When you graduate and begin earning money at your first full-time job, you may not have much experience living on a budget. But a budget is vital to avoid living too large for your wallet.
It’s a simple idea: A budget is a detailed plan, which includes your income and spending habits, that will help ensure you spend less than you earn.
“Planning and tracking your spending is essential,” says David Weliver, who offers financial advice for young professionals on the blog Money Under 30. “Charting every penny can be tedious and doesn’t always work — there will be unexpected expenses and months that you have more expenses than others, like once a year when you might have annual fees to register your car tag or occasional doctor’s bills for yourself or a pet.”
As a rule of thumb, aim for spending no more than 50 percent of your paycheck on fixed monthly expenses, he suggests. That way you’ll have money left over for saving, investing, and guilt-free spending. After setting aside 20 percent of your paycheck for savings, you’ll have 30 percent for anything else.
The key to sticking to your budget is to avoid going wild with your spending. But if you frequently find yourself running out of money at the end of the month, or you can’t find any money to commit to a savings account, an IRA, or 401(k), it’s a sign your current lifestyle isn’t financially sustainable, Weliver says.
Here are seven tips to help you pare down expenses and stick to your budget.
1. Don’t live somewhere you can’t afford.
Sticking to the 50 percent rule on your fixed expenses might mean renting a less expensive apartment or moving in with friends. A longer commute might be the tradeoff for a lower rent payment, but your pocketbook may thank you for it.
2. Plan inexpensive nights in with friends.
With a world of options and countless invitations, it can be easy to overspend on entertainment. Consider nights in with friends rather than going out. Cook your own meals, rent a movie, or host a game night.
3. Put off buying a new car.
As soon as you start earning money, it can be tempting to head to the car dealership and buy your first new car. Consider saving up for a few months to a year before you take the plunge. If your old car is working properly, try and make it last a while longer, or look into ride sharing.
4. Pack a lunch.
Instead of spending $10 a day on lunch at a café, restaurant, or fast-food spot, buy groceries and pack a lunch every day.
5. Get creative with dates.
If you want to impress your date without overspending, try homemade dinners, romantic strolls, picnics, free concerts, and other inexpensive but creative dates.
6. Give inexpensive gifts.
Regardless of the occasion, if you’re shopping on a budget, give thoughtful gifts from the heart instead of expensive presents that put a dent in your monthly budget. Make a homemade gift or give something small but meaningful to the individual.
7. Automate your saving.
Even if you can’t set aside 20 percent of your monthly income for saving, a small amount will still help. “The best way to keep yourself accountable is to find a reasonable amount of money that you can automatically transfer to a savings account each month after your fixed expenses are paid without making yourself feel deprived,” Weliver says.
You can be in control of your finances rather than your finances controlling you. But it requires spending less than you earn every month and increasing the difference between earning and spending over time.
