Congratulations—you’ve scored your first job! But while the exhausting search for a full-time gig is over, the real hard part has just begun: Learning to live off the tiny paychecks you’ll likely earn once you start working. The average entry-level salary for Class of 2016 graduates was projected to be nearly $51,000, but plenty of brand-new employees earn well below that level. Here are seven simple tips for managing, saving, and spending money when you don’t have that much of it.
1. THERE’S A DIFFERENCE BETWEEN YOUR GROSS PAY AND YOUR NET PAY.
Your salary might sound pretty decent on paper—especially when you’ve never had one before—but keep in mind that number you’ve accepted (your gross pay) is higher than the amount you’ll actually take home each month (your net pay). When you get paid, the money isn’t just going to you. Portions of it also go toward federal, state, Social Security, and Medicare taxes. Other deductions include health insurance payments and retirement savings, like a 401(k), if you choose to put money into one. (You should.) If you aren’t sure how much to contribute, there are plenty of online tools that can help, like this one.
When all is said and done, you will likely only be pocketing 60 to 70 percent of your entire salary. Keep this in mind before planning a budget.
2. FINANCIAL EXPERTS RECOMMEND FOLLOWING THE 50/20/30 BUDGET RULE (WITHIN REASON).
Once you receive your first paycheck, resist the urge to splurge. Instead, sit down with a calculator and figure how much of it needs to go toward essential expenses, and how much can be set aside for fun stuff or saved for a rainy day.
Some financial experts recommend following what they call the 50/20/30 rule. That’s when 50 percent of each paycheck goes toward non-negotiable, “fixed” costs like rent, bills, and groceries; 20 percent of it goes toward savings; and 30 percent is spent on things like personal appearance (clothing, haircuts, etc.), travel, and entertainment.
Keep in mind that this rule isn’t hard and fast, and depends largely upon how much it costs to live in your region. For instance, you’ll likely pay way more cost of living expenses if you live in New York City than if you live in, say, suburban Ohio.
3. STUDENT LOANS CAN BE KEPT IN CHECK WITH THE RIGHT PAYMENT STRATEGY.
If you’re one of the 44 million Americans with student loan debt, the 50/20/30 rule can be particularly difficult to follow. But with a little strategic planning, you can avoid forking over your entire paycheck to education lenders. First, look into refinancing the terms of your loan, which could allow you to pay a lower interest rate and extend the repayment period. Depending on your income, you may also qualify for loan deferment or forbearance. The federal government also offers income-based repayment plans, which limit the percentage of income qualified applicants have to pay towards their loans.
4. YOU CAN ALWAYS FIND A BETTER DEAL FOR COST-OF-LIVING EXPENSES.
Necessary expenses like rent, transportation, and phone bills comprise a large part of your budget, but they aren’t set in stone. Just like you would likely search for contrasting deals while shopping for a TV or a sweater, continue to scan real estate ads for more affordable apartments, and check in with utilities reps to see if any special savings, discounts, or packages are appearing on the horizon. The little things add up too: Consider switching to generic household staples when you hit the grocery store, and ask your HR manager what, if any, pre-tax transportation benefits your company offers.
5. TRACKING YOUR SPENDING HABITS HELPS YOU ADHERE TO YOUR BUDGET.
Never have as much money in your bank account as you’d like? Sit down with your monthly bank statements, and take a long, hard look at your spending habits. You’ll see all the usual monthly bills, but you might notice some surprising patterns.
Do you buy expensive coffee more often than you realize, or splurge on new items right after you receive a paycheck? Recognizing—and curbing—these unplanned and impulse purchases can go a long way toward helping you stay at, or even under, your budget. To stay mindful of them, consider downloading—and using— an app that helps you budget and track expenses.
6. OVERTIME PAY IS YOUR FRIEND.
Clocking long workdays for very little money? If you put in more than 40 hours a work, your boss may be required to pay you overtime, or at least one and one-half times your regular pay. Check to see what the rules are, and if you are guaranteed a paycheck boost, start volunteering to take on additional early and late-night hours.
If you aren’t eligible for overtime, your company may offer other benefits to employees stuck working late. You may be able to expense dinner or a cab ride home.
7. YOU’RE PROBABLY STUCK SCRIMPING FOR A WHILE (BUT DON’T STOP BUDGETING ONCE YOU GET A RAISE).
After initial salary negotiations are made (and first-time budgets are blown), it might seem tempting to ask your boss for a raise only a few months into the job. Sadly, barring an overnight promotion or an extra-generous supervisor, you’re likely stuck with the same pay for the next year or so, as you typically should avoid asking an employer for more money until you’ve survived at least one annual review cycle. (Unless your responsibilities have substantially increased, in which case: Ask for the raise!)
In short, you’re going to be scrimping for a while. Use this period to learn good money habits, and once you do finally get that coveted promotion—and the accompanying bump in salary—you’ll be well on track to financial success. But even though you’ll be making more money, continue to adhere to the 50/20/30 rule, or consider contributing even more money to your savings if you feel like you have the wiggle room.
Over budget? Under budget? What’s a budget? Answer these questions and more with tools like Slice-a-Budget on Prudential.com.
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