A Recent Graduate’s Guide To Budgeting
Now that you’ve earned your college degree and paid your last tuition bill, your transition into adulthood is complete. It’s time to learn how to be smart about your income and avoid costly mistakes. The first thing you need to do is set a monthly budget so that your paycheck doesn’t seem like fun money. List everything you need to pay every month and what’s left is disposable income. If there’s none left, it’s time to go back and make some cuts in your spending. Here’s what else you need to know:
1. Never pay bills after the due date. There are fees and interest charges attached to balances when you miss your due date by even a couple days. What’s more, your almighty credit report could take a hit as well. If you’re not sure why a respectable credit rating is important, try getting a car loan or a lease on an apartment without one. If your credit score is good, you’ll likely see better rates for car insurance and loans, too.
2. Use credit cards wisely. If you don’t trust yourself, don’t use them at all. While it’s good to accept a low-interest credit card (without an annual fee) and use it to establish a positive bill-paying history, it’s foolish to squeak by and only pay the minimum due every month. Before you know it you’ll be in over your head in debt and the interest charges will make paying the card off seem impossible. While it’s okay to take a couple months to pay off big items, don’t let it snowball into a bad habit.
3. Save, save, save. It’s hard to find money to tuck away for a rainy day when your living expenses come alarmingly close to your net pay every month, but it’s a good habit to get into. If you have some savings, you won’t have to go into debt when little emergencies like car repairs creep up. The easiest way to save is through a savings program, like a 401k, through your employer. You won’t even miss it from your check and it grows faster than other types of savings because the employer chips in as well.
4. Understand the pitfalls of using a debit card. While it may look like a credit card, a debit card functions exactly like a check does. The money you spend comes directly out of your account within a day or two. What happens if you aren’t diligent about the amount in your account and how much you are spending? You overdraw your account and accrue some nasty fees from your bank. If you have spent even a dollar more than you have, you could be deducted up to $40 in overdraft fees. The lesson here is to keep track of your spending so this never happens.
Independence, financial and otherwise, is what you’ve worked so hard for all these years. Protect your identity by keeping your social security number to yourself and shred your mail with financial account numbers on them. Spend only what you have and push yourself to save along the way. It isn’t always easy to be financially responsible, but it is always rewarding.
Jon Ross is an economics instructor who runs seminars on scholarships and online degree programs for adults.