A paycheck every two weeks might seem like a dream come true after four long years of bi-yearly dorm-room budgeting, but adjusting to an active income can be trying for any fresh graduate. From college to career, shifting the way you handle your personal finances will set you up for long-term success in your career, improve your quality of life, and fuel your future endeavors.
What Budgeting Looks Like In College
While attending university, it’s more than likely that at the beginning of the year you would budget out the amount of money you had, received, or saved, and stuck to that fixed income. Perhaps filling in the gaps with part-time jobs, and if we were lucky, our parents would keep paying for our health insurance, cell phone, and car insurance. Paying major expenses off all at once means that even if you go broke by the end of the semester, you will still have a place to live, stuff to do, and food to eat. Planning beyond that is what defines successful career budgeting.
What Budgeting Looks Like In Your First Real Job
It may seem infinitely easier to budget when cash rolls in every two weeks, but accounting for a barrage of unexpected expenses that accompany sudden ‘adulting’ can be frightening. You may already be paying for some of these expenses, but there are still things to learn if you’re trying to budget with an adjusted payment schedule. It can seem like there is a new bill every week, and they all come at once, so planning around these days will keep you from some very unpleasant surprising. While setting out your career budget it’s important to consider your goals, expenses, and current income.
6 Essential Budgeting Tips For New College Grads
1. Track Your Pre-tax Income
Start by taking a look at how much money you are making at your job. When taking into account your income for month-to-month budgeting, look at the post tax amount. Considering the pretax amount is very helpful when considering how much to save each month, but looking at month-to-month, it can leave you a little short. Like taxes, which are automatically taken out at most places, you should consider the money spent paying back your student loans as a non-negotiable deduction from your income. That money doesn’t count, because you will never see it. Taking these necessary expenses out of your larger budget will help set them up as priority, which is vital if you are one of the millions of college student graduates leaving with an average of $25,000 of student loan debt. Once you looked at how much money you are actually making, you can start piecing out where that income goes, and how much you need to make.
2. Time Your Expenses
Planning out your expenses is both about looking at what your expenses are (daily and long-term), but also timing your expenses well. Perhaps several of your bills are right before payday, it might seem obvious to leave enough money to pay them, but many people forget and will over-stretch themselves. Living pay-check to pay-check is no way to live, so setting up your initial expenditures is an important first step.
3. Review Your Necessities.
Start with your necessities. Are your housing expenses around a third of your income? Are you paying for all of the necessities? Yes, health insurance is a necessity especially if you’re one of the 85 percent of Americans with a parasite, or part of the almost fourth of Americans with heart disease.
Necessary expenses and bills including housing, home internet, health insurance, or transportation costs should not exceed fifty percent of your budget. If your rent or health insurance takes up a larger portion of money, shifting money from another category will help you. For example, the average New York family spends forty percent of its budget on rent, but benefits from lower transportation costs. Although your ‘extras’ budget should be around thirty percent of your income, this part of your budget includes food, restaurant visits, shopping, or any day-to day expenses, during your first few months, you may have to reduce this part down to find money for the necessities. The final twenty percent should go to savings, this is for future goal.
4. Compare Your Expenses
Look at your finances for the last few months and give yourself a clear idea of where your money has been going by dividing out your expenses into the different categories. Giving yourself a comprehensive look at your finances give you the opportunity to change habits that may be subtly draining your account; perhaps your daily coffee bill is more than your grocery budget, or you might want to start taking the bus to work instead of driving (splitting up the ‘extras’ budget will be hugely helpful as it is where a lot of money hides). Looking at your finances tell you what you have, where it’s going, and what you can do about it.
5. Set Savings Goals
Saving money as an adult is hard, but intensely rewarding. The hardest thing to switch when between college and career is the ultimate goal. While college has an end goal of graduation, or grad-school, your career is what you make it. If you want enough money to never have to work again, you can plan for that. If you want to further your career, you need to set down actionable steps to do that. It’s all about laying goals.
6. Set Dream Goals
If you’ve taken a look at your finances and can put away twenty percent, then you can look towards the future with a lot of hope. Trips, business adventures, or buying a house are all great goals, so setting aside an actionable plan to save can help you achieve your goal, even if you don’t know what it is yet. Perhaps your true passion is travelling across the globe to the most exotic locations you can find, or just travelling up to Alaska. While your current job may not allow you to indulge in a magical journey everyday, saving for a few years will give you the freedom to travel, or look into buying a house, or starting your own business.
Saving twenty percent of your income sounds like a lot to save, when you start looking at vacations, or long term financial goals like starting your own business or buying a house, it never seems like enough. Putting away a little money will help you achieve those goals when they arise and at the very least will help you build your credit score, or fund further education.
Mary Grace lives in the beautiful Boise, Idaho and she enjoys hiking, skiing, and all things in between.
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