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Congratulations, you’ve graduated college! You’re ready to begin your new life in the real world with a real job! This step into adulthood is very exciting, but it can also be a time of confusion with new responsibilities. Set yourself up for financial success early by following these financial tips, including planning emergency savings.

Salary Expectations

Many college students graduate with an unrealistic expectation their salary earnings for the first years after college. Accenture conducted an online U.S. survey in March of 2015 consisting of 1,001 students graduating from college in 2015 and 1,002 participants who graduated college in 2013 or 2014. The survey found that 85 percent of 2015 graduates expected to earn more than $25,000 a year after graduation. While the reality is, 41 percent of working 2013 and 2014 graduates actually earn $25,000 or less a year. Even though you have a college degree, you will likely start your career at an entry level position. It will be important for you to make a budget aligned with your salary.

Budgeting

Once you land a job and start earning a steady income, it can be tempting to carelessly spend money. It’s time to make a budget. There are several worksheets, like this one (PDF), that can help you get started. Make sure that your monthly income minus your monthly expenses is a positive number. If not, you will need to cut back in areas or get a part time job in order to live within your means.

Now is a good time to start planning for the future. What are your short and long term goals? Are you currently living at home, but want to get your own place? Do you have an emergency savings account set up in case you lose your job? These are all things that you should budget for. Also keep in mind future expenses, like student loan repayment, that will be coming your way. Typically six months after graduation, your loans will exit their grace period and you will need to begin making payments. Make sure you’re prepared for repayment by following these four steps.

Savings

Ever heard of the term, “pay yourself first?” This is a phrase typically used for any type of savings or retirement plans. Pay yourself first means putting a specified portion of your paycheck to savings or retirement before spending anywhere else. The best way to do this is to set up a direct withdrawal from your account whenever you get paid. That way, the money is already in your savings or retirement account before you even see it. If you have money for savings, there are two areas you should focus on to set yourself up for financial success: retirement and emergency funds.

Saving for retirement as early as possible gives your money more time to grow before you retire. According to Bankrate.com, if you save $2,000 a year starting at age 25, you would have approximately $560,000 in retirement savings by age 65, assuming 8 percent annual growth. If you save that same $2,000 a year and have the same 8 percent growth rate, but don’t start until age 35, you will only have $245,000 by age 65. That is a loss of $315,000 just because you started 10 years later.

Emergency Savings

An emergency savings fund money you save for emergencies only, like a loss of a job. It is typically suggested that you have enough emergency funds to cover at least three to six months’ worth of living expenses. For example, if you have $2,000 in monthly living expenses, you should have anywhere from $6,000 to $12,000 saved in your emergency savings account. People that don’t have emergency funds and lose their job can often end up living off of credit cards with high interest rates. This can not only put you in debt that you may have a hard time getting out of, but it will also hurt your credit history, which can take a long time to rebuild.

It may be difficult at first, but saving early in life will benefit you in the long run. Accounting for a realistic salary and sticking to a budget that allows you to put a little money away lays the foundation for a fiscally responsible future. