Like other generations, millennials have faced their own set of challenges in the transition to adulthood. For many, hefty student loan debt and entering the workforce in an economic recession have made their financial lives difficult, making money a touchy subject.
But whether you're a millennial several years into your career or a recent high school or college grad just starting out, you need a budget. Managing your money well -- no matter how much or how little -- can keep you in good financial shape now and in the future. Here's how to get started:
1. Look at the big picture
Before you tackle budget details, look at the big picture of your income streams and the accounts you use to manage them.
If you find you're not bringing in enough money from work - or if you need to find a job - start the hunt for something better. Take advantage of professional networking sites such as LinkedIn to connect with people who may have opportunities. If the job market in your area is particularly limited, consider relocating to a city with better prospects.
If you're currently underemployed or are looking to move up, give 100 percent to even the most mundane tasks to stand out and advance within your company.
Budget-readiness also involves having the appropriate savings and investment avenues. Open savings and checking accounts; also consider additional accounts for retirement and emergencies. Ideally, you should build an emergency fund with enough money to cover three to six months of living expenses. Additionally, participate in an employer 401(k) plan if it's available.
2. Create a budget
A budget allows you to live comfortably within your means with enough left over to save for long-term goals. Start by adding up all your income from employment and other sources such as alimony and inheritances. Then tally your monthly expenses. Include any debt you have, all basic living expenses such as rent, utilities, transportation and food, as well as meals out and other entertainment. A budget worksheet will ensure that no expenses are omitted.
Next, subtract expenses from income to get a picture of what you have to work with each month. You can then set goals and decide how the surplus should be invested. If your expenses exceed your income, you'll need to figure out how to cut expenses, perhaps by scaling down to a smaller home or car, or increase income by picking up additional hours or a better job. Tracking small daily expenses can help you see which can be reduced or eliminated.
3. Tighten your budget strategy
Once you've got your basic numbers, it's time to refine your plan. Remember to always pay yourself first and deposit something each month to savings. After that, pay basic living expenses and pay down any debt before spending on entertainment.
While everyone's financial situation is unique, this basic budget allocation works well for many: 50 percent toward living expenses, 20 percent to be divided among regular savings, an emergency fund and paying down debt, and 30 percent for entertainment. As time passes, revisit your budget.
4. Get help from technology
To make organization more convenient, consider working with free apps that allow you to manage a budget from your smartphone:
- Personal Capital: Use this app with iPhone, iPad or your computer to link all of your financial accounts in one centralized place. Personal Capital has a couple of helpful tools to help you better understand your cash flows, optimize your investments, and see all your money in an easy way.
- Mint: Use this app with iPhone, Android and Windows phones and link to bank, credit card, loan and investment accounts to track all activity. Set up a detailed budget with specific categories and receive alerts for bills as they come due or when account balances dip.
- LearnVest: This app links to accounts and files purchases into category folders. Users also get access to lots of relevant articles and info, which is particularly helpful to those new to managing finances.
- Level Money: Busy millennials craving simplicity might prefer Level Money. Instead of separating expense categories, this app for Android and iOs lets you know how much available cash you've got for the day, the week and the entire month.
5. Maintain healthy financial habits
Having a great budget is worthless unless you stick with it. These healthy strategies will help keep you on track:
- Put your financial goals in writing to maintain focus.
- Keep track of your credit score.
- Establish a separate email account for financial correspondence, bills and alerts.
- Set up an automatic savings plan for at least 10% of your income.
- Don't worry about keeping up with your friends; make lifestyle choices you truly can afford.
- Explore student loan forgiveness programs and consider debt consolidation. When possible, pay extra on your debt to reduce the amount of interest you will pay.
If you slip, forgive yourself and get right back on budget. Even with some inevitable mistakes, a budget is the first step toward home ownership, a comfortable retirement and other major financial goals.