Life changes pretty fast once you graduate college. Entering the world of adulthood means suddenly taking on a lot more responsibilities than you likely had during your years as a student.
That doesn’t mean this stage of life needs to be stressful. By learning how to create and balance a budget, you’re much more likely to avoid getting overwhelmed with daily expenses and monthly bills. You can also invest in low cost renters insurance while saving up for more important purchases down the line – like a home.
The following are some essential tips to help you get started post graduation.
Calculate Your Income
If you step into a job with a regular paycheck right after graduating, calculating your monthly income is easy.
That said, many recent grads are more likely to work part-time jobs or pick up side gigs before they settle into a position with an annual salary. If this describes your situation, start out by adding up your total income from all sources for the last few months, and determining what the average is.
Identify Essential Expenses
Certain expenditures are unavoidable, like rent and the cost of groceries. Refer to previous bank statements and speak with more experienced adults if you’re not sure how much you’re likely to spend on these essentials over the course of an average month.
Although everyone’s situation is different, costs to consider include the cost of transportation to work, any monthly bills you need to pay, and medical costs, among others. Calculate what you would likely spend on these basics each month and subtract it from your monthly income to determine how much you’ll have left over.
Set Aside Money for Savings
When you’re in your twenties, experts recommend saving 25% of your gross annual income. Determine what that will amount to each month, and subtract it from your monthly budget.
The money you have left over after accounting for savings and essential expenses is technically disposable. You can use it to buy what you want, but not exactly what you need.
However, emergencies happen. Maybe you suddenly lose your job or incur unexpected medical bills. You could dip into your savings when this happens, but that money is supposed to be for important expenses in the long run.
You may want to consider setting aside another 10% of your income for an emergency fund. Eventually, you want to have an emergency fund that can cover three to six months of essential expenses. Protecting yourself against unexpected loss with low-cost renters insurance is also a good idea.
Once you’ve gathered all the numbers, balancing a budget is actually easy. You just need to make sure the amount of money you make each month exceeds the amount you spend and save.
Don’t worry if you struggle at first. You’ll probably find out you’re overspending in a few areas when you first start making a budget. If you do, experts recommend reducing spending in one area at a time in order to develop better habits. By sticking to a budget and making changes when necessary, you’ll thrive financially during this exciting stage of life.
Rae is a graduate of Tufts University with a combined International Relations and Chinese degree. After spending time living and working abroad in China, she returned to NYC to pursue her career and continue curating quality content. Rae is passionate about travel, food, and writing, of course.
Twitter handle: @araesininthesun