When I was little, perhaps too young to grasp the concept of money, I got confused as to why my dad would disappear for most of the day. Where did he go, and why? Rather than confusing me with an exhaustive description of the nature of his job, my Dad would simply reply, “I’m just making pennies, honey.”
“So I can put food on the table, sweetie.”
To my 3-year-old mind, that simplified explanation made perfect sense—pennies, after all, were a unit of money that I could identify with. Sometimes, at the end of the workday, my dad would beckon me over to his desk and pull out neatly wrapped stacks of pennies from his drawer. I would stare at them, wide-eyed, as though I had stumbled upon a great treasure trove. In the simplicity of a child’s eyes, that stack of pennies seemed like a fortune. My dad was rich! Look at how many pennies he had!
But as I grew older, I quickly realized that it takes a lot more than pennies to make a viable living. Life is pretty darn expensive. Trash bills, water bills, electric bills, rent bills, Internet bills, credit card bills—there are hidden costs lurking at every turn. Every week, I spend more than $40 at the gas pump alone—a whopping $200 per month spent on just getting around. I cringe just thinking about it.
Now that I’ve entered the workforce, I’m now “making pennies” for myself. Which is both exciting and, at times, overwhelming. When you find yourself with a steady source of income for the first time, it can be tempting to go AWOL and recklessly spend your paychecks on purchases like new shoes and sushi dinners and fancy cocktails. So if you’re young and financially clueless like me, how do you ensure that you’re living within your means? That, my friends, is where a budget comes in.
Budgets are probably the best way to moderate spending and manage funds. Every month, you want to reserve the majority of your paycheck for the “basics”—rent, bills, etc. In addition to these regular monthly expenses, it’s also prudent to put money into savings every month—after all, you never know when you might need to tap into an emergency fund for circumstances like a medical crisis or car accident. Here are some basic steps to formulating a personal budget (trust me, if Ms. Mathematically Challenged over here can do this, so can you):
1). Start by examining your monthly take-home earnings (i.e., whatever is left after taxes and 401k contributions and health insurance fees are taken out). You might want to refer to your first full paycheck for this number.
2). Next, add up all of your expected monthly expenses—for example, rent, utilities, Internet, cable, gas, weekly groceries, etc. It’s okay to give a rough ballpark for some of the expenses if you’re unsure, but in general it’s always better to overshoot than undershoot the numbers.
3). Figure out how much you want to put towards your savings every month. As a bare minimum, try to shoot for at least 5 percent of your paycheck.
4). Add up numbers 2 & 3, and subtract this figure from number 1. This is how much “disposable” income you have to work with.
5). Now, calculate your weekly or daily budget (personally, I like to boil it down to a daily number because this keeps me more accountable, but it’s simply a matter of personal preference). To do this, take the value of #4 and divide it by 4 (as in weeks) to find your weekly budget or 30 (as in days) to find your daily budget.
When I first went through the exercise of calculating a personal budget, I was initially alarmed by how small my budget seemed. There’s no way I can live off that, I thought, panicked, imagining myself subsisting off canned tuna for the rest of my days. I secretly mourned the fact that the majority of my income would be going towards daily living expenses—not “fun” things like clothes or manicures. But three months later, I’m happy to report that I’ve had no problem sticking to my tight budget. It’s taken a few attitude adjustments, to be sure—and a healthy dose of self-discipline (read: no online shopping!)—but I’ve actually ended up saving a considerable amount of money since I started my job.
Reflecting on it, I’ve realized there was a deeper significance to my dad’s concept of “making pennies.” Life isn’t about making a fortune; the best things in life cost pennies, or nothing at all. Things don’t make you happy; people and experiences do. Now that I’ve drastically scaled back my spending, I’m much more apt to spend my hard-earned cash on social experiences (i.e., dinner with friends) rather than a dress that I’ll wear a few times and get sick of.
For Christmas this year, I got my dad a pair of cufflinks shaped like pennies. “You know, for when you go to work and make pennies,” I explained with a smile (needless to say, my dad got pretty choked up about this—he’s a softy). He now wears his special penny cufflinks to the office everyday, and sometimes colleagues will notice them and inquire about the significance behind them. It’s a pretty cute story, if you ask me.