If you checked the blog last Monday, you know that today is the second week of a new summer series on the blog that is all about post-grad life, and aimed at helping recent college graduates adjust easily to all of the new and exciting changes going on!
Today’s post is definitely the most important one (in my opinion) for a lot of reasons, and it is also probably the most difficult thing to do after graduating. If you’ve started working, you suddenly have an income unlike anything you’ve ever had before which is an AMAZING feeling – until you realize the insane amount of expenses you now have, too.
There is a lot of information on this topic, so bare with me and I promise I’ll try to keep it as short as possible without leaving anything out (might even have to make a part 2 on this topic).
Obviously, a budget is a highly personal and customized thing, and there really is no one-size-fits-all solution for creating or sticking to one. That being said, the general steps that each person can & should take to doing so can be pretty universal, especially right out of college!
Realistically, it’s pretty difficult to establish a budget when you don’t have a good read on what your expenses and income truly look like. While you certainly should start being careful with money from day one of post-grad life, to really have things running expertly it may take 1-3 months to really determine where you land, and here’s why:
1. Figuring Out Your Income to Divide Out FIRST
Until you know exactly how much income you have (after taxes and anything else affecting your paychecks), you can’t know how much money you’re dealing with. This of course varies by state, but taxes have a huge impact on your salary, so you may need to see 1-2 paychecks to ensure you know what amount of monthly income you have to divide out through your budget.
2. The Every-Month, Non-Negotiable Expenses
Once you have your income figured out – you need to focus on your fixed expenses. These are the things you know you will be paying every single month, no matter what, and they rarely change (if they do at all). Everyone has different non-negotiable expenses in their life, so these can vary, but the general go-to’s include:
- Utilities (Gas, Electric, Water)
- Cable + Internet (for me, this means Netflix + Hulu, too)
- Groceries (This can vary – and I will touch more on this further down, but you know you have to eat!)
- Phone Bill
- Health & Dental Insurance (This is likely taken out of your paycheck beforehand, if you have it with your company, but be sure to know where this expense factors in!)
- Transportation Costs (whether this is gas & car insurance, a train/subway pass, etc).
- Fitness or Gym Membership
- Entertainment – this is how I categorize my Spotify Membership
- Student Loans, if any. (It’s generally smart to set up an autopay for these, for whatever amount you think you can mange).
Again, these fixed expenses can vary from person-to-person, but that’s a general list to go off of. Subtracting this from that monthly income we determined above will let you know how much room you have for the “extras” – the things we would like to have, but can’t really consider “necessities”…like those two extra rounds of drinks at the bar, or your weekly Chipotle binge.
Scary how little is left, right?! But don’t worry – we’re just getting started and there are so many ways to cut corners and save tons!
3. Determining Your “Non-Essential” Expenses
No one realistic would ever pretend that we don’t have expenses beyond the necessities in our lives. We’re all allowed to live a little – go out to eat once in a while, see a movie, hit the bars with friends, or buy a dress for that friend’s wedding you have coming up. That being said, these things are ten times easier to do and manage without any stress if you know where you stand with your budget.
The first thing I’d recommend doing is downloading the app called “Mint”
. Don’t worry – it’s free to use, and totally safe! Mint connects to your bank account and auto-categorizes all of your expenses on your debit/credit cards as they come in to help you figure out at a glance where you’re spending money. From there, you can “set a budget” for each category, and you’ll know if you can afford that extra drink or that top you’re dying to have without going over your budget.
But how do you know how much you should allow yourself to spend in each category?!
We know how much money you have leftover after expenses and taxes now – but it’s not as if we want to end up at a zero balance at the end of every month. You should always be trying to save as much as you can, and make sure that you’re adding to your checking balance and savings balance in some way every month – whatever that amount may be.
There’s no set formula for this section, and I can’t tell you how to live your life (duh!) but what I can tell you is that you should figure out whatever magic number it is that you want to be adding to your bank accounts every month, and then prioritize those non-essential categories and start practicing. If you need help getting started, calculate what you spent on each thing last month, and maybe reduce each section by $15-20.
For some, you may realize that you were over-spending last time, and it won’t be a monthly thing. For others, you may realize that you really can’t give up your weekly (or daily) coffee runs. Whatever works for you, it just takes a little tweaking and practice!
In case you’re trying to come up with what all of these non-essential categories are, I’ve listed below what mine
include. Again, my life could be/is probably completely different than yours, but it’s just an example!
- Coffee Shops
- Rental Car/Taxi/Uber
- Pharmacy & Toiletries
- Movies, Shows & Concerts (Entertainment)
Some other ideas that I don’t currently use (but have in the past or might in the future) could be:
- Furnishings & Home Decor
- Personal Care (Haircuts, Nail Appointments, Etc).
The great thing about the app is that it is completely customizable, but you have to start somewhere! The best part is, because it is connected with your bank account, it will automatically sort your purchases into their correct categories so that you know exactly how much you’ve already spent on going out to eat that month, or if you can really afford that cute pair of new shoes.
4. Final Steps:
PHEW. That was a crazy amount of information all at once…and I was seriously trying to simplify things! I definitely don’t want to overwhelm you with too much too fast – but this is the absolute best place to start figuring out what your budget should be.
Try working out those steps, play around with it throughout the next month, and see how you do! You may be surprised by your spending habits, and you will most likely adjust things a few times over before you get into a rhythm that makes you happy (not scared) when you check your bank statements.
Don’t worry – I know there is a LOT more to say on this subject – be on the lookout for another post all about cost-cutting tricks and tips, how to save money, and saving up for major purchases, events or trips very soon!