Key insights:
- After college graduation, your income and expenses are likely to change significantly
- A budget for college graduates helps you manage your income better and stay on track toward financial goals
- Budgeting after college can help you save more, build credit and work toward financial independence
After graduating college is an important time to start saving money. Your first salary is a foundation to build on, and budgeting after college is a major first step. Learning how to budget can set you up for success down the road and help you create 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.
How to budget after college
A budget for college graduates, like anybody, depends on your income and expenses. Whether you’ve started a job or you’re still looking, it’s important to assess your costs of living so you can live within your means and save for future goals.
The basic steps to making a budget are:
- Add income and expenses: Use your pay stubs to calculate your take-home pay after any deductions, like taxes or insurance. Then, add up all of your expenses, including housing, commuting costs and groceries. Review your bank or credit card statements to get a full picture of your spending.
- Set aside surplus income 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.
- Review and update your budget: As your life evolves, your income and expenses may change, so regularly review your budget and make changes as needed.
Budgeting tips 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 tips for new graduates.
50/30/20 method
If you're new to budgeting, the 50/30/20 budget provides structure that may be helpful for beginners. It divides your after-tax 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 many budget apps that could help you structure your budget specifically for your income, expenses and financial goals. Apps often allow you to connect your financial accounts, letting you automatically track income and expenses.
If you prefer closer oversight, you may use a spreadsheet, which is more customizable but also more hands-on 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 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 could also 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 for college graduates that might also help.
Open a savings account
Just because you’re living on a tight budget doesn’t mean you shouldn’t still save money. Even setting aside a small amount each month can help you meet financial goals faster.
A savings account allows you to earn interest on the funds you save, while giving you flexible access to money when you need it.
Get ahead of your student loans
Nearly 43 million Americans have federal student loan debt. While there are programs to help manage this debt, you can usually save money on interest by paying debt down sooner rather than later. Look into your different loan repayment options and create a schedule that allows you to stay on top of your debt. You may want to explore your eligibility for student loan interest reduction or debt forgiveness and pursue these options if you qualify.
Likewise, 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 financial 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. You should account for both short- and long-term goals in your saving.
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.
Build your credit
Your creditworthiness may become more important after college, as you may want to apply for different housing opportunities, credit cards or loans. If you have no credit history, a secured credit card may make sense to help you build credit. 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 them 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
Budgeting and your future
Graduating from college is a major milestone. For many, it is their biggest step ever into financial responsibility. A budget for new graduates can make it easier to manage your money and help you start building strong financial habits. A budgeting strategy gives you a road map for your spending in the future, so you can stay on track to meet your financial goals down the road.
If you want more advice on how to save and budget for your new lifestyle, consider speaking with a financial expert. Explain your financial goals and your current income and expenses, and they can help you find a strategy that works for you.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
