If you’ve somehow managed to last four years in college without a job, you’ll be surprised how hard it may be not to live paycheck-to- paycheck.
When you get your first job after graduation, the most important thing you can do is to create a budget, which will allow you to simultaneously spend money, pay bills and save for retirement simultaneously.
What you should first do with your new paycheck is start building an emergency fund. This fund should be enough to cover your expenses of living for six months if you were to lose your job.
This might seem like a lot of money to stow away, but it beats having to live with your parents if you lose your job.
Start putting money into a savings account at your local bank until you can live off that account while job hunting.
The second thing you have to do is pay off debt. If you took out student loans to pay for college — and you probably did — you should pay these off as soon as you can. Make these debts your enemy. Imagine you are the LSU football team and student loan debt is the Crimson Tide.
If you have more than one debt to pay, like credit card debts that you also built up during college, pay off the one with the highest interest rate first.
Next, let’s talk about investments. You don’t have to work on Wall Street to be able to invest for yourself.
Why should you start investing now? Investing is about time. As a college graduate, you have more time than most people who are already working.
Simply put, it will cost you less to save for retirement now than when you’re 40.
Ask your employer about its retirement plan. If they offer a 401(k), try to max out your contributions and your employer will give you free money to save for retirement.
If they do not offer a 401(k), look into opening your own retirement account and investing on your own.
I could write a whole article just about investing, so you should read up on this on your own. SmartAboutMoney.org is a great place to start learning about investing your money for the future.
Now, to the good stuff. How much do you have to put away every month?
There is no standard answer. It’s all about your personal preference, but I can give you a place to start.
If you have debt you need to pay off, I suggest you do this as soon as you can. This means making cuts on your spending if necessary. Maybe find a roommate to cut down on living costs or lower your food costs by cooking for yourself and not eating out.
I suggest using the 70-30 rule, meaning 70 percent of your income goes to buying things and 30 percent will go to setting up your emergency fund and paying off debt. Once you have paid off your debt, or if you never had any to begin with, I suggest using the 80-10-10 rule. 80 percent of your money goes to buying stuff, 10 percent to savings and investments and 10 percent to charity.
Again, it’s about personal preference. If you find you can live comfortably off 70 percent of your income, then do that and save the rest. However, try to put at least 10 percent into investments. It can save you more money in the end.
Jay Cranford is a 20-year-old finance junior from St. Simons Island, Georgia. You can reach him on Twitter @hjcranford.