1. Update Your Budget
You need a budget designed to support your newfound financial stability. Choose one that discourages overspending and supports consistent saving. Many new and seasoned savers prefer the 50/30/20 budget due to its flexible framework which recommends dividing your after-tax income into three categories:
- 50% for needs like housing and food
- 30% for wants like entertainment and eating out
- 20% for savings and debt repayment
Track your expenses for a month, categorize them, and adjust your spending to align with the 50/30/20 rule.
For example, if your after-tax monthly income is $3,000, aim to spend no more than $1,500 on needs, $900 on wants, and $600 on savings and debt repayment.
2. Prioritize an Emergency Savings Fund
An emergency savings fund is a dedicated savings account that holds money specifically for unforeseen expenses or situations, like a new transmission. It only takes one large surprise expense to derail your savings efforts or cause you to add new debt. Set an initial goal of $500 to $1,000, then gradually work your way up to saving 3-6 months of living expenses in a high-yield savings account.
3. Follow a Debt Repayment Plan
A structured debt repayment plan helps you efficiently tackle financial obligations. Plus, when you have less debt, you can save more without increasing your income. Focus on debts with the highest interest rates, such as credit cards, while maintaining minimum payments on others to reduce overall interest.
You can use a free financial calculator to help you meet a debt payoff goal. Such tools let you see how different repayment strategies can affect your timeline and total interest paid, helping you make better decisions about where to put your money.
4. Enroll in a Workplace Retirement Plan
Employer-sponsored retirement plans help you save for a time when you are no longer in the workforce. These plans, such as 401(k)s, let you contribute part of your paycheck directly into a retirement account, often with added perks like tax benefits and employer matching.
Sign up for your company's retirement plan and contribute at least enough to get the full employer match. For example, if your employer offers to match 50% of your contributions up to 6% of your salary, and you earn $50,000 annually, contributing $3,000 (6% of your salary) would result in an additional $1,500 from your employer – that's an instant 50% return on your investment!
If your employer doesn't offer a retirement plan, an investment advisor can help you learn about other options.
5. Set Clear Savings Goals
Whether you're aiming to save money so you can move to your own place or travel the globe, setting specific savings goals can help you get their faster. Use concrete numbers and realistic timelines when figuring what you need to do to make your goal a reality.
For example, instead of using vague language like “save for an apartment,” say “I will save $3,000 for moving expenses in 8 months by setting aside $375 a month starting now.” When you have clear targets, it’s easier to stay on track and avoid impulse buys. Write down these financial goals and review your progress at least monthly.
The discipline you developed during college can be a foundation for financial success. Stay committed to your plan, celebrate your progress, and adjust your approach as circumstances change.
