Congratulations! You have just graduated college, and are off to an exciting new world! Maybe a new city, or even a new state, to start a new job with your new degree… That is a lot of firsts. And it is easy to make mistakes financially that could cost you a lot down the road. So how should you handle all that novelty?
Well, first of all, you should draft a rough budget. Budgets aren’t supposed to be followed precisely, it would be like counting every single calorie when you go on a diet. Sounds tedious, right? But you know you should consume less calories than you burn in order to lose weight. The same way, you should spend less money than you earn in order to stay in the green.
Your budget should list all the sources of income that you have. As a young graduate, it will probably just be your income from your day job, but that can also include a side hustle, money you make by renting your extra room, or the fact that your parents still cover your health insurance or phone bill.
Then, you are going to list all your expenses. Rent, utilities, federal and private student loans, car loan, credit cards and any other sort of debt that you have. Don’t forget recurring expenses that are periodic, such as your yearly car insurance. Add to that a budget for food, hygiene, clothes, etc. which your previous bank statement can help you with, in order to determine what you spend on each.
Once you add up your expenses, if they are lower than what you earn, congratulations! You are living within budget, and can decide where you want to funnel your extra money. When you are used to living the simple life of a broke student, your first paycheck may seem like a lot, and that’s why you probably have a surplus of money every month. While you can be tempted to spend it all on the good life, going out and treating yourself after years of tight budget, try making extra payments towards your debt with part of the surplus. Doing so can reduce the term on your student loans or credit card debts by months, or even years.
To stay motivated, have a look at some of the online debt repayment calculators out there to figure out how much of an impact would a $50 monthly overpayment have on your debt.
Some money should also be allocated to start an emergency fund, which will help you pay for unexpected expenses like a car breakdown or moving out of state for a new job. And you should save for your future goals, like a house down payment or a big trip next year.
If you factor in all those things, and find out there is not enough money to do everything, try to figure out lines of budget that you can reduce or eliminate. Refinance your student loans for a lower interest rate, transfer your credit card balance to a 0% deal, take your lunch to work and carpool to save on gas. These little tweaks can save you a lot, which means getting out of debt earlier and building a nice financial foundation for your adult life.