Should I Keep Living Like a Poor College Student After My First Job?

Woman Budgeting
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Getting your first real paycheck after graduating from college is a momentous occasion. You have reached a major milestone. You might have a list of things you want to spend it on and things that you want to do now that you are no longer a poor college student. However, you might find that you need to keep living like a poor college student for at least a few more years. Here are three reasons that you might need to stick to a tight budget when you land your first job.

1. Your Pay Is Not What You Expected

When you graduate from college, you will likely land an entry-level position, which may not be as much as you anticipated. It can be difficult to make ends meet in a city if you are making $40,000 a year. In addition, you may be surprised at how much is taken out of your paycheck. If you are single, you will have your taxes withheld at the highest rate. The additional costs of health insurance and other benefits being deducted from your paycheck may drive the overall take-home pay even lower than you originally anticipated. Contributing to your 401(k) may not lower your take-home pay as much as you think because it lowers your taxable income.

When you start budgeting, remember that it is easier to make cuts now before you commit to bigger expenses. It can be difficult to cut your lifestyle once you are used to spending money. If you continue to live on a limited budget like you were in college, it will make it easier to meet your monthly obligations and work on your other financial goals.

2. More Financial Responsibilities

Once you have graduated and landed your first job, any help that you have been receiving from your parents is likely to stop. If your parents helped you through college, you may not be used to budgeting for rent and utilities. In addition, you may have to find money to cover additional expenses you may not be thinking about like car insurance, cell phone bill, and gym memberships. You might be surprised at how quickly these small things can add up and eat into your earnings.

When you land your first job, you may be tempted to splurge on eating out for every meal or getting new clothes. However, it is important to wait a few months and see what additional expenses you will need to cover. You may need to start planning for things like car registration and taxes. You may also be surprised by fluctuating power bills in the summer or winter.

Additionally, you will need to begin paying on your student loans within six months of graduating. This will be another hit to your budget. It is a good idea to include this money in your budget as soon as you graduate so you can adjust to it. Take the money you would normally be paying toward student loans and put it into a savings account for an emergency fund. Once you reach the six-month mark, you can begin paying on your student loans without making a huge budget adjustment. If your payments are going to be too much, look into income-based payment options, as well as possibly consolidating your student loans. 

3. Limit Spending to Set Yourself Up Financially

The habits you start with your first paycheck will determine how well you do financially throughout your life. Although you can change them later, it is much easier to start off being responsible from the beginning. Instead of spending years trying to correct your financial mistakes, you can focus on reaching your financial goals.

Start by making saving for retirement a priority. As soon as you qualify, you should begin contributing to your 401(k) at least up to the match that your employer offers. If you do not qualify for a year, you can start by making monthly contributions to an IRA account.

Work out a financial plan that sets out clear goals for your future. You can start by saving an emergency fund and then work on things like saving up a down payment for your first home or planning a dream vacation. If you start saving for a new car, you can avoid having a car payment which will further cut into your take-home pay.

Focusing on building wealth from the start can put you in a comfortable position as you get closer to retirement. It will also let you take each of the steps that you want to do as you want to do it. It can be frustrating to be at the point when you want to buy a home, but you are unable to because of your poor financial choices. Take the time now to establish good financial habits.