Advice on Creating A Budget

First, kudos to you for seeking help at 18! Taking control of your finances now will set you up for long-term success. Let’s create a budget tailored to your situation and answer your questions.

1. Create a Basic Budget

Here’s how your $900/month can break down:

Income: $900 (minimum)

We'll adjust for any surplus below.

Expenses: $642.95 (Fixed Minimum)

Car Payment: $400 (to pay off faster)
Car Insurance: $229.19
AAA Membership: $7.41
Music Subscription: $6.35

Leftover: $257.05

This is what we’ll allocate strategically.

2. Build Your Emergency Fund

Your first goal should be to build a small emergency fund to cover unexpected expenses (like car repairs). Start with $500, which you can grow later to 3-6 months of expenses.

Set aside $100/month until you hit $500.
Keep it in a high-yield savings account (e.g., Ally, Discover, or SoFi).

3. Should You Rush to Pay Off the Car?

Paying $400/month on your car is not stupid but could be adjusted slightly to balance other priorities. Here’s a plan:

Stick to the $400/month for now to minimize interest costs while building credit.
After your emergency fund is set (in 5 months), you can redirect some of that $100 to accelerate car payments if desired.

The key is to strike a balance:

Building credit: Keep the loan for at least 12–13 months.
Paying off debt: Avoid keeping the loan too long to minimize interest.

4. Handling Surplus Income

If you earn more than $900/month:

Emergency Fund (Priority #1): Until you hit your initial $500.
Debt Payoff (Priority #2): Once your emergency fund is in place, any extra can go toward the car loan.
Discretionary Spending (10–15%): Allocate 10–15% of surplus income for fun or personal goals (like a night out, clothes, or hobbies). Having a small “fun” fund prevents burnout and guilt around spending.
Savings for Goals (Remainder): Start saving for future goals (like tuition, a new car, or moving expenses).

5. Tackle the Guilt Around Spending

To reduce guilt, budget for discretionary spending on purpose:

Create a category in your budget (e.g., “Fun Fund”). Even allocating $50/month gives you permission to spend without guilt.
Use cash or a prepaid debit card for this, so you don’t overspend.

6. Budget Template

Here’s a sample monthly budget:

Category Amount Income $900 Car Payment $400 Car Insurance $229 AAA Membership $7 Music Subscription $6 Emergency Fund $100 Discretionary (Fun) $50 Savings/Extra Debt Payoff $108

7. Long-Term Plan

After Car Loan: Redirect the $400/month toward growing your emergency fund and other savings goals.
Grow Emergency Fund: Aim for $2,000–$3,000 next as a bigger buffer for unexpected expenses.
Invest: Once you have no debt and a solid emergency fund, consider investing in a Roth IRA (a tax-advantaged retirement account).

Key Takeaways

Emergency Fund First: Build a small $500 fund before accelerating car payments.
Keep the Loan for 13 Months: This builds credit without wasting too much on interest.
Use Surplus Strategically: Emergency fund → debt → discretionary spending → savings.
Guilt-Free Spending: Allocate a small, intentional amount for fun.

You’re already on the right track. Keep your focus, and you’ll achieve financial stability in no time! 🚀