How do I operate a budget?
December 28, 2011 11:51 AM
Personal Finance and budgeting 101 for the low income world traveler.
I'm a guy in his mid-20s looking to make the most out of a financial situation that's pretty meager and is likely to stay that way for a while. I'm looking to learn the basics of budgeting, investing, long-term savings, etc... While I have a fairly low income (~20-25k a year), I also have no debt, and very few expenses.
My goals are kind of basic: travel the world for the next few years, hopefully pick up an undergrad in the next 5-7 years (possibly while traveling,) and stay out of debt while I do those things. I'm qualified and experienced in teaching EFL (in places that it's possible without a degree.)
What resources exist to help me reach these goals? People, books, blogs, software?
I'm a guy in his mid-20s looking to make the most out of a financial situation that's pretty meager and is likely to stay that way for a while. I'm looking to learn the basics of budgeting, investing, long-term savings, etc... While I have a fairly low income (~20-25k a year), I also have no debt, and very few expenses.
My goals are kind of basic: travel the world for the next few years, hopefully pick up an undergrad in the next 5-7 years (possibly while traveling,) and stay out of debt while I do those things. I'm qualified and experienced in teaching EFL (in places that it's possible without a degree.)
What resources exist to help me reach these goals? People, books, blogs, software?
mint.com
It allows you to see exactly where your money is going, as well as enabling you to develop a budget and savings goals.
posted by Sara C. at 12:04 PM on December 28, 2011
It allows you to see exactly where your money is going, as well as enabling you to develop a budget and savings goals.
posted by Sara C. at 12:04 PM on December 28, 2011
Umm a degree.
And I'm already using Mint, but it's not always the most user friendly when you don't know the basics of budgeting.
posted by slartibartfast at 12:05 PM on December 28, 2011
And I'm already using Mint, but it's not always the most user friendly when you don't know the basics of budgeting.
posted by slartibartfast at 12:05 PM on December 28, 2011
How do you plan to pay for your undergrad degree by traveling?
Budgets basically are some form of Income - Taxes - Expenses. Income - Taxes should be greater than Expenses. You say you earn $25k per year, before taxes, I assume. Strip out the taxes you pay on that, and figure out how much expenses you can incur. And then travel.
But I don't understand where education comes into play here.
It's hard to answer your questions regarding resources without some more info about what country you're located in, where your citizenship is, what country you want to study in, etc.
posted by dfriedman at 12:13 PM on December 28, 2011
Budgets basically are some form of Income - Taxes - Expenses. Income - Taxes should be greater than Expenses. You say you earn $25k per year, before taxes, I assume. Strip out the taxes you pay on that, and figure out how much expenses you can incur. And then travel.
But I don't understand where education comes into play here.
It's hard to answer your questions regarding resources without some more info about what country you're located in, where your citizenship is, what country you want to study in, etc.
posted by dfriedman at 12:13 PM on December 28, 2011
The Basics of Budgeting 101:
Don't spend more than you bring in. If you want to save money, spend considerably less than you bring in.
Figure out what your needs are and where you can cut back. For instance I know that in order to have a living situation which works for me in my city, I really can't get my rent below about $700/month. On the other hand, painful as it may be, I can live without a daily visit to the neighborhood coffee place.
What I like about mint is that I can look at previous months' expenditures to figure out about what I ought to be spending. My cell phone costs about $75 a month, every month (unless I go way over on data or something, which I almost never do). So it's easy to set a budget of $75/month for the cell phone. Now I can devote energy to budgeting for stuff that's more variable and needs more fine-tuning, like groceries or entertainment.
The other trick is to look at stuff that's falling through the budgetary cracks. If you have your nice budget all laid out, and yet you're still spending more than you're earning, where is that money going, exactly?
posted by Sara C. at 12:17 PM on December 28, 2011
Don't spend more than you bring in. If you want to save money, spend considerably less than you bring in.
Figure out what your needs are and where you can cut back. For instance I know that in order to have a living situation which works for me in my city, I really can't get my rent below about $700/month. On the other hand, painful as it may be, I can live without a daily visit to the neighborhood coffee place.
What I like about mint is that I can look at previous months' expenditures to figure out about what I ought to be spending. My cell phone costs about $75 a month, every month (unless I go way over on data or something, which I almost never do). So it's easy to set a budget of $75/month for the cell phone. Now I can devote energy to budgeting for stuff that's more variable and needs more fine-tuning, like groceries or entertainment.
The other trick is to look at stuff that's falling through the budgetary cracks. If you have your nice budget all laid out, and yet you're still spending more than you're earning, where is that money going, exactly?
posted by Sara C. at 12:17 PM on December 28, 2011
I don't know of any resources, but I can see how this might work: Work like a dog for 6 months out of the year (2 or 3 jobs) and live like a hermit. Then spend the other 6 months traveling and picking up work where you can. I don't see where going to school would fit in, though.
