Money may or may not buy you happiness but it sure helps pay the bills. When you get your first job it’s exciting because now you have a taste of adulthood and independence. However, that feeling takes a hit when you think about rent, student loans, utilities, food, cable/internet and other expenses.
Budgeting at this time is just as important as your first salary. I would rather make $4,000 a month and have $3,000 in expenses than make $10,000 and have $9,999 in expenses. It’s all about prioritizing and discipline. Learn from my mistakes.
This is straightforward, or is it? So let’s say you make $52,000. That should mean that you make $1,000 a week right? Obviously that wrong because you have to take in account taxes, Medicare, Social Security, 401(k) deduction, health care deduction and other possible deductions (my job at BIG NEWS allows me to deduct my gym membership). Depending on where you live, expect to get take home $650-$770 a week.
Your main expenses are housing, food, transportation, student loans and clothing. These are basic needs. Living with your parents the first year or two after getting your first job should not be thought of as a detriment. I am envious of those who live at home. The savings in rent is worth it. If you live in an apartment and pay rent, then this is your primary monthly expense. Some places say that you can pay up to 33% of your gross monthly income on rent. I would recommend 25% because this is not a bill that can be late or unpaid. So you need to be 100% sure that it gets paid on time and in full. Don’t mess around with it.
Learn how to cook 5-7 meals so that you can resist the temptation to eat out every night. It’s so simple to order Chinese or pizza every night, I know that I did at one time. At first you say it’s a rarity but then it becomes a habit. The amount you save by cooking for yourself could be up to $1,000 a month. If you are fortunate to live within walking distance to work then you will save a lot of money on gas or on a public transportation monthly pass. I use public transportation and I am able to get a transit pass “pre-tax deduction” from my paycheck.
Even paying the minimum on your student loan helps. It took me 13 years to pay mine off. Make it a priority to pay off some of your loan each month. I put clothing here because dressing like a professional is essential. There is no excuse to dress inappropriately. Expand your wardrobe every season and try to include color so that you stand out, in a good way. Trust me, co-workers notice this more than you think.
Socializing is important in life and I have had my fair share of fun. Take it from me; keep your After Work Happy Hours to just once a week. You do not need to go out for drinks 3-4 times a week. It’s a waste of money and it’s not the healthiest lifestyle. I remember going out virtually every weekend and usually once or twice during the week when I got out of school. I can only imagine how much money I spent on having a good time. I’m all for enjoying life but I can now say that reckless spending can affect your goals and dreams. So just avoid bad habits when you are young so that you can enjoy your financial freedom when you get older.
Having a nest egg is highly recommended because you never know when a surprise expense might present itself. Once you pay off your essential monthly expenses, put some of your excess money into a savings account. Even if it’s just $50 a paycheck it is better to sock it away for a rainy day. If you consistently do this and gradually increase the amount every year you can then use that money for a down payment on a house or take a dream vacation.
Keep it simple
What I do is write down my future income and future expenses in a spreadsheet. It’s a simple practice to show future cash flows. You can literally visualize how much money you will have on-hand in 3 month periods. This has helped me budget properly for birthday gifts, vacations, Holidays and special events.
A plan to have less worries
- forecast your take home pay
- write down & track all of your monthly expenses
- keep it simple
I know that I sound like a nag but by following these standards you will find that your bills will be paid on-time and still have money left to save. Good luck and I hope this was helpful. Does anyone have a similar process? Do you save for long-term goals?
Any questions, thoughts or feedback?
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