In my last post I gave a simple overview of how to create your very first budget. In my example with $1000 fixed monthly income, I estimated about $350 left over after essential payments such as rent, utilities and groceries (realize that my example was grossly simplified). This short article will look at recommendations of what to do with that "excess" cash.
The first thing I do at the beginning of the month when I am formulating my monthly budget is to do what many financial experts call "pay yourself first". This means that before you choose to budget your excess money for anything else, you take a certain amount and put it into a savings account or some other long-term storage (this could be a typical savings account, high-yield savings, money market account etc.). This ensures that no matter what, you are putting away money for the long-term. This continued practice can lead to great wealth later in life, the keys to success are making it a habit, and increasing the amount as your pay increases. With a fixed income of around $1000 a month and the expenses given in my previous example, I would suggest putting away at least $100 a month. This would leave you with $250 in excess spending cash to do with what you please- buy clothes, eat at restaurants etc.
This is one of the most important financial habits you can form at a young age - continuously putting money into a long-term savings that will pay you through interest. As this wealth grows and you become more financially literate, you may choose to invest this wealth elsewhere for the opportunity of higher returns.