Please enable JavaScript to view the comments powered by Disqus.

Millennial Money

The Power of Living Within Your Means

Budgeting is work, but it allows you to spend your money on what you value most.

Getty Images

Creating a budget is crucial at any age, but it's especially important—and daunting—for us millennials. When rent, health care, cell phone bills and other costs previously borne by Mom and Dad gobble up our paychecks, figuring out how to handle the rest of our cash is hard. And for me, at least, travel, socializing with friends and spending on everyday needs can be tough to balance against saving for a far-off future.

See Also: Best Banks for Millennials

But now is the best time to learn how to budget. "We're at this critical point where if we don't understand where our money goes, we will feel less and less in control of our finances as the years go on," says Pam Capalad, a certified financial planner (and millennial) who owns Brunch & Budget, in New York City. Learning to live within your means will help you prepare for the inevitable stressors later on, such as buying a home, starting a family or taking time off between jobs.

Budgeting well can take some trial and error. When I moved to Washington, D.C., in 2012, I dutifully recorded every dollar I spent on a spreadsheet. But I eventually got lazy and stopped adding up my expenses each month. When I revisited my budget last year to see if I could afford to leave roommate life behind and live alone, I was shocked. My fixed expenses had mostly stayed the same, but my discretionary spending had ballooned as I grew lax about throwing money at nights out with friends. At the same time, I was accumulating too much cash in my checking account that could have been put to better use in a savings account or in my 401(k).

I assumed that tracking expenses was enough. But "it's not budgeting if you don't check back in and ask yourself, 'Do I want my money going into those categories?' " says Rebecca Conner, a CFP and founder of SeedSafe Financial, in Seattle.


Strategies that stick. Start budgeting by tracking your expenses for two to three months—without judgment—says Ryan Frailich, founder of Deliberate Finances, in New Orleans. Once you're aware of where your money goes, you can set realistic, concrete goals ("save $700 in my vacation fund by August") rather than vague ones ("go out less"). This will motivate you to revisit your budget regularly.

Start gradually, rather than trying to overhaul your money habits all at once. Capalad recommends that her clients choose one category at a time and spend a couple of months paring down their spending in that area. At the same time, think about what you value most—living alone, getting in shape with a personal trainer, going to concerts or the theater—and prioritize those in your budget.

A free budgeting app or website, such as Mint or investor-focused Personal Capital, may help. Another tool, You Need a Budget, encourages users to assign each dollar earned a "job" so all income is allocated to expenses or savings. The service costs $84 a year, but some users think the results, breaking the paycheck-to-paycheck cycle, outweigh the fee. Setting up these tools can be tedious, but they will help you visualize your net worth, spending patterns or goals. A tool that works for your friends might not work for you. I found Mint overwhelming and rarely logged in.

Try redirecting a bigger chunk of your income into a savings account when you get your paycheck (and before you have a chance to spend it). See how crunched you feel the first month before upping that amount. Similarly, if you currently contribute 3% of your paycheck to your 401(k), inch up slowly toward the ideal 15%.


Owning up to what you spend (or overspend) is scary. "Freaking out is part of the process," says Capalad. I felt disheartened when I realized that something had to give. But the important thing is spending my money on what I value most, and that's my choice. The rest is negotiable.

To share this column, please go to

See Also: Money Advice for New Grads and Young Professionals