Whether you are in your last year of grad school or a recent graduate and are venturing out on your own for the first time, creating a budget is essential to ensuring a healthy financial future.
What Is a Budget?
A budget is a sheet of paper or a spreadsheet that contains a complete accounting of your monthly expenses including your bills and essentials like gas, food, clothing, and toiletries, as well as a total of all your take-home earnings. In essence, it’s a blueprint that allows you to see clearly what you spend your money on and how much money you have to spend.
Importance of Budgeting
Once you have your budget completed, you get a real sense of where your money goes. It’s a tool you can use for life to stay on track, maintain a good credit score and keep your debt under control.
A budget also lets you plan for the future. You can use it to figure out where to get money to tuck away in a savings account for a vacation or a down payment on a car or a home.
A budget gives you a good understanding of what you can afford. Say you want to buy a car, your budget will let you know exactly the amount you can safely borrow and as a result, you can search for a car in your price range and take out a monthly installment loan that remains within the allocated amount.
You may hear the word “Frugal” and think it’s just another way of saying “cheap.” Nothing is further from the truth. A frugal person is smart with their money and when you start life on your own for the first time, every penny counts. Luckily, there are many ways to spend less and still enjoy a comfortable life.
For instance, before shopping for food plan your meals and make a list of everything you need and then look online for coupons that apply to these same items. The same goes for toiletries and clothing, look for sales to make the most out of each dollar.
If you enjoy spending time with friends and as a result, you eat out several times each week, have one of those social gatherings at home. You can alternate places so that you only have to foot the bill once a month.
Paying Down Debt
You may discover after creating your budget that you have a few credit cards with high balances have accumulated during your years at college. If you’ve made your payments timely, then there are several ways that you can reduce the balances.
You can apply for a new credit card that lets you transfer your balances at no added interest for a period of up to a year. This does two things for you immediately. It makes your monthly payment less helping to free up money in your budget and it allows you to pay down your debt faster because there’s no interest added.
Establishing a budget fresh out of school lets you stay on top of your money and over time will allow you to make smart financial decisions.