You’ve just graduated college and you’re overwhelmed by the thought of entering “the real world.” No longer on a meal plan and with potentially no place to live, how can you possibly afford to start life on your own? The answer may seem rather simple; create a budget!
Life in the real world does not have to be as intimidating as some people make it out to be. While student loans have added up over the years and you no longer live the carefree lifestyle of a college student, you can still take control of your finances by adhering to a strict budget. It might be difficult at first to give up all of the fun activities you would do with your friends as a student, but it will be worth it in the long run to see your savings stack up.
How to Create Your Budget
There are a few easy methods available online for calculating discretionary income on a monthly basis. Discretionary income is calculated by subtracting your total expenses from your income; it is the amount you have leftover to spend and invest as you wish. If you were lucky enough to secure a job right out of college, your adjusted monthly income can be automatically calculated from your estimated monthly salary using an online calculator.
Next, calculate your average expenses: rent or mortgage, utilities, groceries, car payment, student or other loans, credit cards, insurance, medical expenses, entertainment and other miscellaneous expenses. The list is long, but some of these expenses might not apply to you (i.e. if you’re able to stay on your parents’ insurance plan until age 26 or you move back home after graduation).
An online worksheet will subtract the total amount of your expenses from your monthly salary without you having to do the math to determine your monthly savings. Assuming that your expenses will not vary much from month to month, you can create a detailed savings plan in which you set aside a specific amount of money each month in a bank account.
Following Your Budget
After you have determined how much of your monthly income you actually get to keep after taxes and other payments, decide where you could afford to curb your spending. At least in the beginning stages of managing your own finances, you can keep your spending somewhat controlled.
Easy ways to save money include cooking your own meals instead of going out to eat and resisting the urge to buy things you can live without. If you are not in desperate need of new clothes, wear what you have in your closet. If you can make coffee at home, skip the daily trip to an expensive coffee shop. Small expenditures like a latte a day do add up; on average, as much as $20 a week or $1,040 a year! When you get frustrated that you have to decline your friend’s invitation to dinner one night to save money, remember that number.
Reaping the Benefits
Besides, that $20 spent on coffee each week could be used for so much more. By the end of the month, that’s $100 that could be put toward one of your student loans! Any time that you can add something extra to your loan payment, you are shortening the time it will take you to pay off the entire amount and you lessen the interest accrued. Especially if you have multiple loans to pay off at both the state and federal level, an extra $25 paid a month on one loan could make a huge difference for you moving forward in the repayment process.
Investing in Your Future
Although many recent college graduates struggle to find a job within the first three to nine months of their search, there is a huge benefit that could make it all worth the wait. If your current or future employer offers a 401k or other type of retirement plan, take advantage of it as soon as possible. If you are hired at age 22 and end up staying with the same company for your entire career, you could accumulate a pretty large sum of money for your retirement, without having to worry about account transfers or rollovers.
On average, employers will match between four and six percent of what you decide to contribute to the plan each pay period. Why wouldn’t you want free money? Another great aspect of a retirement plan is that your contribution is automatically deducted from your paycheck so you are always saving a small portion of your income without having to think about it.
Investment Options
If you are interested in investing in the stock market, Ion Bank offers a Savings Calculator that takes your original investment and estimates your total return after a certain number of years. To determine how much you should contribute and how often to reach your financial goals, the only information you need to provide is the starting amount, the number of years you have to save, your rate of return, any additional contributions, the frequency of contributions and how interest is compounded.
We also offer a Compound Interest Calculator, which demonstrates how compounding can add even more money to your savings, and a loan calculator if you plan on making any large investments. It will determine your monthly contribution and a payment schedule.
At Ion Bank, our savings accounts and programs will allow you to start saving for tomorrow, today. Our financial consultants can help you determine the best saving strategies for you, whether it be investments or an employer-sponsored retirement plan. Contact us at any of our locations today to start planning your financial future after college.