This article is the first in our series called “How to adult” which is designed to take you through all those crucial skills you don’t learn at school. You’ve learned SOH-CAH-TOA. You’ve learned that mitochondria is the powerhouse of the cell. Now learn some stuff that’s actually going to help you in life! This week, we’re looking at dealing with personal budgets and how you can save money to prepare for adulthood.

Whether you’re still in your early high school years or you’re at uni trying to balance your income and spending, there’s always more to learn about how to handle your money. If you’re lucky, your parents will be able to help you financially ease into adulthood. Or, at the very least, you’ll have someone in your life to show you the ropes to balancing your expenditure. But there are a lot of people who’ll stumble out of their teenage years with no clue how much money they should be saving or how stable their spending habits are. So for anyone who’s totally lost when it comes to all things economics, or anyone who isn’t sure how well-equipped they are to manage their money matters, this article will take you through some of the tips and tricks I wish my parents had taught me.

The most important one is called the 50/20/30 Rule, and here’s how it works.

50% for Fixed Costs and Essential Needs

For starters, 50% of all your income should be going towards things like bills and fixed expenses. If you’ve moved out of home, most of this will be taken up by rent payments and utilities. Electricity and water bills usually need to be paid every 90 days or four times per year, though this can vary depending on which state you live in and what company you’re with. This also includes things like medicare, local council fees, and if you’re earning enough, federal taxes and paying off your HECS debt.

This can sometimes be tricky to plan for, especially when your bills are coming in at different times all throughout the year. So if it’s easier for you to think in terms of monthly income and expenditure, put those maths skills to good use and divide your expenses into ‘monthly installments,’ even if you’re still paying them all together once or twice a year.

If you still live at home, you’ll have a lot less to worry about here. As such, you can treat this first category as more of a ‘savings’ option where you set aside this money for all the stuff you’ll have to pay for later in life.

But this 50% category also includes anything you subscribe to on a regular basis, like internet and phone data plans. As you head into adulthood, and particularly once you’ve turned 18, it can be good to start taking charge of these kinds of ‘small’ things yourself instead of depending solely on your parents. There’s no need to have to contribute to your household power bills (unless your parents are the type to throw you in the deep end and demand you pay your share of rent and utilities as soon as you’re an adult!) But showing the initiative for more manageable costs like your own phone bill or gym membership will be a great stepping stone to ease you into other, bigger expenditures.

Things like car registration and insurance are also counted here, which can be fairly costly. If owning a car isn’t essential for your day-to-day life, you will probably find public transport to be more affordable. Daily or weekly PT fares are a lot cheaper in the long term than adding up car registration, petrol, and road toll costs. However, driving is often a far more convenient and reliable option, and whether you consider this an essential or a luxury will depend on your situation.

So what do you do if the amount of bills you need to pay exceeds 50% of the money you earn? Well, if you’ve got a job that’s a casual or part-time position, you could request some extra shifts from work and see if you can balance things out. Or, if your schedule is already pretty hectic, perhaps look into minimising the amount you have to pay. Looking into alternate utility providers might help you find a better deal, but you can also cut down on some of those more optional commitments.

Is there a different phone plan that’s more tailored to your needs and could help you save a few bucks? Are you actually getting your money’s worth out of your internet data, or is a big chunk of it just going to waste? Have you actually gone to the gym in the past six months, or was that membership just an optimistic New Year’s resolution that’s now collecting metaphorical dust?

You’d be surprised how many of these ‘little’ costs add up over time, and if money is especially tight, it’s better to compromise luxuries than essentials. If you’ve got a pretty substantial amount of money saved up before you have to move out, you may not ever encounter this problem. And if your parents can help you out in a pinch, don’t stress about the little things. So long as you’re aware of where your money is going and can plan ahead, you should easily be able to deal with any potential problems that may arise.

20% for Long-term Goals and Saving Money

Next up, you should set aside 20% of your income purely for saving purposes – no spending! If you’ve got a pretty well-paying job and are fairly comfortable saving more than 20% then you can absolutely do so. This is especially true if you have something in particular you’re saying up for; your first car, or a holiday, perhaps? Really big purchases like your first house require a more long-term commitment, so don’t feel like you should’ve squirreled away enough for a modest estate by the time you’re 21. Houses are ridiculously expensive right now compared to how things were for our parents’ generation, so if you are committed to moving out, renting a property or ideally some kind of shared housing arrangement is going to be most realistic.

