So you just graduated college, started your first real career, and are now going to be making a salary for the first time in your life. Chances are that up until this point in your life you have never needed to worry about budgeting your money because, let’s face it, you never made enough to actually budget. Now that you are officially grown up and off into the real world, it is time to start thinking about how to put that salary to use. Lets take a look at some of the things to consider and steps to take to create your first ever budget.
How much money do you have now? How much are you going to be making?
Before you can figure out how much money you should be spending vs. saving or investing, you need to assess your current financial position and also need to calculate your expected earnings for the next year at least. Treat highly liquid assets such as stocks or bonds as if they were cash when calculating how much money you have available to you right now.
What are your recurring expenses?
Assuming you have not moved back in with your parents upon finishing school, you should have a few fixed expenses every month (expenses that are recurring and that do not fluctuate much from month to month). Bills that would fall under this umbrella include rent, electricity, water, telephone, cable, student loan payments and your car payment. Your food prices will likely fluctuate a sizable amount each month depending on your frequency of eating out, but of course we need to build room into the budget for this expense as well.
How much money can we spend in comparison to how much we should save?
It is quite exciting making your own money for the first time and having disposable income to spend however you see fit. As much fun as it might be, spending money like there is no tomorrow is not sustainable, so you need to learn some discipline quickly after you start receiving your first couple of checks. Assuming you are living within your means, in terms of your housing situation and the type of vehicle you are driving, your monthly expenses will generally eat up about 50% of your monthly income (if you took out a significant amount of student loans to attend an expensive university, your monthly expenses could easily be much higher than 50% initially).
So what to do with the other 50%? As we said, it is necessary to resist the urge to spend whatever you feel. I would recommend striving to save at least 20% of your monthly take home pay, either putting into a savings account or reinvesting in the stock market or a similarly liquid investment. That leaves 30% of our earnings to spend on fun stuff. Whether that means bar tabs, sports events, video games, concerts, hanging out with friends, or anything thing else you can think of; that is up to you to decide.
Budgeting money is not an exact science, but by following these simple guidelines you can start building some financial security for yourself while still having plenty of cash left over to enjoy yourself with.
This article was written by Joseph Urgo. Joseph went to college for finance and contributes regularly on, personal finance, how to save money, and budgeting for a new company called SaveUp based out of San Francisco, CA.