For a lot of first-time professionals, landing the grown-up, after-college job is the first time you are really, truly on your own. While your first professional job might not put you on the Fortune 500 list, you are still making more money than you’ve ever made in your life. It’s easy to get overwhelmed with your influx of cash and find yourself overspending.
Slices of the Spending Pie
The simplest way to think of your spending is as percentages of your monthly take-home income. How you slice up that pie chart can mean the difference between living paycheck to paycheck and living within your means.
You may have been sharing a dorm or apartment with a few other students or even bunking at mom and dad’s, but renting a place near your new professional job might be costing you more than you’ve ever had to pay before. Be sure before you sign on the lease that the rent payment – including any utilities you are responsible for – do not exceed about 30 percent of your monthly income. If it does, look for housing farther away from the urban center or with a roommate or two who might share a similar commute.
Here’s where you might save some money, depending on where you live. If your new job takes you to the big city, you might be able to survive – even thrive – without a car. If so, you can budget for public transportation, and save the difference of what an automobile would cost. If you daily commute will include a car, no worries. Think about purchasing a lower priced car to avoid large monthly payments, and be sure to figure in the cost of gas when budgeting. You have a lot of control over this portion of your budget, as car options are as varied as car prices.
Mom’s kitchen is officially closed, and it’s time to be sure you’re budgeting appropriately for food. Eating out will kill your budget quicker than just about anything else, and it’s going to be tempting to do so when all your new coworkers want to eat out for lunch or meet for happy hour. Be sure you’re able to budget in some of these new, fun outings, but know when you need to say no. You’ll always get paid again, so if you’ve budgeted for such fun, you can say yes to the next happy hour outing.
Savings and Retirement: 10%
Retirement is probably the furthest thing from your mind, after all, you just landed your first real job. But, there is no better time to start plowing away for your golden years. Because most retirement accounts work off of compound interest, the earlier you start, the better. And, since most employers will match up to a percentage or at least contribute in some way, if you delay starting your accounts, you are leaving money on the table. In addition, start saving some amount from your very first paycheck. If you make saving a habit from your earliest professional days, you’ll always make it a priority. For a while, you won’t be able to save much, but every bit counts. Try to start with saving $25 a pay period, then move up as you can afford more. Bottom line: Make sure you’re saving when you can, and work to make it 10-15 percent of your income.
Student Loan Repayment: 15%
It’s time to pay the piper: Student loans are due once you graduate. And, the faster you can pay them off, the better your life will be. In fact, consider lowering the amount you save to funnel it towards your student loan. You will not be able to acquire much forward progress on wealth creation until your interest-payment-heavy student loans are paid down.
Entertainment and Fun: 10%
Your new life is going to come with new needs – and new fun times to be had. Budget in money for new, professional clothes, nights out with friends, money to explore your new surroundings or outfit your new pad. If you don’t budget for these costs, it’s easy to blow your budget when you want to have fun or get depressed because you can’t enjoy the new life you’ve worked so hard to create.
Discretionary Income: 10%
This section of your budget can be larger or smaller, given how the rest of your budget shakes out. But, this is an important section. This part of your budget can go to other areas like supplementing your work-provided insurance, or you might want to start a habit of donating to charity (for tax purposes or other personal interests). Separately, you might want or need to pad another area of your budget – say if your rent is higher because of where you live or you want to budget more towards food because you know you’ll be eating out more. Having some of your budget left over allows you to adjust your budget each month to meet new or adjusting needs and allows you to be more fluid in your spending.
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