Budget Worksheet: How to Spend Your Money

Growing up, one of my all-time favorite episodes of "The Cosby Show" was the one where Theo Huxtable got a lesson on "real world" budgeting from his dad. He quickly learned that if he didn't prioritize his spending he'd be left eating bologna and cereal each month.

Budgeting can be tricky. Besides wanting to know how to get out of debt, the most common question I receive from young adults is "how much" should I pay for x, y and z. From rent to car payments to saving and eating out, young adults often lack a solid frame of reference.

Having structure and discipline can mean the difference between living comfortably within your means or bursting at the seams. And despite rebelling against it, I find that young adults secretly desire financial structure. On Bank of Mom and Dad, I managed to get some of the wildest spenders to follow a budget. Although they were skeptical and hesitant at first, months later, we found them sticking with the budget - and, frankly, much happier. Following a budget made them feel empowered.

Typically I'll cater a budget to a person's lifestyle and needs. For example, someone with credit card debt would have a wildly different budget than someone who is debt-free and has a three-month savings cushion. But in general there are guidelines that can help prevent young spenders from going overboard, so I've prepared a basic budget outline using average national statistics. It takes into account the average starting salary for the graduating class of 2010 - roughly $47,000 a year, according to the National Association of Colleges and Employers. Post-taxes, that comes to about $34,000 a year. The average graduate also has approximately $23,000 in student loans and about $4,000 in credit card debt.

Here's the budget breakdown:

Credit Card Debt: 5%

Allocate 5%, or $135 a month, to paying that down. The minimum payment on a credit card with a $4,000 balance and average 15% interest rate is $90 a month. But at the minimum rate it would take 20 years to pay off the debt. Paying 50% more, or $135 a month, you would need only 3 years to erase the debt - and you'd save more than $3,000 in interest. If you have more than one credit card, prioritize your debts by more aggressively paying off the card with the highest interest rate. It's your most expensive debt.

Student Loan Debt: 10%

A $23,000 loan balance with an approximate 7% interest rate and 10-year repayment term comes to a minimum $267 a month. That's roughly 10% of your budget. You can figure out your loan repayment at MappingYourFuture.org. With student loans, if all you can afford is the minimum, that's OK by me. It's more critical that you never miss a payment, because falling behind can cause nightmarish problems.

As MoneyWatch's Ray Martin wrote earlier this year, "there is no statute of limitations for collection of student-loan debt, and lenders have very strong powers to collect on defaulted student loans. For instance, lenders can garnish up to 15 percent of your take-home pay, seize your federal and state tax refunds, and prevent renewal of professional licenses." Keep in mind that paying your student loans on time comes with a nice reward: You can deduct up to $2,500 in student-loan interest from your taxable income. Once you are making more money, or if you receive a lump sum of cash (say, a bonus or a gift), consider allocating some of that towards the loan's principal to speed up the repayment process.

Housing: 30%

This includes rent and utilities (cable, phone, electric bills). You can read more about how to budget specifically for housing in my recent blog post.

Transportation: 15%

This includes car payments, gas and insurance. If you live in a big city that has accessible public transportation, you may be able to pocket 15% this way and drop it into other spending buckets. Start with the credit card debt first, savings second.

Rainy Day Savings: 5%

It seems impossible to save when you're first starting out. But if you automatically commit to this at the top of the month, research shows you'll have an easier time getting in the habit. Save in an online account that offers a higher interest rate, and hide the ATM card so you won't be tempted to cash out on a whim. Over time, you want to build an emergency savings account that'll cover at least 6 months of your living expenses.

Retirement Savings: Up to 10%

Ten percent is the ideal. At the very least, invest enough in your company's 401(k) to earn a full match from your employer (if available). The federal cap on annual pre-tax 401(k) contributions rose to $16,500 in 2010. For IRAs, it's $5,000.

Health Insurance: 7%

This may cost you relatively little if you are a member of an employer-sponsored group plan. But recognizing this is no longer a guarantee, it's important to set aside money for acquiring your own health benefits, at least $200 a month. The good news is, until you reach age 26, you can piggyback on mom or dad's health care plan.

Food: 10%

That comes to approximately $340 a month, and should include groceries, Starbucks runs and eating out. Hands down, this is the category in which it's easiest for young, social adults to go overboard. After all, a few dinners out per week can quickly blow the entire month's budget in two weeks' time. It won't be easy, but it's all one can technically afford on a starting salary. For help, read Moneywatch's Kathy Kristof's piece on eating out on a dime.

Miscellaneous: 8%

Toiletries, haircuts, concerts, gadgets, travel and clothes. Eight percent - or approximately $220 a month - is not much of an allocation for the tech enthusiast, social butterfly or fashionista. But the sooner you get out of debt and build some savings, the more room you'll have for such miscellaneous spending.

Remember, a budget is about trade-offs. Some expenses are a must - like paying down debt, health insurance and savings. But other categories - like housing, food and travel - are more negotiable. If you live at home, for example, that leaves more money on the table for the rest of your budget. If you clip coupons and eat leftovers, you can easily spend below your food budget. If you bike instead of drive, your transportation costs will also decrease. So use the above breakdown as a starting point.

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