Budget based on how much money you make, not on how other people like you seem to spend. It’s really easy when you have your first job and you are trying to figure out what you can afford to look around and see what is “normal”. So it looks like everyone else goes out to eat lunch every day, has a decent new car, whatever, you think of that as the standard. But you never know other people’s finances: Suzie eats lunch out everyday, but eats rice and beans for dinner and breakfast. Bob has a late model car, but he took the bus for two years to save for it–you just didn’t know him then. Frank has nice suits, but he has a rich uncle who passes them on. And Jenny travels, but she never mentions the “drowning in debt” part.
Related to this is a weird little confirmation bias cognitive mistake thingy: you see people spending money, you don’t see them not spending money, because they are at home. You feel like your friends can go out drinking whenever they want to, because when they feel like they can’t afford it, they don’t say “no, I’m over my entertainment budget this month” they say “I have a family thing”. It seems like everyone else can afford a “nice” vacation once a year, because those that don’t, don’t mention that they aren’t going anywhere. You don’t see people not having cable, not eating out, not going to the movies. So your brain feels like everyone does all of these things all of the time, and they make what you make. So you can afford it too. But none of them do all of these things; they all do some combination.
Last, watch your spending at the grocery store. I think this is the one place where people most underestimate what they spend. It’s easy to feel like the whole grocery store is in the “needs” category, not the “wants” category, and the little upgrades seem really small, in the big picture: fancy mustard is much better, for a $1 more. Might as well pick up a bag of chips. That kind of thing. No one decision is hugely expensive, but you end up at the grocery store all the damn time, so it has the opportunity to add up. At the very least, I would keep a running tally of all grocery store totals for each month and see what it adds up to. This can creep up and suddenly you are like 'Why don’t I have money? Nothing has changed?"
Learning to monitor the sales papers and shape your weekly shopping around them can lead to huge savings, especially in combination with knowing how to cook.
One last thing: when saving, think in terms of months of expenditures saved, not months of income. If you make $3000/month and spend $2000/month, then if you have $12,000 in the bank, that’s 6 months’ savings, not four. Thinking about it this way is more accurate, and it really incentivizes you to lower your monthly spending because you benefit twice: savings go up faster, and it feels like more of an accomplishment.
