After graduating, you’re thrown into the working world—this means real bills and real responsibilities. It might be your first taste of financial independence and that can be intimidating. But it’s essential to form healthy spending habits while you’re young and lay the groundwork for a prosperous adult life. Here are three simple tips that will help you manage your money post-graduation.
Tip #1: Create a budget
Now that you’re done with college and entering the real world, it’s time to put some thought into what responsible spending means by coming up with a budget.
Creating a realistic budget for yourself is one of the first and most important steps when it comes to wealth planning. It can help you keep track of where you’re spending money, stay financially disciplined, and save for the future.
There are a variety of ways to go about devising a budget. But first you’ll probably want to figure out where you stand financially, which means taking a hard look at your post-tax monthly income and projected living expenses.
Determine what kind of housing, transportation, and amenities you can afford based on what you make. Also don’t forget to factor student loan payments and any other outstanding debts into your monthly budget.
After this initial accounting, you should actually write down a budget. If this is your first time creating a budget for yourself, it might be a good idea to follow the simple “50/30/20” rule. This means dividing your post-tax monthly income as follows:
- 50% on needs such as rent, food, utilities, transportation, insurance, and any other necessary bills. These are things that are absolutely essential to surviving and holding down your job.
- 30% on luxuries such as concert tickets, streaming service subscriptions, vacations, and going out to restaurants and bars. These are essentially any items or services that you could live without.
- 20% devoted to building a savings account and investment portfolio. This may seem like a big chunk of your income, but having savings will absolutely come in handy in the future. If you lose your job or deal with an emergency at some point you’ll have a savings account to fall back on. Also, investing money into retirement accounts when you’re young will most likely pay huge dividends once you’re older.
Tip #2: Avoid taking on new debt
The last thing you want to do after gaining financial independence is dig yourself into a deep hole of debt. After graduating, you might even have student loan payments that are eating into your monthly income, and there’s no reason to add to this.
When you accrue debt, you enter into a financial obligation that eats away at each paycheck, puts you in a stressful position, and possibly limits future opportunities. For example, if you’re in debt you may find yourself in a predicament where you’re offered your dream job, but have to turn it down for a higher-paying, uninspiring job in order to keep up with your payments.
That being said, you can still have a credit card and use it responsibly. Use it for things that you know you can easily pay off on time in order to build credit and, in some cases, earn cash back or other benefits.
The bottom line is that you shouldn’t be spending more than you have. Live within your means and do your best to avoid unnecessary debt.
Tip #3: Put away money for retirement
Although retirement may seem far off in the distant future, it’s never too early to start saving. In fact, it’s best to save money when you’re young, as this will give your investments decades to mature.
Compounding growth can help you understand why it’s beneficial to start saving early in life. This is a process where you earn money from interest on your investments, and these earnings are reinvested along with the principal amount, allowing your money to grow exponentially over time.
Taking this into consideration, it’s easy to see that the earlier you start investing, the better chance you’ll have of building a lucrative savings account for your retirement.
The bottom line
Budgets will differ depending on an individual’s income and priorities. The best advice for anyone who’s learning how to manage their money is to just use common sense. Don’t buy things you can’t afford and don’t be shortsighted—keep the future in mind in order to avoid putting yourself in a tough position later down the road.