Making a Budget: The Key to Financial Freedom

Budgeting may sound old-school, but it’s the foundation for financial success. Whether you’re just starting out with your first paycheck or you're managing freelance income, creating a solid budget is one of the smartest things you can do. A well-planned budget ensures you know exactly where your money is going, helping you cover your needs while building toward your financial goals. Think of it as a roadmap for your money, guiding you to make smart decisions.

The 50/30/20 Rule: Tithe, Save, Spend

One simple way to approach budgeting is with the 50/30/20 rule, broken into three categories:

• 50% for Needs: These are essentials like rent, food, utilities, and transportation.
• 30% for Wants: Entertainment, dining out, shopping, and hobbies.
• 20% for Savings: Building up your emergency fund and long-term savings.

Some young adults also choose to incorporate tithing, where a percentage of income is donated to charity or their community—this could fit into the 30% wants category, or you might allocate a separate percentage for giving back. The goal is to find a balance that works for you.

Here’s a modern breakdown of the 50/30/20 rule with tithing included:

The 50/30/20 rule is flexible—you can tweak it to meet your needs, but the key is to stay consistent. Always ensure your essential expenses are covered, and prioritize saving as early as possible. You’ll thank yourself later.

Carrying Cash: A Tried-and-True Strategy

In today’s world of mobile payments and credit cards, cash may seem outdated. However, there’s something powerful about carrying physical money. When you spend cash, you literally feel the weight of the transaction, which can make you more mindful about your purchases. Studies show that people tend to spend less when they use cash compared to cards or digital payments.

Carrying cash also helps with sticking to your budget—once you’ve used your allotted cash for the week, that’s it. No overspending! Try the cash envelope method, where you set aside cash for specific categories (like groceries, entertainment, etc.). Once the envelope is empty, you know you’ve reached your limit for that category.

This graph shows that on average, people tend to spend less when using cash than when using cards. This is because cash makes you more aware of how much you have left to spend, encouraging better financial habits.

Building an Emergency Savings Fund

One of the most critical elements of financial health is having an emergency savings fund. Life can throw some unexpected curveballs—whether it’s a sudden car repair, medical bill, or even a job loss. Without a safety net, these moments can quickly spiral into debt. An emergency savings fund acts as a buffer, protecting you from having to rely on credit or loans when things go sideways.

Financial experts recommend having 3 to 6 months' worth of living expenses saved in an easily accessible account. Start small—if saving that much feels overwhelming, set a goal of $500 to $1,000 to get started. From there, build up as your income allows.

Building an emergency fund may take time, but consistency is key. Even if you can only save $50 a month, you’re making progress, and that fund will grow faster than you think. Remember, the goal is to have peace of mind knowing you’re prepared for anything life throws your way.

How-To Guide: Setting Up a Budget and Emergency Fund

Here’s a simple step-by-step guide to get started with budgeting and saving:

1. Track Your Income and Expenses: Write down everything you earn and spend for one month. This will give you a clear picture of where your money is going.
2. Create Categories: Break your expenses into categories like rent, groceries, entertainment, and savings. Don’t forget to include tithing or charitable donations if that’s part of your plan.
3. Set Spending Limits: Using the 50/30/20 rule as a guide, decide how much you’ll allocate to each category. Prioritize needs and savings first.
4. Use Cash for Some Categories: Withdraw cash for discretionary spending like entertainment or dining out. Once it’s gone, you know you’ve hit your limit.
5. Automate Your Savings: Set up an automatic transfer to your savings account every payday. This way, you’re building your emergency fund without even thinking about it.

By making a budget, using cash, and building an emergency savings fund, you’ll develop smart financial habits that will set you up for long-term success. Remember, financial freedom isn’t about how much you earn—it’s about how well you manage what you have.