With a hard-earned diploma in hand, many college graduates eagerly await that day when their first paycheck shows up, signaling a major leap into “the real world.” Though it’s tempting to begin acquiring new furnishings, living space, wardrobe and other purchases we think we need immediately, you’ll set yourself on the right track for the future by taking certain steps with that very first paycheck.
Ah, the dreaded budget. Though it sounds boring, restricting, maybe even too difficult, budgeting in some regard is the only way you’ll be able to get a true hold on your finances and plan for the future.
When setting a budget, first you need to consider all of your necessary expenditures – insurance, rent or mortgage, car payments, and more. And what’s left after that each month needs to be accounted for – what will you spend on groceries and eating out? Do you need a set amount for clothing purchases and gifts for others? And don’t forget saving for the future.
Many financial blogs cover the basics of budgeting and other pertinent financial information to hold you accountable and give you encouragement as you take steps to find the kind of budget that works for your life. We offer a great budget worksheet in our Personal Wealth Lounge.
Budgeting can be even more convenient by taking advantage of your smartphone. Popular apps such as Mint or Expenditure allow you to track spending, set a budget, manually enter cash purchases and more. It’s also a good idea to download your bank’s online mobile app, so that you can have 24/7 access to your account overview, make mobile check deposits and transfer money between accounts.
2. Start an Emergency Fund
An emergency fund is when you set aside money for something unexpected. When planning for a budget, don’t forget to consider setting some money aside in a separate account “for a rainy day.” This could be for car repairs, or when your water heater goes out, or, in a worst case scenario, you lose your job.
You’ll want to keep an emergency fund in an account that is readily available, in case you need to access the funds quickly. But don’t use your everyday checking or savings account. Set up a separate savings account at your bank that is solely for emergencies to start building that fund. Some accounts, like the You Name It Savings Account at Illinois National Bank, even allow you to select a certain date each month and automatically transfer your money for you.
Setting aside even a small amount of money each week will eventually build up, leaving you with a cushion in case you need it in the future.
3. Start contributing toward retirement
Contributing toward retirement savings when you are young allows your money time to grow and accumulate as soon as possible. Through the power of compound interest, the interest you earn on the money in your retirement fund will build upon itself . The difference between starting to save when you are 25 versus when you are 35 is extremely substantial, as outlined in this example by CNN Money.
Most companies and organizations offer retirement savings opportunities, like 401(k)s, and many also contribute a certain percentage to your fund or even match your contributions.
For those without company retirement funds, there are other ways to save for retirement, such as setting up an IRA. Various retirement funds have different features, so do your research to decide which one best meets your needs. The important thing is to start saving for retirement as early as possible.
Having a healthy financial life both now and in the future means starting at the beginning with smart financial decisions after college.