How College Grads Can Create a Spending Plan
The transition from college to the real world can take a certain amount of adjustment. One big challenge for new graduates is mastering the basics of budgeting and managing their finances.
Creating a spending plan is an important step for grads to reaching short- and long-term financial goals. Here are some tips to get started:
1. Understand How to Use a Spending Plan
The first step is understanding that a spending plan is a tool to gain control over your money. Rather than spending money without a strategy, you can assign a purpose to every dollar.
A spending plan can help eliminate wasteful or unnecessary spending. For a grad who's just starting their career and hasn't realized their full earning potential yet, making every dollar count is a must.
2. Add Up Fixed Expenses
The next step to creating a spending plan is getting an accurate number for monthly fixed expenses. These are recurring costs, and they usually don't vary much from month to month. For college grads, they can include rent and utilities; health insurance and/or car insurance; mobile phone service and Internet; food; transportation; clothing; and expenses tied to starting a new career or hunting for a job.
Although technically not necessary to live, student loan payments and other debt payments could also go on this list. These are expenses that must be paid each month to avoid damaging a new grad's credit score.
3. Make Room for Saving
You might assume the next step in making a spending plan is looking at variable expenses — items like entertainment or vacations. But grads shouldn't skip the line item for saving.
The first goal for savings is to establish an emergency fund. Putting $500 or $1,000 in a savings account can help avoid having to charge an unexpected expense to a credit card.
The next step is saving for retirement. This might be relatively simple for grads who have access to an employer-based retirement plan. It's a matter of enrolling in the plan and contributing the minimum to get the full company match.
If your employer doesn't offer a plan, grads can still get a jump on retirement by saving through an individual retirement account or IRA. Setting up an automatic savings contribution of $25 or $50 a month as part of a spending plan can help instill the savings habit over the long term.
4. Review the Extras
Add up the "extras" — think everything from a gym membership to your daily latte habit — to determine if you should apply the funds elsewhere.
For instance, paying for a gym membership could be considered an extra expense. If a grad is struggling to save money, they could drop their gym membership and work out using a free mobile application, a gym in their apartment building or a running track in a public park.
Going over the nonessential expenses requires grads to learn to separate their needs from their wants. It's a good way to put extra money back into a spending plan that can be used towards debt repayment or another money goal.
5. Match the Spending Plan to Your Income
The most important aspect of creating a spending plan is to ensure it's realistic for your situation. If your estimated spending plan totals $4,000 a month but you're earning $2,500, you either have to increase your income — by working more hours or getting a part-time job or side hustle — or find ways to cut spending.
But it may be easier to go back to the original plan and see what can be reduced or eliminated altogether. A grad's first goal should be to align their income and spending.
From there, they can work on looking for ways to widen the gap between what they earn and what they spend to ensure that they're living within their means. As their career progresses — and their income grows — their ability to do so can make for a brighter financial future.
All content provided in this blog is supplied by Rebecca Lake and is for informational purposes only. Barclays takes no position as to the views, and makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog.
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