College may prepare you for getting your first job, but it certainly doesn’t prepare you for life once you finally get that job. How do you handle the sudden change from being a broke student to the salaried life of a young professional? A salary brings both the prospect of new adventures and the overwhelming pressure of student debt payments, credit card bills, and a tight budget. Where do you even start when it comes to financial planning? These tips should help you and your bank account:
Create a budget: Think of the budgeting process as setting boundaries for the freedom of your new life. To get started, list out all of your (post-tax) monthly income. Create categories based on your typical spending habits such as rent, utilities, clothing, insurance, student loans, restaurants, etc. Start setting limits for these categories in a way that makes sense for you. If you have no concept of what these limits may be, track your spending for a month to get an idea. Once you have your numbers set, you’ll be able to comfortably enjoy yourself without worrying about spending too much!
Find a living situation that works for you and your budget: Some recent grads move back in with their parents, others find roommates, and some might even get their own place! A good rule of thumb is you should spend no more than 30% of your income on monthly rent. Make sure you crunch the numbers before you get swept off your feet by the prospect of living alone or sharing a luxury apartment. Having roommates and finding a modest place to live can be a great solution to save some money or make a smaller salary work.
Save for retirement: At the risk of sounding like your parents, retirement will be here before you know it! Set up your own 401(K) (fancy name for a retirement plan sponsored by your employer). Start funneling money into this each month, even if you can only spare $25 at first. Make sure you learn your company’s matching policy because some places will match your contributions up to a certain amount. You’ll be thanking yourself later when you’re 70 and eyeing that beach retirement home.
Build an emergency fund: Sometimes things happen that you can’t quite plan for whether you get laid off, have a medical emergency, or your car breaks down. Start setting aside some money into your savings for these “just in case” moments. If you look up how much money you should have in an emergency fund, you’ll see the common suggestion of three months income. We know this can feel overwhelming when you’re just starting out, so aim for one month at first so you’re comfortable with the unknown and then go from there!
Stop comparing yourself: This is the final and arguably most important tip. There are always going to be peers that hit financial milestones ahead of you. You’re going to have classmates with killer salaries, successful companies, and huge houses. You’ll read articles about the exact amount you need to save by a certain age, how you should work multiple jobs when you’re young to save, or how you should pinch pennies to pay off your debt ASAP. Creating your best financial future doesn’t mean making yourself miserable or hitting milestones, it means finding the best plan for you and where you are in life right now.
While these tips aren’t a magic solution to ensure financial success, they will certainly put you on the right path to being smarter about your finances. Remember to have fun, but spend wisely to make both you and your bank account happy!