Note: Not my real budget, but a screenshot of the template from MS Excel. 1000 p. month on dining out, not in this lifetime!
Part #1- The Importance of a Budget
This May will mark 6 years since I finished my undergrad degree. I can remember the feeling of graduating and just expecting that somehow I would meet my expenses magically without much effort or thought. I heard statements from my classmates like “I can’t live off less than X per year,” but I seriously doubted that people had made a calculation to determine this figure. My biggest piece of advice: Understand your budget before you make decisions.
a) Money In– Know your salary minus taxes. I felt stumped by what my first salary was and how that would translate to a paycheck every two weeks. At that time, I remember trying to find this information online and coming up empty handed. Recently I stumbled upon this handy calculator that does a great job of estimating.
Other factors to consider: Are you moving to a state with a different state income tax policy? I was in for a rude awakening moving from a tax-free state (FL) to a tax everything state (VA). If your company has a health insurance plan, find out what the ballpark figure is that you will have deducted from each paycheck. This is another variable that can decrease your money-in each month.
b) Money Out – Commit to tracking your spending habits. It will change the way you look at money. People are afraid to do this. They have this feeling of looking at their spending and being crippled by how much money quickly disappears from their bank each month. It might be ugly but as soon as you can identify where your money is going the quicker you can make adjustments. With apps/ programs like Mint and YNAB (my choice) tracking your spending doesn’t have to turn into a complex Excel sheet and mound of receipts.
c) Importance of Saving for Retirement. It is difficult to think about retirement when you are 1/35th or less of the way there. If you are not sure you can swing monthly contributions, put that money in your savings account and write a big check at the end of the tax year, of course leaving some in case of an emergency.
Knowing these items will help you make the best informed decision as you choose where you will live, if you can commit to a vacation, and areas where you will need to cut back. If you don’t yet have a job, still commit to tracking your spending and figuring out what type of salary you will need to comfortably live. Last piece of wisdom: There is a good chance that this might be the lowest salary you will have in your working life. Master the art of living off this wage and feeling satisfied. If you can do this then it will make saving a whole lot easier down the road as your salary increases.