Graduating college is a tremendous feat. So first off, congratulations! But now that you’ve worn the silk gown, shifted the tassel, and collected that gilded diploma (or virtual diploma, for many of you), you now must step into a new world of the unknown: the world of adulthood.
With adulthood comes bills… and lots of them.
So how do you manage your new income and your savings goals without splurging it all on a red car? First, save the red car for your mid-life crisis. Second, create a monthly budget for your post-college life. Read on for our first five steps to make it happen.
Step 1: Be Realistic About Your Income
The worst thing you can do when starting your post-grad financial journey is to jump straight into debt by buying a car you can’t afford or thinking a luxury apartment is within your budget.
Avoid this financial pitfall by staying realistic about what you’re making and how much you can actually spend.
When applying for an apartment, use the rule of 40—that is, divide your annual income by forty to get your monthly rent budget. Once you have that number, don’t look at any places that boast higher price tags.
There’s no need to fall in love with an unattainable studio if you don’t have to.
Step 2: Budget for the Basics
This step is pretty obvious but it’s still worth stating: create a budget spreadsheet. You can’t just say you’ll only spend $100 on eating out for the month, because next thing you know, you’ve forgotten your lofty goal and splurged $100 on high-end sushi in one night (which is never worth it, even if you managed to spot a celebrity).
Don’t fool yourself when it comes to your finances. Instead, write down your financial goals clearly and create a realistic idea of what you might spend in different areas of your life. For reference, use old credit card statements and receipts to estimate how much you spend in the following categories:
For an extra bit of support, use this easy budget calculator to get you started on a fiscally responsible adventure!
Step 3: Take New Expenses into Consideration
Budgeting after you graduate from college is going to look a bit different than when you were in school. You’re no longer under the gentle embrace of your university system or your parent’s bank account. Now you’re on your own, and that means the phone bill is on your dime.
Now that you’re supporting yourself with your new income, you can afford more than you’re used to. However, this means adding a few extra rows to your spreadsheet to account for the following you might not have paid for previously:
- Medical and dental insurance
- Car insurance
- Phone plan
- Car payments
- Student loans
If you previously had a university stipend, scholarship, or an allowance, these expenses might be difficult to swallow. That’s where resourcefulness comes in.
Now that you don’t have the extra cash for a Lyft, you’ll probably have to dust off that trusty bicycle and take it for a spin. Cut needless expenses (like that daily cup of artisanal coffee) and instead make your own food at home, or brew your own cup o’ Joe.
Step 4: Create Savings Goals (and Don’t Forget Your Emergency Fund)
Now that you’ve been thrown out into the adult world, you have much less of a safety net, if any, under you. That means you’re not just making money so you can pay your rent and buy your lunch this month—you’re making money for life. And life, as we all know, is all too unpredictable.
Instead of blowing all your extra disposable income on movies, concerts, and dining out, place it safely in your emergency fund so you have a safeguard if tragedy ever strikes.
The same goes for any “free” money you acquire, like your annual tax refunds or the latest Covid-19 stimulus check—treat those like extra savings, not splurges.
Step 5: Make a Wish List
Cutting out all miscellaneous expenses might make you question what you’re even saving money for. That’s why every recent grad should come up with a wish list and keep it on their budgeting spreadsheet. Make sure it contains the price of that item and the date you hope to purchase it.
A post-grad wish list should contain nice treats or big purchases that are special to you, like:
- A night out at your favorite restaurant
- Your dream European vacation
- A new car
- A nicer apartment
- Grad school
- That fresh pair of shoes you’ve been eyeing
- A rejuvenating facial
Adulting is an Adventure
Taking responsibility of your finances shouldn’t feel like a slog. Instead, embrace the idea that these new adult tasks are the keys to your freedom—your passport to a world of adventure and a lifetime of exploration! Jump head-first into the process of budgeting, saving, and expense tracking, and discover the beauty that blossoms from the mundane.