A better idea: Go to school like a regular person for 3 years, working like a dog the whole time and saving a little cash. Study abroad your 4th (and possibly 5th) year and do your travelling then (and after). You'll still accomplish both goals, have a softer landing if you end up needing it, and make contacts overseas that can help you tremendously should you choose to keep traveling.
And finally, if you really want to do this, you need to make more money and be more marketable. Go to a trade school or learn a skill that can make you money wherever you go. Conversely, I've known people (only women, though) who traveled all over Europe waitressing and getting paid under the table.
posted by coolguymichael at 1:04 PM on December 28, 2011
A better idea: Go to school like a regular person for 3 years, working like a dog the whole time and saving a little cash. Study abroad your 4th (and possibly 5th) year and do your travelling then (and after). You'll still accomplish both goals, have a softer landing if you end up needing it, and make contacts overseas that can help you tremendously should you choose to keep traveling.
And finally, if you really want to do this, you need to make more money and be more marketable. Go to a trade school or learn a skill that can make you money wherever you go. Conversely, I've known people (only women, though) who traveled all over Europe waitressing and getting paid under the table.
posted by coolguymichael at 1:04 PM on December 28, 2011
Get Rich Slowly is a fantastic blog for personal finance.
I am a fan of the envelope technique. Figure out how much you can spend on each thing each month (or week or whatever) -- food, clothing, housing, etc. and put that much in an envelope.
posted by k8t at 1:38 PM on December 28, 2011
I am a fan of the envelope technique. Figure out how much you can spend on each thing each month (or week or whatever) -- food, clothing, housing, etc. and put that much in an envelope.
posted by k8t at 1:38 PM on December 28, 2011
This is frustratingly vague. What do you mean 'a world traveler'? Do you plan to live and work in multiple different countries, and so you need a solution that will work with a French then Spanish then Algerian bank account? Then Mint won't help and you need at the least a country-agnostic system, which will involve a lot more manual work. Do you just mean 'I plan to spend 6 weeks a year on vacation in different countries from my main life studying/working in the USA'? Then you just need generic 'how to budget, and travel cheap' advice.
posted by jacalata at 3:23 PM on December 28, 2011
posted by jacalata at 3:23 PM on December 28, 2011
Sorry to frustrate. I think I made the classic MeFi mistake of giving too many details for the question. I think my goals are actually completely irrelevant.
I have a pretty good idea of how much I need to make to pull this off. I just want to know is how to work a budget beyond "I'm going to spend X amount every month, and I'm going to save Y amount every month." Personal finance does get more complex than that, right?
posted by slartibartfast at 3:49 PM on December 28, 2011
I have a pretty good idea of how much I need to make to pull this off. I just want to know is how to work a budget beyond "I'm going to spend X amount every month, and I'm going to save Y amount every month." Personal finance does get more complex than that, right?
posted by slartibartfast at 3:49 PM on December 28, 2011
Honestly, not really.
There are ways of getting better about knowing where your money is going.
There are ways of fine-tuning your expectations of what to spend and how to spend it.
Depending on what your lifestyle is like, there may be ways to increase the input or decrease the output.
But that's about it. It's not magic. Unfortunately.
posted by Sara C. at 4:00 PM on December 28, 2011
There are ways of getting better about knowing where your money is going.
There are ways of fine-tuning your expectations of what to spend and how to spend it.
Depending on what your lifestyle is like, there may be ways to increase the input or decrease the output.
But that's about it. It's not magic. Unfortunately.
posted by Sara C. at 4:00 PM on December 28, 2011
I just want to know is how to work a budget beyond "I'm going to spend X amount every month, and I'm going to save Y amount every month." Personal finance does get more complex than that, right?
Well, if you get that bit right you are most of the way there because getting that bit wrong is the beginning of all personal finance evils....
And until you have saved a decent buffer of living expenses in an accessible format that's as complicated as it gets. Once you have enough income to save over and beyond that you may consider other elements of personal finance. To do so start to learn about the higher level elements of personal finance with the sources people have already recommended while you build up your savings buffer.
posted by koahiatamadl at 4:01 PM on December 28, 2011
Well, if you get that bit right you are most of the way there because getting that bit wrong is the beginning of all personal finance evils....
And until you have saved a decent buffer of living expenses in an accessible format that's as complicated as it gets. Once you have enough income to save over and beyond that you may consider other elements of personal finance. To do so start to learn about the higher level elements of personal finance with the sources people have already recommended while you build up your savings buffer.
posted by koahiatamadl at 4:01 PM on December 28, 2011
Not really, if you can do that bit you're pretty much there.
There are two other potentially complex areas: figuring out what Y should be, and then figuring out how to reduce X or Y if they come to more than your income. Most people are bad at this and come up with unrealistic plans, which makes them fail at 'just spend X'.
