Being oblivious to the cost of living until you start earning money is a very common scenario. Rent, groceries, and utility bills take up a large chunk of your income. Add to that, you will have the burden of stashing away money for getting a foot on the property ladder. There has been a drop in interest rates, which is good news for those looking to buy a house. A further abatement in interest rates is also expected in months to come though it is far off.

Budgeting paves the way for being in the saddle. Many people find it boring to jot down each expense in a diary. Use budgeting apps if you do not take kindly to a manual spreadsheet.

There are various methods of budgeting, and each budget is aimed at a particular financial situation.

• A bare-bone budget assigns a purpose to each penny. It can help solve your temporary financial problems. The purpose of a zero-based budget is to allocate each penny to an expense until it turns out to be zero.
• A pay yourself budget is the one that helps you with building your savings by stashing away money as soon as you receive your paycheque. The amount you will put by every month depends on your expenses including debt payments such as personal loans.
• Envelope budgeting helps you create envelopes for every expenditure such as utilities, food, travel and entertainment. You will meet your expenses from the respective envelope.
• A 50/30/20 budget will put half of your income towards your essential expenses, 30% towards your discretionary expenses and 20% towards your savings.

Your budgeting methods will keep changing every now and then, depending on your financial goals.

Budgeting strategies for young adults

Here are the budgeting strategies that you can consider to control your finances as a young adult:

• Create an emergency cushion

Regardless of your income, you should stow away part of it for a rainy day. Emergencies can catch you off guard at any time, and you must have some savings to put you back on track. In spite of an emergency corpus, you may need to rely on a loan, but it will not be a larger sum.

As your income grows, you should start saving for big expenses like a deposit for your house. If it is a bit difficult to save enough down payment within a given timeframe, start living with your parents and put the money you save on rent in your savings. You should always aim at saving first and then spend the rest income. Consistency is the passport to have enough savings.

• Enlighten yourself

Just savings are not enough to ensure being in control of your finances. You should start investing money. Understand the importance of a diversified portfolio. Read financial books and online resources to gain information on investing strategies.

In the future, you may need personal loans for some of your expenses. Find out how the cost varies between lenders and credit unions. Figure out ways to build your credit history. Use your credit card smartly.

Listen to podcasts on money management. Podcasts can help you know how you save money on car insurance and ways to manage your debt responsibly and whittle down your monthly expenses.

• Pay with cash

You should try to use cash for almost all transactions as it will let you gain clear insight into how much you have already spent. The use of a credit card is not a bad idea as long as you aim to boost your credit rating. Credit cards are recommended to make small transactions.

Make sure you record that in your expenditure list and set aside money so you do not struggle with payments when the bill is generated. Use a debit card if you use a budgeting app. Most of the apps are linked to your pay account and fetch all transactions in one place. You do not have to post entries manually if you use a debit card.

• Pay off debt

Take your debt seriously. Missing a payment can cause a wreak havoc on your credit score, making it complex to avail yourself ofaffordable interest rates. In the future when you apply for loans for 10 years, for example, your lender must examine your credit file. Chances for getting affordable rates are very low when you have insufficient or poor credit history.

At the time of taking out a mortgage, you should be free from your debt obligations to help improve your chances of getting the nod. Use your credit card smartly. Lenders do check a credit utilisation ratio to assess the lending risk. You should settle your balance before your lender informs it to credit reference agencies. In addition, keep your debt-to-income ratio low as well.

• Practise frugal habits

Frugality is the best technique to stay on top of your expenses. Many people make a budget but do not use it appropriately. A budget aims to control your expenses by providing you with a detailed summary of each penny spent.

Spending is a major problem that ruins your budget. Avoid impulsive buying. Make sure you create a shopping list and stick to it. Buy generic products. Branded cosmetics and clothes can cost you “an arm and a leg”. Buy in bulk if it helps save you money provided goods are not perishable.

The final word

You can think that it is too early to start budgeting, but it is not. A budget helps you monitor your expenses to prevent overspending. Create an emergency corpus and a separate savings account for planned expenses.

Budgeting is an ongoing process. Financial goals keep changing as you grow old, and so does your budget. Use different methods of budgeting because no budget is one-size-fits-all. Take the help of your parents to create a budget that works for you. Having a partner will also help you stick to your budget.