Guide

Home > Money Guide

Budgeting Effectively In Your 20s

Hitting your 20s almost always coincides with entering into the practical mainstream where a lot of realities are opened up to you as you try and cope with the plethora of new responsibilities. As much as everyone in their early 20s loves having gained control of their life, gotten independent and largely unanswerable to elders, it still comes with a lot of new challenges. One of the major ones is the dreaded ‘budgeting’. Independence, remember?

While you try to make the hard decision of which of your favourite makeup palettes to let go in favour of pending bills or which of your beloved gaming consoles to stop dreaming of in favour of pending rent, we give you a roundup of how to effectively budget in your 20s; read below.

Audit your current expenses

The first step towards budgeting effectively and having a smooth-sail financially through your 20s is comprehensively auditing your current expenses. While you may believe that you know everything about where your money is going as a whole and this step is unnecessary, we still suggest that you do it. You’ll be surprised at what you get at the end of having laid down your expenses in detail. You will have clarity regarding what type of expenses (necessities, utilities, miscellaneous, impulse shopping, and luxuries) are getting the major chunk of your income. In order to budget better and smarter, clarity is essential. This step does just that. When you look into it in context of the fact that you have just started earning, you witness how much it teaches you about streamlining expenses.

Cut down where possible

Now that you have audited your expenses and know which head is getting more or less of your money, it’s time to go a step ahead and start cutting down where you feel is possible. If you go through your stuff, you will see how much extra you have that hasn’t been used in ages and probably will not be either. This should give you hope about the possibility of cutting down on expenses. While the utilities are a given and you have to set aside the required amount for them at all costs, it is the miscellaneous and luxury expenses that have the scope of being minimised. See if there is anything you can do without decently and start setting that money aside in your savings section.

Prescribe sections to your budget

The first two steps were the foundation stones of budgeting the right way. After having achieved them, it is now time to do the actual work and ‘budget’. As a general rule, the budget can be broadly divided into utilities/essentials that you cannot do without, financial responsibilities that you have chosen yourself, and finally your entertainment/shopping section. Go by the golden rule that states, “Don’t save what’s left after spending, spend what’s left after saving”. As such, you should first and foremost set aside money for your essentials which constitutes almost half of your income. Afterwards, it is the other financial responsibilities such as saving certificates and old age benefit funds that you contribute towards on intervals as a long term investment. These constitute about 15%-20% of your income. And finally, what’s left is made part of the entertainment, eating out and shopping heads. This makes up about 25%-30% of your income.

While you may adjust the percentages of these heads based on your economic realities, dividing this way broadly helps a great deal in your 20s when you’re not seasoned enough to calculate without categorising this way.