Congratulations! You graduated with a crisp offer letter in hand and the promise of more money than you’ve ever made! Your hard work has paid off, and you are officially a “real” adult.
Now, it’s time to plan ahead so that you can enjoy the spoils of your hard work.
Here are the working girl’s budget basics:
Step 1: Subtract the Non-Negotiables.
a) Taxes – if you’re new to the taxable income game, you may not understand the full impact of Uncle Sam on your paycheck. However, this is a huge line item that cannot be avoided, and it’s best to be mentally (and financially) prepared for this expense before you get your first eagerly anticipated paycheck.
Use the following calculator to calculate your federal tax withholding so that there aren’t any unpleasant surprises on payday: http://apps.irs.gov/app/withholdingcalculator/
In addition, keep in mind that if you live in any state besides Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire or Tennessee, you will be expected to pay state taxes on your wages in addition to federal taxes.
Finally, please note that residents of certain jurisdictions (such as NY) may be subject to local taxes in addition to state and federal taxation.
b) Debt – if you took out loans to finance your education, you are in good company – according to a 2014 US News report, the Institute for College Access and Success found that nearly 70% of American college graduates left their institutions with an average of $28,400 in student loans, and given recent trends in the cost of education, that figure is only rising, particularly for students who pursue post graduate degrees.
So you are not alone! But it’s important to take Sallie Mae seriously—the Consumer Protection Financial Bureau estimates that 1 in 8 student loan borrowers are currently in default, and the effects of default can be devastating [link: http://www.forbes.com/sites/alexandratalty/2015/06/10/dont-default-on-student-loans-think-about-retirement-instead-lee-siegel/]
In terms of repayment, there are more options than ever before, and Obama’s income-driven repayment plan has proven to be helpful for many borrowers.
Use the following link to calculate your payments so that you can be at peace when your grace period expires: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action
In addition, if you have credit card debt, it’s important to make space for these payments, too.
Step 2: Decide the Big-Ticket Items
a) Housing – particularly if you are moving to a big new city without any connections or a broker, the task of figuring how much you should realistically expect from and pay for housing can be daunting. However, choosing your housing is one of the most important decisions you will make before entering into a high-stress, time-intensive corporate environment [link to our article on choosing housing].
We’ve found the following website to be extremely helpful in terms of determining the cost of housing: nakedpartments.com
Pro-tip: financial advisors generally recommend that one should not spend more than 30% of your income on housing.
b) Food – this is an obvious necessity, but you have some wiggle-room to figure out how often you want to eat out, order-in and cook at home. Since eating is often a social activity, this is one area of your budget in which it’s easy to lose control, so having a strict sense of your goals and limitations is key.
c) Savings – in a world of uncertainty, it’s important to have a parachute. Financial advisors generally recommend that one should aim to have 3 to 6 months salary saved for a rainy day. Calculating how much you need to put away from each paycheck to approach (and eventually exceed!) this goal, is an essential budgetary decision.
Step 3: Discretionary but Important
a) Work Clothes – if this is your first job and you are still building your arsenal [link to article on Go Tos], it’s important to make financial space for yourself to develop a professional image. The clothes that you buy to look good and function properly at your job are the very definition of an investment piece, and we believe that this category is a necessity!
b) Personal Care – don’t underestimate the costs of being a girly girl in the corporate world -- make up, toiletries and personal services (hair removal, manicures, hair dressers) can really add up, and it’s important to be financially prepared for these essential expenses.
Step 4: Fun!
After your bills are paid and your savings are saved—do you! Everyone spends money in different ways, and it’s important not to let anyone shame you into feeling bad about your choices. Don’t let the girl who spent $5K on a two-week trip to Europe make you feel any less competent or “grounded” for buying a Goyard bag—or vice versa. It’s important to do what makes you feel good—after all, you literally earned it.
Pro-Tip: Avoid Keeping up with the Corpdashians...