Earning your first paycheck after college is all kinds of fun—until
you see all of the bills that come with it. You want to put away money
for that trip to see your best friend or that new car you’ve been
eyeing, but you’re just not sure how to scrape together any savings on
your income.
Meeting your savings goals in your 20s is no easy task when you have
only an entry-level salary to cover all of your expenses, not to mention
if you’re among the seven in 10 grads who have student loans to pay
back. But by taking some time to examine and understand where your money
goes, you can set up a spending and saving plan that fits your
lifestyle.
The good news: The U.S. average starting salary for the class of 2014 was about $45,500, up more than 6 percent from 2012.
Here are three steps to take to live (and thrive) on an entry-level salary:
Step 1: Pick a split that works for you.
Experts often recommend splitting where your money goes into three
categories: fixed costs, savings/investments and spending money. Many
suggest a split of 50 percent for fixed costs, 20 percent for savings
and 30 percent for spending, or 50/20/30. Maybe that works for you,
maybe it doesn’t. It all depends on your financial goals.
The idea is to understand your costs and plan for them accordingly.
If you expect to live at home for a bit, you can generally lower your
fixed expenses and increase your savings. If you’re going to live in the
city, plan to put a lot more toward your fixed expenses to cover rent.
Step 2: Add up your monthly fixed costs.
What do you spend money on? Probably more than you realize. Print out
your debit or credit card statements for the past three months and make
a list. Here are a few things to help you get started. (And if you’re
still feeling uncertain, try this budget worksheet for graduates.)
I need these:
• Housing
• Groceries
• Clothes
I wish I didn’t have to spend money on these, but I do:
• Cellphone
• Utilities (power, water, Internet service)
• Transportation (gas, car insurance, bus pass, taxis, bike-share membership)
• Moving costs
• Health insurance (if not taken out of pay)
• 401(k) contributions
• Student loan repayments
• Rainy day fund contributions
Step 3: Subtract your costs from your income
Where do you stand?
Say you make $45,500 annually and you take home $3,600 each month
before taxes. Subtract your fixed expenses from that amount. If the
costs listed above come to, say, $1,800, then what you’re left with is
what you’ll divide between extra costs today and putting away for the
future.
The fun stuff:
• Cellphone
• Utilities (power, water, Internet service)
• Transportation (gas, car insurance, bus pass, taxis, bike-share membership)
• Moving costs
• Health insurance (if not taken out of pay)
• 401(k) contributions
• Student loan repayments
• Rainy day fund contributions
Personal maintenance (extra costs):
• Haircuts
• Toiletries
• Gym memberships
• Manicures/pedicures
• Doctors’ bills and co-pays
If you don’t already use a money-management app like Level Money or Mint,
check to see whether your bank lets you sort your statements by
category. This will help you to see where all your extra cash is going.
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