Take control of your finances with these budgeting tips for young adults

According to an RBC poll, more than 80% of young adults believe financial stability is central to their overall happiness. Luckily, getting started is surprisingly easy. And the more you do it, the easier it gets. The poll also found that when young adults engaged in their finances, they are more likely to be confident in their ability to save (83%) and invest (60%). 

To help you have more control over your money, we go over the importance of budgeting, how to build and maintain a basic budget and the different financial tools you can leverage.

Why is a budget important? 

Creating and maintaining a budget is a powerful financial tool with many benefits. For one, it identifies your sources of income (when you have incoming money) and your expenses (when the money goes out of your account), usually on a monthly or yearly basis. That way you can stay on top of how much you earn and where you spend it the most and identify if there are ways to increase your income.

Arming yourself with this information can help you determine whether your spending is aligned with your financial values. This is key to understanding if your spending habits make you happy or feel dissatisfied. 

How to create a budget

Now that you know the upside of budgeting, let’s get into how you can start building a budget. The good news is that budgeting doesn’t have to be complicated. With a few simple steps, you can create a budget of your own. Many people like to use a spreadsheet or budgeting app, but it can be as easy as writing the following information down on a piece of paper. 

• Income: Calculate the total amount of money you bring in from all your income sources. List all your sources of money, including: scholarships, gifts, income from a full- or part-time job, a side hustle or dividends from your investments.
• Expenses: Next, determine what you spend your money on and list the total cost of each item. The most common spending categories for young adults can include: housing, transportation, food, health and fitness, subscriptions, memberships and entertainment. It can help to write a spending diary and go through last-month’s bills to ensure you don’t miss anything. And if you will likely owe any income tax at the end of the year, include that too.
• Savings: Make a list of the money you will put aside each month in savings, including money for your emergency fund and any savings goals you are working towards, such as a vacay next year. 

• Investments: Create a section for any money that you are regularly putting towards your tax-free savings account (TFSA), registered retirement savings plan (RRSP) or first home savings account (FHSA).
  Calculate your net cash flow: Subtract your total expenses, savings and investments from your total income. This is your net cash flow (a positive or negative amount), and it will show you whether you have a surplus or deficit at the end of the month.

What a basic budget looks like for young adults

Now that you know what to include in your budget, let’s have a look at a basic budget that includes all the items discussed above. 

How to monitor and adjust your budget

Now that you’ve put together your budget, the net cash flow shows how well you are managing your finances. If you have extra money left over at the end of the month, that means you are on the right track and spending below your means.

On the other hand, if you see that you have a negative balance, this signifies an opportunity for you to adjust your lifestyle. It doesn’t mean you have to give up your favourite latte every day, nor does it mean that you have to make big sacrifices. It’s about taking small steps, so it doesn’t feel like a drastic change to your way of life.

For example, if you see that you have a monthly gym membership but aren’t using it as much as you thought you would, consider putting it on hold or cancelling it. You can look up other fitness activities that you’ll enjoy doing that may be more cost-effective, such as an app on your phone. Or, if you live in a condo or apartment, it’s worth checking to see if they have fitness facilities or classes included in your monthly rent or maintenance fees. 

Remember, it takes time to make and adjust to these changes. There’s no hard and fast rule when it comes to finding a good balance between spending and saving. If you learn to develop and stick with these smart habits, over time you’ll make progress and see positive results.

What financial apps are available?

Using a financial app or tool can help make managing your money easier. There are different options to choose from, including free tools available through most major banks, which allow you to easily check your bank balance and financial statements. I typically log into my online bank account on a weekly basis to double-check that all the transactions are correct. 

Beyond the major banks, popular financial apps like YNAB (You Need A Budget) and Mint can provide you with a big-picture overview of your personal finances.

One of my favourite tools is a classic Excel spreadsheet. In my household, we have multiple spreadsheets where we track our monthly and yearly budgets, savings goals and net worth. If you are in a relationship where you and your partner share financial responsibilities, it’s an excellent tool to help you keep tabs on your finances. More importantly, it can help start the conversation about how to better manage your money.

However, you choose to build your budget, doing so will give you insight into your current financial situation. There are many tools at your disposal to help you make informed money decisions. Feel free to experiment with multiple apps to see which one suits you best. Over time, you’ll start to reap the benefits of budgeting.

Video: Why open a high-interest savings account?

Read more Making It columns:

• How to improve your credit score

• How to manage money as a student
• Listen up Gen Z: How to invest as a young person
• 6 money lessons I wish I knew in my 20s

About Sandy Yong

Sandy Yong is a personal finance writer, TEDx and Keynote speaker, and the award-winning author of The Money Master. She’s been featured in hundreds of media outlets including CTV News, Global News, Forbes, The Globe and Mail and The Toronto Star.

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