How young adults can budget and deal with higher costs
Reasonable budgeting tips for Gen Z
Gen Z is struggling to save. A higher cost of living, coupled with lower starting wages and student debt, is making it challenging for many to budget. This can delay important financial milestones such as buying a house and saving for retirement. And it increasingly means young people are relying on the bank accounts of mum and dad for longer, or even “doom spending” to soothe their economic despair. So what are reasonable budgeting tips, even when costs are high? We asked financial advisers and here’s what they said.
Set ground rules
When it comes to budgeting, setting some rules is a good place to start, said Mr Mark Struthers, founder of financial planning company Sona Wealth. The 50-30-20 rule, for example,recommends putting 50 per cent of your income on basic needs such as bills, rent and childcare costs, 30 per cent on wants such as restaurants and travel, and 20 per cent on savings. With the current cost of living, that model may seem impossible.But the rule can be tweaked, with the percentages changed to 70-20-10 or 80-10-10, for example, he said. The structure allows for people to feel more in control of their finances and have some discipline. “Even if the rule of thumb is not a perfect fit, it’s most often better than nothing,” he said.
Ms Paulson said this approach allows for people to move away from a budgeting rule that makes them feel bad about spending, and instead lets them take control of what they want for themselves. She advises trying to get as close to 20 per cent in savings as possible, although she says that includes contributions to retirement funds. “Then you can slice and dice your flexed budget how you want,” she said. If you want to go for a fancy celebration and spend the whole amount on one dinner, go for it. Just plan to eat frugally the rest of the month.
It’s important to make room for expenses that come once a year, said Ms Selina Flavius, founder of the Britain-based advisory Black Girl Finance. Expenses such as holidays,birthdays, car maintenance, housing insurance and taxes can hit a budget pretty hard, but often fall once or twice a year, not every month. It’s good to plan ahead and set some money aside every month for when those charges hit.
“Working backwards, looking at realistic time frames and factoring in bumps in the road can help you save reasonably,” she said.
Set some money aside for fun expenses such as travel, a movie or a restaurant from time to time, said Ms Paulson, or you’ll never be able to stick to your budget. Having a budget that allows no wiggle room for fun purchases can end up back firing, she said, as people then tend to give up and over spend. “Having some ‘fun’ money will help you stay motivated and on track to reach your goals in the long run,” she said.
Source: The Straits Times © Singapore Press Holdings Limited. Permission required for reproduction.
Information correct as at 13 April 2024.
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