Budget 101: how a 23-year-old art teacher makes her budget work each month

The first decade of adulthood may seem relatively carefree, but it poses many financial challenges. It's a time when salaries typically are at their lowest and — given the realities of today — debt and housing prices are high.

The average 20- to 24-year-old American earns $576 a week, or $29,962 annually. A third of people in their 20s have student loan debt, which averages about $25,000 for those with a bachelor's degree. On top of that, people under 25 typically spend 24% of their pre-tax income on housing.

Those numbers could make anyone's head spin, but they wouldn't surprise Kelsey Buchanan, a 23-year-old art teacher in New Hampshire. She knows firsthand the challenge of budgeting for Generation Z. This reality hit her a few years ago, when she realized the money she was bringing in didn't cover her expenses.

"I was a student paying all my own bills," she says. "I realized I was either going to have to ask friends and family for assistance, or I needed to get a second job. It was definitely a time of stress."

Buchanan kicked her budgeting game into high gear, creating a monthly budget and faithfully sticking to it. According to Citizens Bank branch manager Erica Hughes, Buchanan is putting herself on the right financial track by developing a strict budget so early in life.

"You always have to be forward-thinking when it comes to your budget," Hughes says. "It's not just about saving enough for right now, but for the long term."

Kelsey Buchanan, outside her home in New Hampshire.

Here's a look at what Buchanan earns, how she spends it, and what she's learned from her good financial habits.

Buchanan is an art teacher earning about $40,000 a year, which comes out to about $2,200 a month in take-home pay. She brings in another $400 a month from a second job.

Total: $2,600 monthly

Like many young adults, Buchanan lives with roommates — in her case, two. Her portion of the monthly rent is $600. She budgets $55 each month to pay her share of the utilities, $150 for groceries and another $60 for her phone.

Having roommates helps Buchanan keep down her housing line item. Hughes says she always recommends people spend 50% of their income on necessities, 30% on lifestyle choices, and 20% on long-term savings. The lower income and higher expenses of young adulthood can make budgeting tough for Gen Zers, but it's a good goal to have.

House, basic expenses total: $865 / 33% of income

By the end of 2020, Buchanan is planning to pay off her used car. Until then, she allots $150 monthly for her car payment. She also budgets $100 for gas and pays $60 for auto insurance.

Transportation total: $310 / 12% of income

When people wonder where young adults spend their money, here's the big answer: Buchanan has over $100,000 in student loans. Previously, she was paying over $1,000 per month — almost 40% of her monthly take-home pay from two jobs. She knew something needed to give, so she started looking into refinancing her loans.

"I ended up going to the bank on three separate occasions. For the first two, I wasn't accepted because of my debt-to-income ratio, and at that point, I didn't have any credit."

Buchanan got a credit card, worked hard on building her credit, and eventually got approved by Citizens Bank to refinance her loans.

"I had a team working with me at the bank and rooting for me," she says. "They came up with different scenarios to make it work. Luckily, in August of 2019, I got my student loans refinanced. It's been a real blessing."

Refinancing is always Hughes's first recommendation for young adults struggling with student loan payments. She also advises people to make small, additional payments to their student loans whenever they can.

"People don't realize that an extra $10 towards the principal on a loan can help you pay off that loan faster," she says. "Generally, when borrowers plug in the numbers, they're shocked by how much they'll save in interest over time by making a few extra payments now."

Student loan payment total: $850 / 33% of income

An important factor in budgeting for Gen Z — or any generation — is making a plan that fits with your life. That means including line items for things you enjoy — otherwise, you're likely to go over budget when you want to have a little fun. Buchanan focuses on healthy lifestyle choices in her budget.

"I prioritize things that are good for me, like having a gym membership and buying healthy groceries," she says.

Buchanan dedicates $100 a month to her boxing gym membership, where she spends a lot of her free time outside of work. She also budgets $175 for other miscellaneous expenses.

Keeping a close eye on this "everything else" category is where Hughes says lots of young adults can find room to save in their budgets. And that requires closely tracking spending from week to week.

"If you track your spending for a week, you still see places where you spend small amounts of money, and it adds up over time," she says. Realizing you spend $50 a month grabbing a snack from the corner store on the way home from work, for example, might inspire you to include snacks on your grocery list and pack them to go for much less.

Additional expenses: $275 / 11% of income

After her planned expenses, Buchanan has about 11% of her budget remaining (depending on the month, the amount can vary). Her monthly savings typically ranges between $100 and $300.

When emergencies or special occasions come up, Buchanan turns to her savings, which allows her to stick to her regular budget month to month. "I had car troubles about a year ago, so I had to dip into my savings, but I still allowed myself to go get that cup of coffee when I wanted it," she says.

With this plan, Buchanan has been able save nearly $6,000.

According to Hughes, young adults can build savings even faster by making it a "non-negotiable line item" in their budget.

"If you're in the habit of thinking of it as a required payment like your electric bill, then you get comfortable with putting that money aside," she says. Even if you start with automatically transferring $10 a week in your savings, Hughes says, that can make a big difference after a year.

Savings total: $100-$300 / 4%-11%

Several years ago, Buchanan had a big financial scare. The realization that her bank account was about to become overdrawn — and she didn't have the income to fix it — provided all the motivation she needed to get her money life in order. The incident continues to motivate her budget discipline. "There's an anxiety that still looms over me," she says.

It's also helping her make smarter financial decisions going forward. "I'm going back to grad school, and the program I chose and how I'm planning to pay for it — even if I'd made the decision a year ago, I wouldn't have made as good of a decision as I made now," Buchanan says.

For young adults looking to create their first budget, Hughes recommends starting by setting goals — both long-term ones, like emergency savings and retirement, and little ones to celebrate sooner. "If you hit that goal, it feels good," she says.

Even if your goal is to save $10 a month, Hughes says to let yourself celebrate when you hit your first $100 or $200 saved. "Make those little milestones, so you can feel a sense of pride," she says.

For her part, Buchanan says she's learning to feel more proud of herself for making progress on her own budgeting — and loosening up a bit so she can enjoy a treat now and again. "I do really feel like I've got a good handle on things now," she says.

With smart budgeting and tracking, other young adults — even with the challenges of financially tough time periods — can do the same.

Trying to manage a budget, save for the future, and still have a little fun while paying student loans can be a challenge. Citizens Bank is here to help. To learn more about how refinancing your student loans could help you reach your budgeting and saving goals, check out our refinance calculator or call 1-888-411-0266 to speak with one of our Student Lending Specialists.

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