Creating a budget might seem overwhelming at first, but it's a crucial step toward financial independence and achieving your goals. This guide is for young adults with low to moderate incomes, working entry-level jobs, and possibly living with parents or roommates. Let's dive into how to make a budget that's practical, easy to follow, and helps you use resources like First Alliance Credit Union's budget calculator and financial products.

Step 1: Calculate Your Take-Home Pay

Your budget starts with knowing how much money you bring home each month, known as your take-home pay. This is your salary after taxes, insurance, and other deductions. If you have multiple sources of income, such as a part-time job or side hustle, include those as well.

Calculating Your Take-Home Pay Example

Net Monthly Income:

• Main job: $1,800

• Side hustle: $300

• Total: $2,100

Understanding your net income is crucial because it’s the actual amount you have to budget with. Gross income (total earnings before deductions) can give you a false sense of financial security.

Step 2: List Your Monthly Expenses

Your budget works best when all your spending remains within the amount you allocate for each line item expense. These include both fixed expenses (rent, car payments) and variable expenses (groceries, entertainment). Use bank statements, receipts, or a budgeting spreadsheet to track these. For this budget example, we are looking at Bailey, a 24 year old working full time for $15/hr., plus has a side hustle making $300 a month, she shares an apartment with two roommates. 

Fixed Expenses:

• Rent: $500

• Utilities: $100

• Car payment: $200

• Insurance: $150

Variable Expenses

• Groceries: $250
• Gas: $100
• Entertainment: $75
• Miscellaneous: $50
  
  

Total Monthly Expenses: $1,425

Remember to account for occasional and annual expenses. These might include car maintenance, medical expenses, or subscription renewals. When you know where every dollar is going, you can find the best ways to save money and earn interest,  and you’ll be able to put money in your savings.

Step 3: Set Realistic Financial Goals

Identify your short-term and long-term financial goals. Short-term goals might include saving for a trip, while long-term goals could be paying off student loans or building an emergency fund.

Financial Goals Examples

• Short-term: Save $1,200 for a summer trip to Thailand.

• Long-term: Build an emergency fund of $3,000.

Setting realistic goals helps you stay motivated and provides a clear direction for your budgeting efforts.

Step 4: Create a Budget Plan

Now, compare your total income to your total expenses. Use this to set spending limits and allocate money towards your goals. This is where a zero-based budget can be helpful, where every dollar has a job.

Budget Plan Example

Income:

• Total Income: $2,100

Expenses:

• Fixed Expenses: $950

• Variable Expenses: $475

• Savings for Trip: $250

• Emergency Fund: $100

Remaining Balance: $325

According to one Gallup poll, only a third of Americans actually keep a household budget. Using a budget calculator, like the one offered by First Alliance Credit Union, can simplify this process. It helps you see where your money is going and adjust your budget accordingly.

Create  a Budget Worksheet Today!

Step 5: Utilize High-Interest Savings Options

An important part of budgeting is ensuring your savings are working for you. First Alliance Credit Union offers high-interest Certificates of Deposit (CDs) that can help grow your emergency fund faster. CDs typically offer higher interest rates than regular savings accounts, making them an excellent tool for building your savings.

Benefits of High-Interest CDs

• Higher interest rates than regular savings accounts.

• Fixed terms that help you avoid the temptation to spend your savings.

• Secure and reliable growth of your emergency fund.

Consider setting aside a portion of your savings into a CD to maximize your interest earnings and build a more substantial emergency fund.

Other Saving Options

At First Alliance Credit Union, we  love seeing our members make  smart financial decisions, like building up their savings. That's why we offer WINcentive  Savings Accounts, which provide the excitement of winning cash prizes without any risk. Even if you don't win a prize, you'll still end up with more money than you started with. For every $25 increase in your balance each month, you earn entries into various prize drawings, making saving fun and rewarding. 

Start saving with a WINcentive Account Now!

Step 6: Plan for Debt Repayment and Credit Building

Managing debt and building credit are essential parts of a solid financial plan. First Alliance Credit Union offers personalized plans to help you pay down debt and build credit.

Tips for Managing Debt

• List all debts: Include credit cards, student loans, and personal loans.

• Prioritize high-interest debt: Focus on paying off debts with the highest interest rates first to save money in the long run.

• Make consistent payments: Set up automatic payments to avoid missing due dates.

Building Credit

• Use credit responsibly: Only borrow what you can afford to repay.

• Pay on time: Timely payments are a significant factor in your credit score.

• Monitor your credit: Regularly check your credit report for errors and track your progress.

Utilizing First Alliance Credit Union’s resources, such as debt management plans and credit-building products, can provide structure and support to achieve your financial goals.

Step 7: Adjust and Track Your Spending

Monitor your spending regularly and make adjustments as needed. Use budgeting tools like First Alliance Credit Union’s budget calculator or apps to keep track of your expenses and ensure you're staying within your limits.

Budgeting Tips

• Use a budgeting-friendly shopping list: Plan your purchases to avoid impulse buys.

• Track your expenses daily or weekly: Use a budgeting spreadsheet or app to keep tabs on your spending.

• Adjust your budget as needed: Be flexible and make changes if your financial situation shifts.

Tracking your spending helps you stay accountable and make informed decisions about your finances.

Step 8: Review and Revise Your Budget Regularly

Review your budget at the end of each month to see how well you stuck to it. Make adjustments based on changes in income or expenses. This practice helps you stay in control and adapt to any financial changes.

Monthly Review Checklist

• Compare actual spending to your budget: Identify areas where you overspent or underspent.

• Update your goals: Adjust savings or debt repayment goals based on your progress.

• Plan for upcoming expenses: Include any known expenses for the next month.

Regular reviews ensure your budget remains realistic and aligned with your financial goals.

Real-Life Budgeting Examples

Let's look at some real-life examples to see how budgeting can help achieve specific goals. By following a structured plan, it's possible to save money effectively while still covering essential expenses. These examples will show how young adults can manage their finances to reach their dreams. 

Example 1: Saving for an Epic Trip to Thailand

Income:

• Main job: $1,800

• Side hustle: $300

• Total: $2,100

Expenses:

• Fixed Expenses: $950

• Variable Expenses: $475

• Savings for Trip: $250

Remaining Balance: $425

First you should figure out your vacation costs. In this case, by allocating $250 a month, a 22-year-old can save $1,200 in five months, enough for an epic trip to Thailand. Using First Alliance Credit Union’s budget calculator can help ensure every dollar is accounted for and savings goals are met efficiently.

Get started setting your vacation budget!

Example 2: Family Building an Emergency Fund

Income:

• Combined monthly income: $4,000

Expenses:

•  Fixed Expenses: $2,000

• Variable Expenses: $1,000

• Emergency Fund: $500

Remaining Balance: $500

A family can build an emergency fund of $3,000 in six months by saving $500 monthly. They can further grow this fund by using First Alliance Credit Union’s high-interest CDs, ensuring their emergency savings earn maximum interest.

Conclusion

Creating a budget is essential for managing your finances and achieving your goals. Start by calculating your take-home pay, listing your expenses, setting realistic goals, and tracking your spending. Utilize resources like First Alliance Credit Union’s budget calculator, high-interest CDs, and debt management plans to enhance your budgeting efforts. Adjust your budget as needed and review it regularly. With these steps, you'll be on your way to financial stability and achieving your dreams.