I created my first proto-budget when I was twenty years old. My analysis was simple. It only included my net income, monthly rent and a category for other expenses. Life back then was easy: I had no car, no debt, I biked to work, and warm food was provided in the cafeteria for free. As a result, I didn’t have car expenses, huge grocery bills or any other big expenses. Living was simple.
Because of this simplicity, I put off looking at my finances for a little while. It didn’t occur to me that anything can really be changed about it. After a month or so my curiosity overpowered my laziness and I decided to pull up a spreadsheet and did my very first analysis of my financial situation.
The budget clearly showed that I was spending almost half of my monthly net income on rent. Although it looked rather high, I decided not to take action immediately because everything was new: job, people, and place. However, after I got comfortable with my responsibilities and seen a couple of successful examples of people finding cheaper places to live I also started looking.
Luckily, after some research, verifying my lease arrangement, and reaching out, I was able to move out of the employer-provided housing in the third month of my internship. This decision had multiple consequences: I made friends I would have never have made otherwise and I was able to save up over half of my paycheck which I ended up using to help fund my higher education. But I digress… My point is, it all started with taking a closer look at my financial situation and daring to make a change.
The resulting budget had an extra $305 every month for me without having to do anything extra for it. This monthly saving turned into $2,745 over nine months. The total amount I was able to save during the year was about $10,000. I did this on $11 per hour.
This very simple example meant to illustrate six points:
- Keep an eye on your financials, the earlier you start making sound financial decisions, the more options you will have later.
- Making sound decisions regarding your budget doesn’t need to be complicated. A couple of cells in a spreadsheet should be enough to get started.
- Try and tackle monthly recurring expenses first. If you manage to re-negotiate a rent or a phone bill it will have significant savings for you on an ongoing basis.
- Question the status quo: never take elements of your budget as fixed or given. If a particular budget item is too high compared to your income then start looking for ways to change that. Research the topic by engaging your social network and the Internet.
- Review the fine print. Moving from one place to another can be stressful and depending on your lease it could cost you money. Always look at the fine print before you cancel a subscription or a rent.
- Above all: save as much of the cut in expenses as possible. Fight the temptation to spend it!
In this post, I showed how a simple it can be to create and interpret a simple budget analysis and how tackling your monthly fixed expenses (like rent) can result in additional savings over a period of time.
