, if you have high student loan payments, you may want to allocate more money toward debt repayment and less to discretionary spending. Or, if you’re saving for a big purchase, you might adjust the percentages accordingly.
Pro Tip: If you have debt, consider prioritizing paying it off as part of your savings goal. The faster you pay off high-interest debt (like credit card debt), the more money you’ll have to save for future goals.
The FSB Budgeting Tools
Once you’ve got your budget set up, the key to success is tracking your spending. This is where FSB’s budgeting tools come into play. FSB’s Personal Finance Management (PFM) tool, available through both online banking and the mobile app, automatically categorizes your spending into clear, easy-to-understand categories. It also provides charts and graphs that visually represent where your money is going, which makes it easier to stick to your budget and adjust as needed.
FSB’s mobile app is especially helpful because it allows you to access your budget and financial information on the go. Whether you’re out shopping or grabbing lunch, you can quickly check your budget status, track your spending, and make adjustments as needed. Plus, the app sends you spending alerts if you’re getting close to hitting your budget limits in specific categories, ensuring that you stay on track.
Step 4: Review and Adjust Regularly
One of the most important aspects of budgeting is flexibility. Your financial situation can change from month to month—whether you get a raise, experience an unexpected expense, or have a month where you’re able to save more. It's essential to review and adjust your budget regularly to stay on top of your goals.
FSB’s budgeting tools make it easy to adjust your budget in real-time. You can update categories, shift money around, or reallocate funds as needed. Plus, the tool allows you to track your progress toward your savings goals, helping you stay motivated and on track.
Pro Tip: Every few months, do a “budget check-up.” Review your income, expenses, and goals to see if they’re still aligned with your current situation. If you’ve paid off debt or received a raise, adjust your budget to reflect these changes.
Step 5: Automate Your Savings and Payments
One of the easiest ways to stay on top of your finances is to automate savings and bill payments. Automating your finances takes the guesswork out of budgeting and ensures that you’re consistently saving for your future, without having to think about it.
FSB offers several features that allow you to automate your savings and bill payments. You can set up automatic transfers into your savings account each month, ensuring that you’re consistently building your emergency fund, saving for big purchases, or contributing to retirement. You can also automate your bill payments, so you won’t have to worry about late fees or missed payments.
Bonus Tip: Automating your savings is especially effective if you’re saving for specific goals. For example, you can set up automatic transfers to a separate savings account for your vacation fund or down payment fund. That way, you’re always working toward your goals, even if you forget to manually transfer money.
Conclusion
Building a budget doesn’t have to be a chore. With the right tools, planning, and mindset, it can be an empowering way to take control of your financial future. By using FSB’s online banking and mobile app, you can simplify the budgeting process, track your spending, and set meaningful financial goals—all with ease.
Remember: the goal of budgeting is not to restrict yourself but to give you more freedom and confidence with your finances. So take the time to build a budget that works for you, and don’t be afraid to use the tools available to help you along the way. With a little planning and the right mindset, you’re on your way to achieving your financial goals—one step at a time.