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As a recent college graduate, getting your first real pay check can be exciting and budgeting your money may be the last thing you want to think about. But from paying off those college loans to paying rent and the bills, living on a budget may not be fun. However, it is one of the best decisions you can make for yourself.
Unlike those college days, budgeting in the real world can be much more complex because you also have to think about things like saving up for grad school and/or retirement, paying for insurance and knowing that your parents will probably be less willing to bail you out if you overspend.
Fortunately, like most good habits, it’s actually not difficult to stay on a budget once you get started. The key is having the will power to skip that daily latte and power through those first couple of weeks.
Here are a few tips to help you create your first budget and make the right financial decisions to keep you on track.
1. Review your current spending
Before you start yourself on a budget, you should review your recent bank and credit card statements to evaluate your monthly expenses and income. It might be a good idea to keep a log of everything you are spending money on each day so you can figure out the things you can easily cut out of your budget. You may not think that $3 latte costs a lot, but $3 a day for 365 days adds up to more than $1,000 a year.
2. Use the 60 percent solution
When creating a budget, a good rule to follow is the 60 percent rule–limit 60 percent of your income to essential spending like rent, utilities and bills and dedicate 10 percent of your income to going out with your friends, shopping, and other non-essential expenses. The remaining 30 percent of your income should be put into savings.
3. Save, save, save
Saving money for a rainy day and for the long-term is the most important step in growing up. And even though retirement is still decades away, you should begin putting money into a 401(k) account and saving up for a rainy day in an interest-yielding savings account. Consider opening up a dedicated savings account and automatically having 30 percent of your paycheck deposited into that account. This way, you won’t even notice that the money is gone so you’ll be less tempted to spend it. Generally, employers will match your 401k contribution, so its a great way to get a head start without having to drastically change your lifestyle.
4. Pay off your debt
Whether its credit card debt or college loans, interest on the money you owe can accumulate quickly and put you in even more debt than you started off with. Paying off your debt should be one of your first priorities especially because high levels of debt can affect your credit score.
5. Use online tools
Luckily, we live in the 21st century and excel sheet budgets are no longer the only tool to keep track of our spending. With free online programs like Yodlee and Mint, you can create a budget for all types of spending from bills, shopping, restaurants, gas and even entertainment and track your daily spending activities. These programs can also link to multiple bank accounts and credit cards and can send you alerts when you have spent past your allocated budget.
Are you ready for retirement? Head over to Allstate.com to find out.