When it comes to managing finances, it’s easy to feel pulled in 1,000 different directions.
Sure, you’d love to pay off your law school student loans, buy a house, take a vacation, and have something left over to contribute to your savings account, but that’s not always realistic.
Budgeting isn’t a one-size-fits-all activity. It is, however, something all of us should be doing. That’s why prioritizing the expenses that are most important is key. Let’s get started.
Figure Out What’s Most Important
Here’s a hint: The first step to prioritizing your budget should be figuring out how to save for retirement. No matter your other goals, be sure to determine how you can set aside some savings for your post-working life. Next, consider your other important obligations, such as essential expenses like your rent or mortgage, groceries, and utilities. Begin by estimating and tallying up those totals. And of course, if you have debt, you’ll want to work towards paying it off as soon as you can, as well (more on that below).
Work on Debt
Most law school students graduate with a significant amount of student loan debt, and if you count yourself among that group, paying down your debt should be a top priority—perhaps even another essential expense. No matter what, always make the minimum monthly payments, but you should make every effort to contribute much more whenever possible. If you’ve got credit card debt as well, it can work well to focus on paying off the balance with the highest interest rate, and then working through additional card balances from there. And, of course, stop accruing more.
Consider Your Long-Term Goals
Once you’ve accounted for retirement savings, essential expenses, and debt, it’s time to think about other savings goals you might want to prioritize. Do you want to buy a house? Do you need to start an emergency fund? Are you hoping to start a college fund for your children? Get a sense of how long it would take to save up for specific long-term goals by estimating the total you’d like to accrue, dividing that number by however long you plan to save, and finally dividing that number by 12. What you’ll be left with is the amount you should be saving per month.
… And Your Short-Term Goals
Of course, not all budget priorities are long-term. Are you hoping to take a vacation? Or maybe a friend is getting married and has asked you to be in the wedding party? It can be helpful to make plans for the smaller yet important expenses you’ll incur throughout the year. Building in this kind of flexibility will help you avoid feeling like you’re overly restricting yourself, or like you’ve thrown yourself off track by, say, spending a long weekend at the beach. Automated savings plans are a great way to get a little bit of money saved up without having to think much about it.
Revisit Your Plan Regularly
While some budget priorities won’t ever change, such as saving for retirement or paying for groceries, others will. So creating a budget isn’t a set-it-and-forget-it affair. Instead, be sure to revisit your financial priorities as your circumstances change. For instance, perhaps you get married, have children, or move across the country. What worked for you in one stage of life might not work in another. Be sure to update your budget to make sure your current priorities are guiding your decision making.
Budgeting isn’t always easy. Chances are, you’ll hit some speedbumps along the way, whether they’re in the form of unexpected expenses or just a few days of overspending for no reason in particular. In fact, you should set aside a portion of your budget specifically for unplanned fun. As you approach the creation of your budgeting plan, remember not to be too hard on yourself. Nobody’s perfect.