Congratulations, graduate – you did it! Now that you’ve completed your degree, I’m sure the last thing you want to think about is budgeting. But, it’s an essential skill you need to master now, and for many graduates, it was never taught to them in high school or college. If that was the case for you, we’re here to help. Without further ado, here are some budgeting 101 tips and tricks you can pick up as you embark on a new chapter.
First, explore your current spending habits.
Before you get started tailoring a budget, you’ll need to examine your spending habits from the last 30 days and where you typically spend the most money. This will be your starting point. Consider using a free budget planning tool like Mint to keep track of your spending and send you notifications when you’ve strayed from your plan.
Start your new budget by allocating your “needs.”
The first step in creating a personalized budget is to allocate money for housing expenses. Fifty percent or less of income, after tax, should be allotted toward the place you will call home. When thinking about housing, don’t forget to consider basic utilities, cable, internet, renter’s insurance, HOA fees and other related housing fees.
Other necessities included here are groceries, car payments and gas, cell phone payments, insurance, minimum loan payments and more.
Then, look at savings and retirement.
With roughly 50 percent of your income allocated toward needs, you’ll now want to set aside 20 percent for your savings and retirement accounts. In your 20s, you may think saving for retirement or for an emergency fund is unimportant, but it is crucial if you want to ensure long-lasting fiscal security. As a rule of thumb, set aside a minimum of three months of living expenses for an emergency fund.
Leave the rest for entertainment or “wants.”
Now, what do you do with the rest of your salary – roughly 30 percent? Consider allocating the rest toward entertainment. This can include eating out, gifts, gym memberships, vacations, those expensive shoes you’ve been eyeing or anything else you’d consider a “want” and not a “need.”
Wait! Now that you’ve created your basic budget, don’t forget to factor-in other pesky items such as reoccurring payments, ride-sharing costs and subscription services.
Lastly, Familiarize yourself with key tax terms.
While creating and implementing a budget will help you succeed in the “real world,” your personal finance education shouldn’t end there. For many college grads, this is the first time filing taxes on their own. Start preparing early. Understand the materials you’ll need at tax time, the basics of accounting and key changes to the tax law. And, don’t be afraid to reach out to a professional if you need help or advice.
These guidelines are simply a framework – every individual’s situation is different, and if you need to spend a little more money in one area, and less in another, establishing a budget will allow you the flexibility to do so.
Of course, the most important tip of all is to ask for help when you need it. Your parents, mentors, CPAs and financial advisors have all been in your shoes. Don’t be afraid to go to them for guidance.