Your first new grad job will be a completely new experience for you: new responsibilities, wardrobe, hours and expectations. You will also be getting your first (or one of your first) series of substantial pay cheques that will help you into the next stage in your life.
Many recent graduates don’t know how to set a proper budget when they start their first job and this can be a problem for a couple of reasons. First, it can contribute to frivolous spending habits later in life, and second, it can prevent you from getting a good jump on saving for the rest of your life. Since you have a fresh start, this is when you should be utilizing your pay to the best of your ability.
To create a budget, make a series of lists:
- list the money you owe from student loans and/or credit card debt
- list your expenses for one month (including rent, clothing, transportation, food, utilities, entertainment and gifts)
- list the income you expect in a month
From these three lists you are going to make your monthly budget.
Don’t forget that a portion of your pay cheque will be deducted for taxes and employment insurance (unemployment), but it’s possible there will also be deductions for health benefits, retirement plan contributions and union dues depending on your employer. Your budget should take those deductions into account and only include your net pay, not your gross pay.
For entry-level employees, a suggested spending guideline based as a percentage of your pay is as follows:
- 30% housing
- 10% utilities
- 10% food (both takeout and restaurant and well as groceries)
- 15% transportation (car loan, and/or public transit passes)
- 10% repaying debt (student loans and credit cards)
- 10% savings
- 5% clothing
- 5% entertainment
- 5% for car insurance and miscellaneous other expenses
These expenses can be variable, however. For example, if you’re living at home and paying nominal rent you don’t need to put all 30% toward housing – you can put more of that toward debt repayment or savings. At the same time, if you’ve recently bought an expensive car you may need to re-configure how much money is in your budget since a large portion will be paying for your new vehicle.
Ideally, you should have some of your budgeted money left over each month, and you should try to save as much of that as you can. This money can either be used for emergency purposes, to start a nest egg for retirement, or for a rainy day, which will put you in the habit for saving for your future.
The key to saving money (although this seems really obvious) is for you to spend less money than you earn, and in order to do so you really need to keep track of what you are spending, when and why.
Once you have consolidated a budget, make sure you are keeping track of it properly. This should be done either via computer program (there are many you can purchase), online budgeting software such as Mint.com, Wesabe or moneyStrands (formerly Expensr), a self-created spreadsheet or in a notebook.
Although you may think you have a mind like a steel trap, you are likely to forget and it also helps you find out exactly how much you are spending – sometimes you won’t realize how often you really buy convenience food unless you are tracking it.
Hopefully if you keep these tactics in mind you will be able to start saving for the more expensive things than come across in adult life – like a house, a car or your retirement fund.
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