You just spent the last four years of your life just getting by. Now you are graduating and taking on what may potentially be your first full-time job ever, earning more money than you ever have in your life. Before you touch your first direct deposit, you’ll want to start ahead of the game financially by having a well-designed budget.
Cindy Wilson, director, field consulting group at TIAA shares, “Having a budget will help you in both the short-term and long-term; now to cover expenses and later to save up for longer-term goals. Remember to consider all available income sources–savings, jobs, stipends from parents–and all possible monthly expenses, such as rent, utilities, food, laundry, social activities, online subscriptions, and so forth. It’s also important to build in some wiggle room in case of emergencies, like car repairs, medical bills, or an unexpected trip home.â€
The most important lesson when it comes to budgeting is to understand that needs come before your wants. A “need” is anything necessary for you to live–like food and shelter. Premium cable does not count as a need; neither does unlimited services of any kind that you don’t regularly use. A “want” includes any of the lifestyle choices you make or items you buy above what’s necessary and is based primarily on your personal preferences. For example, we all need a place to live, however any apartments larger, more extravagant, and more expensive than what you actually need now moves from the need to want category. This would also include purchasing more clothes and shoes than you can wear, subscription services for items you don’t routinely use, or eating out at restaurants too often. It’s all about moderation.
A good budget breakdown is the 50/30/20 method: 50% of your income is set aside for living expenses like rent and utilities; 30% is set aside for debt payoff, savings, and investments; 20% is set aside for “wantsâ€ and fun stuff like shopping, eating out, and vacations. The goal with the 30% is to eventually pay down all your debts, and have your savings and investments account for a robust 30% of your budget. Until then, whatever percentage is available after paying your debts is what you should commit monthly to savings.
Develop good saving habits by looking at your savings like another bill you have to pay monthly. This will help keep you committed month after month and brings some reality to the concept of paying yourself first. You can also consider an incentive to help you stay committed to savings. If your parents have the means and want to participate, ask them to partner with you on a savings challenge where they match your savings contributions monthly.
Are you ready to befriend the budget?