|
Created in Tagul |
Do you have no idea how to manage your money after graduation? It is unfortunate but many high school and even college graduates receive little instruction on how to properly budget their income to accommodate for rent, utilities, food, supplies, gas, loans, savings, and other payments. Many learn by trial and error, but when it comes to money and keeping a good credit score, having too many errors might be quite costly. So, what can you do to make sure you minimize and eliminate these errors? I'll try to navigate you through some simple steps you can take so you gain control and visualize your spending and saving habits.
1. Determine Income
Whether you are alone or living with other people, knowing how much income you have coming in is important and great starting point. Obviously, you cannot (or at least should not) exceed this number in spending. This step also assumes you have a job.Whatever that is, either hourly or salary, you should first determine what you make per year. For those of you who are hourly, $20/hr is about $40,000 a year. Calculate your yearly income as specifically as you can, but for the purpose of this demonstration, I will just use $40,000 per year.
$40,000 sounds great right? BUT - you forgot taxes.
What is left over is called disposable income. This is what you actually get to spend. To figure out your disposable income, I say a healthy estimate is to take about a quarter out of the "real income." Real income is the $40,000. So a quarter out of this is $10,000.
The disposable income left is $30,000. This amount may vary depending on your state taxes, if you put money away in a 401k, or other saving options available through your employer. Read through these materials provided by your employer carefully and determine what you truly have left. Often, someone in your HR department will be willing to sit down and talk you through options. #itneverhurtstoask
2. Divide Monthly Expenses
Take your disposable income and divide by 12. $30,000/12 = $2500. This is what you have each month to spend. This next step is huge. Here we will be determining monthly expenses and creating a visual for you to use each month.
|
Click to enlarge. |
Open a spreadsheet.
As I have said before, you have no excuse even if you do not have Microsoft Office. Open Office is free and available online. For each item create two columns - one to write the item and the second for cost. Let's start with rent. If you are living at home you may or may not have rent. If you have an apartment, you know exactly what you are paying per month. My rent is $660. Utilities will vary per month and based on what type of rent you have, but on average for me it should be about $150. We have water included, no charge on garbage or lawn care, but we are charged for electricity and heat. I am living with my long time boyfriend, so food is set at $300. This amount includes times you go out to eat. Be sure to watch your spending here because dining out tends to add up really quickly!
Supplies $100. Supplies include things like cleaning products, bathroom supplies, paper toweling, etc.
Gas $200. Adjust for your travel needs. However, do your best to try to find alternatives like walking, biking, and public transportation.
Loans $200.
Car Payments $300. I am currently looking for a car and will soon have these payments as well; however, this section also covers oil changes and other small maintenance. Adjust for your car's needs.
So, you should have a spreadsheet that looks like the example above. (Either keep your spreadsheet on your desktop or print it off. You can
either type in items as you buy them or hand write them in. I leave mine
on my refrigerator and leave all the month's receipts next to it with a
magnet.) The number you have next to the category is the most you can pay per month. As you can see, I filled a couple of things in below some categories. One example is under
Utilities.
Internet is listed with it's price $48.51. Under
Utilities you can also put electricity, laundry, and insurance payments. For
Food,
Supplies, and
Gas write down the date of purchase along with amount. Having the date visual can help show you if you are spending too much too quickly.
I'd like to note that your first month might be a trial run. Be sure you over-estimate rather than under for this period. Adjust afterwards as you will have a better idea on what to expect.
3. Save, Save, Save! (But have a little fun)
First, let's do the math.
$2500
- 660 Rent
150 Utilities
300 Food
100 Supplies
200 Gas
200 Loans
300 Car Payments
$590 left over/month
Yeah! You have money left over! But here is where most people, especially Americans, fail. You need to save most of this. In addition to being your savings, also consider it your safety net. If your car has a serious problem, you're going to be really happy when months of savings can cover your costs. However. . . do not forget you need some fun in life. On my spreadsheet, $100 is allowed per month to use as I like - for clothes, carnivals, or for any extra fun event or object.
You might have noticed I have nothing about credit cards. It is because I do not use them. YET. Since I am new to the area, I am waiting to see where the best deals and places would be to use them.
Here are two of the best ways you can use your credit cards, which hopefully you only have two.
1) Use them with places you frequently visit. Certain gas stations have cards that give you a return at the pump if you use their card. Many places give a percentage off every purchase if you use their card, like Target, Kohls, etc.
2) Do not treat your cards like piles of extra cash. If you can't afford it under budget, leave it on the shelf. A credit card should only be used in emergencies and if you have the money to back it up. You can use it to make a purchase and then pay it on the next monthly bill. Doing it this way causes no extra amount added on due to interest, plus it also helps your credit score. Be sure when you are purchasing a credit card that this system stills applies, otherwise you might want to get a different card.
I hope this helps you to grasp your basic budgeting skills and helps to get your finances on track right from the get-go. For additional help, please seek a financial advisor. These people are really great and most of them do want to help you succeed now and in the future.
What do you worry about when it comes to money? Comments welcome!