Beginner Finance: Budgeting

Budgeting.  One word no college student, or adult for that matter, wants to hear.  It means we can’t get our Chipotle and Starbucks today, and that makes everyone sad.  However budgeting doesn’t necessarily have to change your lifestyle, just your way of thinking.

Let me put this in perspective: the government raises taxes by 10%, what do you do?  You complain and moan about how bad the government is and that your tax dollars aren’t going to good use, but in the end, you pay it.  Well let’s think about budgeting as if it were a tax on yourself, in order to pay yourself in the future.  That 10% of your income that you set aside now comes straight off of your check and into a proven index fund (or other investment of your choice) to start earning interest and grow with the market.   You are in essence paying your future self, along with interest, with the money you’re saving now.

The best way to keep yourself faithful is to immediately take that percentage of your income that you want to save out of your paycheck.  Most companies give you an option to divert parts of your income to different accounts.  Allocate a certain amount every month to be set aside in your brokerage account to be invested.  You never have the money in your checking, so you don’t get a chance to throw it away on things you don’t need.

Start small.  Don’t eat that Chipotle and Starbucks, but instead take that $15 and put it into an index fund.  Start with 5% and work your way up to the 10, 15, and if you really want to get ahead, 20% savings margins.  Easing your way into a simpler lifestyle, and using the motivation that your money will grow exponentially with time and interest will give you the peace of mind to skip that White Chocolate Macchiato.  if you saved $15 a week for an entire year, you would have $800 in capital that you could invest at the end of that year.  That’s definitely a nice chunk of change for any young investor to start with.

Another fantastic way to budget your money and compound your gains is to take all of the extra money that you get throughout the year like tax refunds, gifts, raises, and bonuses and put them into that savings.  These extra funds should not be counted on year to year in your budget to begin with, and they are the icing on the cake when it comes to investing.  They give you extra capital to invest and profit off of.

Things get tough, and sometimes you cave in and get that extra thing you’ve really wanted.  That’s okay!  I’m not saying you have to starve yourself or go without.  Do what you can with what you have, and even the smallest amount of money every month can add up to large gains if invested correctly.  Outside of lottery winners, no one becomes a millionaire over night, but consistency and looking towards the future will give you the motivation to save what you need.

If you have any comments or questions, feel free to leave a message below or email me at David.coleman@collegeinvestr.com.  Thanks for reading!

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