If your reasons for saving are fairly nebulous or ill-defined though, don’t worry! Most young adults won’t have a distinct set of financial goals or specific things they plan to obtain, and the ones that do will usually have to refine their objectives at some point. It’s normal to be uncertain.

But one thing you can know for sure is that getting into the habit of saving money will be a big help later in life. If you treat all your income as disposable income right now, it’ll make the transition into adulthood quite a bit more difficult. Likewise, if you’re too fixated on short-term spending, you can get a kind of financial whip-lash when you eventually have to implement some way to save money. That’s why setting aside at least 20% right now will get you into the spirit of striking a healthy balance when you’re an adult.

The best way to do this, in my experience, is to research a banking method that promotes and rewards savings. Most major banks will have special accounts that provide additional interest if you don’t withdraw, or if you can commit to depositing, say, $200 a month. You could even look into investment opportunities if you’re financially-savvy, though this is best left for when you have more than just an average casual or part-time wage.

This also serves as a kind of ’emergency fund’ for all sorts of circumstances. An unexpected fine or a bill that you forgot about can really throw a spanner in the works if you don’t have a safety net. So if the situation demands, you can use this money when you need to. Otherwise, it’s all for your future, whatever that may be.

30% for Flexible and Optional Spending Money

And lastly, the remaining 30% of your income should be dedicated to all the flexible expenditures you have.

Some people like to count food and things like petrol or public transport costs here if your spending habits vary a lot. So if, one week, you fork out $270 for some really gourmet groceries, but the next you only spend the bare minimum on the basic food groups, then it can be easier to count this as flexible spending rather than a category 1 fixed cost. Likewise, if you only drive occasionally or don’t use public transport on a regular basis, this would feed into your 30% bundle of extra stuff rather than the 50% you set aside for essentials.

By contrast, if you know you consistently spend $30 every week on petrol and an average amount on food, then you may prefer to lump these kinds of costs together in the first category instead.

Your subscriptions and bills will almost always be fixed and unchanging costs, unless those companies have upped their prices or you change your provider. But this category is for the extra stuff. Non-grocery related shopping (i.e. clothes, books, electronics, gifts) all belong here. Eating out at restaurants or any involvement in clubs, sports, or hobbies can also be counted, depending on how frequently you engage in these activities. And this also covers whatever impulse or day-to-day purchases you may make. This probably won’t be too much of a concern for most people, but I once lived with a girl who would fork out at least $500 a month on various hair products. Granted, she had great hair, but her penchant for dying it a different colour every few days and lathering it in expensive French shampoos was hardly a sustainable lifestyle choice. And if you’re something of a shop-a-holic or a tech-head who’s constantly buying new things, try to be a bit stricter with that 30% ceiling to ensure you’re not going overboard.

But don’t feel as though this whole category is for unnecessary expenses and that you’d be better off saving closer to 50% of your money instead. Whilst it is important to set yourself up for the future, it shouldn’t come at the cost of your present happiness or well-being. Being needlessly stingy and living off discount two-minute noodles is a recipe for dissatisfaction and probably some horrific consequences for your physical health. And no one wants to be that guy who never pays their share when going out, or always “forgets” presents when invited to parties. So if you’re spending way less than 30% of your income on these kinds of things, maybe relax a little and treat yourself once in a while. Make sure you’re not compromising your own health and happiness too much just for the sake of saving money.

For those who are way above that 30% margin, consider ways of reining in your spending. Again, even those seemingly small costs like a daily coffee or weekend drinks with mates will add up over time. You don’t have to make huge compromises like swearing off caffeine entirely or never making an effort to see your friends, but it might be worth cutting back or finding some cheaper alternatives. 

Remember, you can be quite flexible with this rule if you’ve got a lot of expenses to worry about, or there are some extenuating circumstances. I know I always try and save up a bit of extra money ahead of Christmas or months where a lot of my friends have birthdays. And as you experience more and more little money dilemmas, you’ll gradually get better and better at knowing what to prioritise and how best to plan ahead.

If you’re careful to strike a balance between living properly and giving yourself a sufficient safety net, it’s okay to learn by trial and error occasionally. But if you’ve got some systems in place to help you prevent any truly awful money problems, you should find it easy to safeguard yourself and set up the kind of sensible habits that will serve you well into adulthood.

Now get back to all that SOH-CAH-TOA and mitochondria nonsense.