Graduating from college may help you to get a job, but all the extra money may be harder to handle than you think. Before you sink deeper into debt or add black marks to your credit report, get on track with these realistic budget tips for new employees.
1. Pay off your debts
It doesn’t make sense to put your last $100 into a savings account earning 10 cents a day if you’re still paying out $1 a day in credit card finance charges. Eliminate your debts before starting a full-force savings and investment plan. Pay at least $25 more than the minimum due to make the most of your new job’s salary and get out of debt sooner.
2. Live below your means
Earn now while you have the free time and splurge later when you need the rest. Whether you raise your income or drop your expenses, you’ll have extra cash to direct toward debt payments, savings or retirement accounts. Work a part-time job, split rent with a roommate or find cheaper alternatives for the expensive items you buy most.
3. Save like Noah for a rainy day
Emergencies will happen but you never know when. Begin tucking away money as soon as you start a new job. You should aim for three to six months’ worth of salary in a savings account. You don’t need to live like a mountain hermit right way; start off with five to 10 percent of your wages to establish a habit.
4. Divide your savings account
When you receive your first paycheck, you may be saving for retirement, a vacation, a house down payment, a car, a Coach bag or a new television. If you lump all of your money into a single savings account, you risk withdrawing part of your emergency fund for concert tickets or a trip to Starbucks. Create pockets of cash instead. You can track categories on paper, or your bank can show you how to create multiple savings accounts.
5. Know what you spend
For the first three months after you get a job, track everything you spend. Expect to see a radical difference between your days in college and your days in the workforce. Place your expenses into budget categories, linked to an estimated percentage of your paycheck, such as the following:
- Emergency fund: 5%
- Retirement savings: 10%
- General savings: 5%
- Rent/mortgage payment: 28%
- Utilities (water/gas/electric/garbage): 3%
- Automobile (payments/insurance/gasoline): 15%
- Student loans: 5%
- Credit cards: 3%
- TV/Phone/Internet: 5%
- Groceries and home supplies: 5%
- Entertainment and fitness: 5%
- Dining Out: 5%
- Clothing: 5%
- Miscellaneous (gifts, one-off expenses): 1%
Now compare what you are spending to what you should spend. For example, January’s bills may show a $250 loss for eating out but no deposits into savings. If you truly want to put $150 into your emergency fund, then you would need to cut back to $100 a month spent on fast food and restaurants.
The first step to taking control of your working life is to take control of your finances. Understand the numbers, prepare a budget and stick to it. Even when your salary goes up, these tips remain the same.