Managing money at an entry-level salary

A young woman shops for fruit. 

$50,000 is the average starting salary for a college graduate. Whether you end up making more or less, these tips will help you build financial confidence on your entry-level salary.1

You’ve landed your first job after graduation — congratulations! Now that you know what your initial salary will be, you can build a realistic and sustainable budget that’s based on your take-home pay. This new budget might look a little different from the one you used in college — so, to get you started, we have three tips that will help you create a budget based on your entry-level salary.  

Financial confidence, here we come. 

Tip #1: Start with your needs 

First things first: Make sure you have enough money to cover your essentials based on your take-home pay, which is the amount of money you will actually see deposited into your bank account on a weekly, biweekly, or monthly basis. This number will be less than if you calculated your expected pay by just dividing your annual salary by 12. This is because your employer automatically deducts some money from the top of your paycheck for things like health insurance premiums, federal and state taxes, 401(k) contributions, etc.  

Once you know your take-home pay, use that number to budget for essential expenses that you’re responsible for paying directly. This includes things such as your housing costs, student loan payments, food, car payment, utilities, etc. — anything you absolutely need to run your home and maintain your job. As you make a list of these expenses, really pay close attention to things that may have been covered during your time in college but will now be your responsibility. If you had grants or scholarships helping support you in college, make sure you account for any expenses that those funds helped cover.  

For instance, if you lived on campus during college, your utilities likely were included in your room and board, not separated out in your college budget. Now, they will be individual expenses you need to plan for. Similarly, you may not have had a car on campus but now need a car to get to and from work. Take the time to build your new budget line by line to make sure you’ve broken out any expenses that may have been rolled up into your college tuition. Expenses that are easy to overlook are things like water, sewage, trash pickup, natural gas, pet care, insurance, etc. These could also vary depending on whether you rent or buy and whether you live in a house versus an apartment, but they’re worth looking into as you build your post-grad budget. 

You should also consider emergency savings a necessity. Although how much you dedicate to savings can change based on your financial situation – put money away for a rainy day or any unexpected bills. If you had an emergency fund in college, great! You’ll probably want to increase it a bit now that your budget is different. If you didn’t have an emergency fund in college, no regrets, just start one now. 

Two other necessities are any student loan payments and your retirement savings. Directing more than the minimum to student loans can help you owe less in interest over time. And directing more than the minimum to a retirement account like a 401(k) or IRA can help you take advantage of time as an investment tool. These are all great ways to build up wealth, while reducing debt – which is why it’s important to prioritize savings and take it as seriously as you would your groceries or your rent. 

Tip #2: Consider your wants  

Once you know how much money it will take to cover your necessary expenses, you can start adding some wants to your new budget. These are things that you’d ideally like, but aren’t required. Expenses that fall into this category are things like eating out, coffee breaks, concert tickets, new clothes, and travel.  

With this category, it’s also important to identify upgrades or enhancements to your necessities that you would like to have but, again, aren’t necessary to live. For instance, your cell phone plan. Of course, a cell phone is a need, but you don’t necessarily have to have an unlimited data plan. Along those same lines, maybe you prefer to get your groceries at a boutique grocery store but could find a more affordable alternative somewhere else. Those distinctions also fall into the “wants” category because, if push comes to shove, you could adjust your budget to lower those costs. 

While your emergency fund falls into the need category – any additional you save beyond that is considered a want. For instance, if you’re saving for a trip or planning to make an expensive purchase in the near future – that is all savings that goes above and beyond the money you’re putting away to cover an emergency. Set a minimum amount you will save every month no matter what – and anything above that counts as a “want” expense because you can easily adjust it based on your financial situation.  

 Once you’ve made this list, if your expenses are adding up quickly and you need additional money to cover your wants — consider picking up a side hustle to earn a little bit more. This is a great way to boost your starting salary and expand your portfolio early on in your career.  

Tip #3: Track everything you spend   

When you’re first starting out, it can be hard to know exactly how much some expenses will be. For instance, how much will heat actually cost you on a month-to-month basis? You might not know that exact number until you’ve spent a winter in your new home. Same thing with eating out. How frequently are you going out to eat? A little stop at the gas station for an energy drink might not seem like a major expense, but those can add up.  

So that you have a full picture of how you’re spending money, make sure to track everything. Not only will this help you make adjustments to your budget, but it will also help you better estimate your spending going forward. When you’re just starting out, staying at or under your budget is crucial. You don’t want to rack up too much debt early on — so staying on top of your income versus your expenses is a critical part of gaining financial confidence on an entry-level salary. It also will allow you to make adjustments as needed. Maybe you splurged a little last weekend — no problem — but that means that you might want to be a bit more frugal this upcoming week.  

The most important part about budgeting on an entry-level salary is staying on top of it and making adjustments as needed. There’s a lot to learn — but you are more than prepared! These three tips will not only get you started but also set you up with a solid foundation as your income grows and your budget changes.  

Want to read more about building a spending plan after graduation?

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