June is the the time of year that newly-minted graduates are headed off into a world of resumes, interviews and call-backs, all of which will hopefully lead to a job and that much-needed paycheck. While most young adults don’t like to be told how to spend their money, planning for your first month’s income isn’t an easy task.
Instead of learning the hard way, I urge college grads to put some thought into their budgets before they even receive their first paycheck. Take the guess work out of your personal finances, and read these tips on how to properly spend and save your money.
Plan for taxes: Depending on which state you live in and your household situation, taxes can take a huge chunk out of your paycheck. To better estimate that amount, use a free paycheck calculator online. Also, start thinking of withholding as a means of saving. More withholding means a larger refund, which could be used to pay off student loans faster, or it could go towards a down payment on a car.
Don’t plan your budget around gross income: A large amount of your money is spent before you even see your pay stub. Payroll has already taken out specific amounts for taxes, health insurance, retirement plans and the like. Before you start allotting money as disposable income, keep in mind that you’ll bring home less than what you earned.
Keep a routine savings plan: Save first, and spend later. Immediately transfer ten percent of your paycheck into savings. You’ll see that money as “untouchable” if you keep it separate from checking. If you can save more, great, but what is important is getting in the habit of setting aside money each pay period. Additionally, you should always have cash in reserve for expenses like unforeseen medical bills, or, even worse, getting laid off. So, before you before you plan to splurge on a flat screen TV or pay off an entire balance on a credit card, ask yourself: “If something bad happens to me, will I have enough to get by?”
The best way to stick to a budget is to create a simple spread sheet with your expenses, savings plan and your estimated net income. Place your budget in a conspicuous spot like a refrigerator. You’ll be more likely to stick to your plan if you’re reminded of it daily.
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