You’re about to graduate college or recently did and now you are entering the real world. College helped prepare you and now your lessons are being put to the test. A main goal is getting your finances under control. You may have had loans but now you have additional expenses like rent, car payments, utilities and groceries. Plus, you want some extra cash to play with. It’s never too early to start building good financial habits. Don’t get stuck in a financial hole by waiting until it’s too late.
Understand your current position and create a budget based on your debt, expenses and income.
To know how much extra money you’ll have per month start with the basics. Subtract your debt from your income. The easy part is knowing your monthly income. To figure out how much debt you have gather all documents related to student loan payments, credit card payments and other monthly payments. If you haven’t received a student loan statement yet, ask your lender for one. The remainder will be the amount left over to cover your living expenses like rent, utilities, groceries, entertainment, car payments, insurance and phone.
Don’t be surprised if your living expenses outside of school are greater. The nice thing about them however is that they don’t vary too much per month except utilities. You can call your utility company to get an estimate of readings from the previous resident. These may go higher in summer or winter months depending on where you live and how much electricity you use. Talk to companies that have combined programs for cable, internet and phone. Find out about bundle deals that may give you a monthly discount rather than purchasing separately. Shop for phone plans and choose one that is within your means and needs. Note that with every expense your remaining monthly income dwindles. When you are first starting out think about how much you need cable or those additional cell phone minutes.
Creating a Budget
Now you can figure out how much you can afford each month to spend on entertainment, clothes, additional savings or see if you are on the road to spending more than you make. Tools like Mint.com help you manage your budget and send you reminders for when bills are due or let you know if you might be spending too much. Create a budget for each month. Use this tool or another to list out all monthly income then subtract all monthly debt payments and expenses (including money going to savings). Your goal is for it to even out each month. If you have anything extra per month choose to pay off your debt or put in a rainy-day fund (savings account).
What can I do to spend less than I make?
You’ve probably got some tricks of your own. Just remember that having a professional job doesn’t make you suddenly wealthy. Good money habits can get you there though. You’ve got your own hacks. Here are a few that have worked for us.
- Eating: As you are starting out you may not be able to eat at the most expensive restaurants but that doesn’t mean you can’t eat well and still go out at times. That said you will usually spend less eating at home than eating out.
- Getting around: Try not to take cabs and Uber or Lyft cars as these amounts do add up. Don’t buy a new car right away.
- New work wardrobe: Be a thrifty shopper. Although it may take a bit longer to sift through all the clothes on a rack there are some great finds in thrift stores including high-end brands. If you need a new wardrobe for a new job, check out your local thrift shops first.
- If your expenses are still not within your means don’t fret or think you need to move back in with your parents. Move in with a group of friends. You end up getting more bang for your buck. A small one-bedroom or studio can cost you far more per month than a bedroom in a shared apartment or house. Plus, you get all the additional living space and great social time with friends.
Do what you can to reduce your debt as quickly as possible because the amount you pay on interest is wasted money. See if you can pay an additional small amount per month like $25 that will add up over the long-term. Or take another job that is fun one night a week like bartending or catering an event and use that money towards paying off your debt. The sooner it is paid off, the more freedom you will have.
Start saving and investing
If your company has a 401(k) or other retirement plan, take advantage of it and contribute. Lots of companies match some of your contributions (yes, it’s free money). Keep in mind that you need to put in a set percent of your own income before your company will contribute. Read up on the plan and ask your coworkers. These plans are also great because your contribution is often tax free until you take it out at retirement. This money comes directly out of your paycheck so think of the remainder as your new monthly income and rework your budget accordingly if you haven’t already included it in your expenses.
Make a goal of creating a rainy-day fund
Open a savings account or money market fund savings account and try to build and put the equivalent of 3-months living expenses into it. Start by adding 5% of your income into this account. Then up to goal to six-months and then one year. Some may advise you to use this money to help pay off your debt first. This is your choice. However, this may bring peace of mind if the unexpected should happen.
Avoid comparing what you have to what your friends have and what you see on social media
A bank killer is feeling you need to have the same material items as your friends or stars on social media. Don’t feel you need to have the exact same clothes or a same lifestyle as someone else. Happiness comes from the relationships you build and the experiences you have, not the things you own. Advertising and marketing are devised to draw people to make purchases. Don’t fall prey to media and hype.