The months and years right after you graduate from college can be a great time to explore different budgeting strategies. Learning how to budget can set you up for success down the road and allow you to build healthy personal finance habits. While it might seem difficult to save funds on an entry-level salary, there are some proven methods that can help guide you through your early savings journey.
Let’s explore the basics of budgeting early in your career and go over some key money-saving tips for post-grads.
Budgeting after college
Your income and expenses may change when you graduate from college, so it’s important to assess your new earnings and costs of living. Some common budgeting steps include:
- Adding up income: You may have a new job when you graduate from college, so calculate your new monthly earnings to get a baseline understanding of your income.
- Adding up expenses: Likewise, you may have new expenses, like different housing, commuting payments or groceries that you didn’t have to account for in school
- Setting surplus aside for savings and investment: If you’re making more than you’re spending, consider what you’ll do with the extra, like building your emergency fund or exploring investment options
- Reviewing and updating your budget: As your life evolves, your income and expenses may change, so you should regularly review your budget and make changes as needed
Budget ideas for college graduates
There are some tried-and-true budget techniques that may work for you, depending on your personal preferences. Let’s walk through some different budgeting methods.
50/30/20
The 50/30/20 budget provides structure that may be helpful if you’re new to budgeting. It divides your income into three categories:
- 50% for your needs, or things you have to pay regularly like rent, car payments and groceries
- 30% for your wants, like going out to eat, going to the movies or going on trips
- 20% for savings and debt repayment
When you add up your monthly income, you can designate a spending or savings category for all of your funds. The 50/30/20 numbers don’t have to be rigid, but they can provide an outline. You can always tweak them to support your current expenses and savings goals.
Use budget apps or spreadsheets
There are different budget apps that might help you structure your budget specifically for your income, expenses and financial goals. These apps might be more customizable than other options, letting you decide how you want to use your funds.
You might also prefer to use a spreadsheet, which is even more customizable but potentially more work-intensive than using an app.
Cash-envelope method
The cash-envelope style of budgeting might benefit those who want a very literal, physical way of budgeting. Label different envelopes as your needs, wants and savings, with the option to add more specific labels designated for specific goals or wants. When you get your earnings, divide and place the cash into the specific envelopes you’ve labeled, creating your budget for those specific categories. When the money in a given envelope runs out, it means you’re done spending in that category for the month.
You might also be able to simulate the cash-envelope budget using apps, creating specific digital pools for your income.
Zero-based budget
The zero-based budget takes all your earnings and allocates them to different expenses and financial goals, dividing all your income into different categories until there’s nothing left to allocate. This top-down approach helps make sure every one of your earned dollars has a purpose, but it doesn’t mean that you’re necessarily living paycheck to paycheck — it just ensures that you’re spending carefully on things you planned out ahead of time.
Financial tips for college graduates
While budgeting can be useful, there are additional personal financial tips that might also help recent college graduates. Let’s explore some of them.
Get ahead of your student loans
Student loans are all too common, and if you have them, it’s a good idea to consider how you’ll repay them. Look into your different loan repayment options and create a schedule that allows you to stay on top of them. You may want to explore your eligibility for student loan interest reduction or debt forgiveness and pursue these options if you qualify.
Likewise, you should consider how your future plans might affect your student loan repayment. Pursuing a master’s degree, for example, may allow you to defer your undergraduate student loan payments, but you may also accrue more student loan debt in the process.
Set funds aside for long- and short-term goals
The sooner you start saving money, the more financial flexibility you may have in the long run. Start by identifying your goals and creating a plan to attain them. Your goals may include booking a vacation, buying an engagement ring, paying off debt or creating an emergency fund to cover unforeseen events.
Setting short-term goals, like saving for a vacation or a laptop, might give you something to look forward to, but you’ll thank yourself later when you start saving for longer-term goals like a down payment on a home or a new car.
Work on building credit
Your creditworthiness may become more important after college, as you may want to apply for different housing opportunities, credit cards or loans. To help build your credit, a secured credit card may make sense for you. With a secured credit card, you’ll put down a deposit that becomes your credit limit. If you consistently make on-time payments, you may even be able to upgrade to an unsecured credit card.
Start good financial habits
Developing healthy habits early in your career can make it easier to stick to them later in life.
Some examples of helpful financial habits include:
- Paying off your credit card balance in full every month: Paying off your credit card balance in full every month helps you avoid paying interest, which can be costly as it adds up
- Tracking your credit card and bank account balances: Monitoring your account balances helps you stay on top of your spending and limit your credit card usage if necessary
- Seeking out deals and discounts: Finding a cheaper place to rent or getting deals on groceries can allow you to allocate money for other financial goals
- Planning big expenses: Making impulse buys can have a big impact on your finances, so try to plan out your larger purchases so that you can accommodate the expense within your budget
- Contributing to a retirement fund: Retirement can feel a long way away, but if you start contributing even a small amount to an IRA or a 401(k) today, you’ll feel much more prepared in your older years
