Managing Expenses and Budgeting: The Key to Financial Freedom

Budgeting isn’t just something your parents nag you about—it’s the foundation of financial success, especially for young adults. Learning how to manage your expenses can make the difference between thriving and just getting by. It's like being the boss of your own money: you tell your cash where to go instead of wondering where it went.

Many young adults find themselves living paycheck to paycheck because they don’t understand where their money is going. You might think, “I don’t make enough to need a budget,” but the truth is, the earlier you start managing your money, the easier it will be to reach your goals—whether that’s saving for a car, traveling, or even retiring early.

Why Budgeting Matters

A budget is a plan for your money. It helps you track your income and your expenses, so you don’t accidentally overspend or fall into debt. Without a budget, it’s easy to waste money on things that aren’t priorities. For example, spending $50 on takeout a few times a week can quickly add up, costing you hundreds each month. By creating a budget, you’ll learn where to cut back, how to save, and where to allocate funds for things that matter.

Budgeting also helps you prepare for unexpected expenses. Imagine your car breaks down, or you have a sudden medical bill. Without savings or an emergency fund, you’d have to rely on credit, which could lead to debt. Setting aside money each month for savings ensures you’re prepared for life’s surprises.

The Basics of Budgeting: 50/30/20 Rule

One of the easiest ways to start budgeting is by using the 50/30/20 rule:

• 50% of your income should go toward needs (rent, groceries, utilities, etc.)
• 30% goes toward wants (eating out, entertainment, shopping)
• 20% goes toward savings or paying off debt
• This breakdown helps you see what’s essential, where you can cut back, and how to set money aside for the future. Below is a visual example of how the 50/30/20 rule looks for someone earning $2,000 a month.

This chart shows how you can allocate your income using the 50/30/20 method. It simplifies the process and makes managing expenses easier.

Managing Expenses: Needs vs. Wants

The first step to managing your expenses is understanding the difference between needs and wants. Needs are essential—things like rent, groceries, and transportation. Wants are the extras—like dining out, video games, or streaming subscriptions. It’s okay to enjoy some of your money, but if you spend too much on wants, you may struggle to cover your needs or save for future goals.

Take a moment to list out your monthly expenses and categorize them as needs or wants. This exercise can help you identify areas where you might be overspending. For example, if you’re spending more on dining out than on groceries, that’s a red flag that you might need to adjust.

Tracking Your Expenses

Tracking your spending is key to sticking to your budget. Apps like Mint, YNAB (You Need a Budget), or even a simple Google Sheets document can help you record your expenses and categorize them. By tracking every dollar, you can make sure you stay within your budget and aren’t surprised at the end of the month when your bank balance is lower than expected.

Once you have a few months of spending data, you can analyze where your money is going and adjust accordingly. Maybe you realize you’re spending too much on subscriptions you don’t use, or you’ve underestimated your grocery bill. Tracking expenses allows you to make informed decisions about where to cut back and where to invest more.

How Budgeting Helps Build Wealth

Budgeting isn’t just about surviving—it's about thriving. When you control your expenses and save, you’re building wealth. Setting aside money for investments or future goals (like buying a home or starting a business) becomes easier when you’ve mastered the art of managing your expenses. Plus, once you get into the habit of budgeting, you’ll find it empowering. Knowing where your money goes gives you control over your financial future.

Graph: The Power of Saving $100 a Month

This graph shows the impact of saving just $100 a month at a 5% interest rate over time. You’ll be surprised how quickly your savings can grow!

Managing your expenses and budgeting aren’t just about living within your means—it’s about building a solid foundation for your future. By mastering these skills early, you’ll set yourself up for success and avoid financial stress down the road. Remember, being smart with money isn’t about having a lot of it; it’s about managing what you have wisely.

There's a useful tool below that you can download and use for practicing and calculating your budgeting and expenses on your own.