So to calculate Y, your goals are actually kind of relevant, but only in the sense that you think you'll need $A per year towards flights, $B per year to cover tuition, and you'd like to be saving $C per year towards a house/retirement. You should also (first, even) aim to have $D in an accessible emergency fund for a broken leg/sudden funeral back home/typhoon. $D is often calculated at 'six months living expenses'. Figuring out C requires you to analyse your personal choices - do you want a house? Where? Where will you retire? What kind of living standard will you need? Is this going to be your 'low income' 5 years and you expect to be making twice as much after this, so it might not be worth living on ramen now so you can save an extra $50/month?
Seconding the recommendation of Get Rich Slowly. If you're the kind of person who likes reading a bunch of 'ambient information', you could just start with all their budget-related articles. Or they have a lot of articles about finances and travel, including people living overseas. This post contains some retirement calculators you can look at.
If you just want to read one article, this post is 'how to start' guidance for an 18 year old - it may not all be applicable, but it's a good jumping off point.
posted by jacalata at 4:25 PM on December 28, 2011
There are two other potentially complex areas: figuring out what Y should be, and then figuring out how to reduce X or Y if they come to more than your income. Most people are bad at this and come up with unrealistic plans, which makes them fail at 'just spend X'.
So to calculate Y, your goals are actually kind of relevant, but only in the sense that you think you'll need $A per year towards flights, $B per year to cover tuition, and you'd like to be saving $C per year towards a house/retirement. You should also (first, even) aim to have $D in an accessible emergency fund for a broken leg/sudden funeral back home/typhoon. $D is often calculated at 'six months living expenses'. Figuring out C requires you to analyse your personal choices - do you want a house? Where? Where will you retire? What kind of living standard will you need? Is this going to be your 'low income' 5 years and you expect to be making twice as much after this, so it might not be worth living on ramen now so you can save an extra $50/month?
Seconding the recommendation of Get Rich Slowly. If you're the kind of person who likes reading a bunch of 'ambient information', you could just start with all their budget-related articles. Or they have a lot of articles about finances and travel, including people living overseas. This post contains some retirement calculators you can look at.
If you just want to read one article, this post is 'how to start' guidance for an 18 year old - it may not all be applicable, but it's a good jumping off point.
posted by jacalata at 4:25 PM on December 28, 2011
I can heartily recommend a bit of software called You Need A Budget, which has a cross-platform desktop program and both iPhone and Android companion apps. It has a great methodology, a very supportive user base with active forums and it has managed to keep myself and my wife solvent and happy for more than four years, even while on one income and managing two moves and multiple large, unpredicted expenses. The big thing about it is working off a one month buffer so you can prepare for emergencies before they take you to zero balances. It's a fantastic piece of software and I can't imagine managing my money without it now.
posted by Happy Dave at 12:26 AM on December 29, 2011
posted by Happy Dave at 12:26 AM on December 29, 2011
Oh, and I would add something - the key to good budgeting is awareness. A lot of budgets and budget software tend to lead you towards figuring out something after the fact, with things like automated imports of bank transactions. You carefully figure everything out in your budget categories, spend away for a couple of weeks and then do an import and reconcile and find out you've blown your budget by a mile. My preference (which is well supported by YNAB) is for very regular transaction entry. It sounds onerous, but if you make it a habit, keep your receipts and/or use the smartphone app to track as you go, it becomes second nature. Knowing exactly where your money is going is hugely powerful and once you've been doing it for a while you'll have a much more accurate and useful budget based on real-world numbers rather than informed guessing. You can relax a little after a time (I put my transactions in a couple of times a week now, rather than every day as I used to) because you'll have the financial awareness and breathing space to do so, but starting off with precise tracking is the best possible thing you can do, even if you just write it down in a notebook.
posted by Happy Dave at 5:24 AM on December 29, 2011
posted by Happy Dave at 5:24 AM on December 29, 2011
I tried all the budgeting apps, I eventually went with Excel. It forces me to be aware of my spending as I track them daily. Also with Excel, it gives me the option to set up tripwires to alert myself when I'm approaching my limits or not making enough money.
Budgeting takes practice really. The first step is to make a list of ALL the expenses you would expect to spend in the month, and keep track of EVERYTHING you spent for at least a month, from there you can look for places to trim the fat.
I second Happy Dave that Budgeting = Awareness. It's a form of mindfulness, which takes practice.
posted by pakoothefakoo at 6:14 PM on December 31, 2011
Budgeting takes practice really. The first step is to make a list of ALL the expenses you would expect to spend in the month, and keep track of EVERYTHING you spent for at least a month, from there you can look for places to trim the fat.
I second Happy Dave that Budgeting = Awareness. It's a form of mindfulness, which takes practice.
posted by pakoothefakoo at 6:14 PM on December 31, 2011
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posted by k8t at 12:01 PM on December 28, 2011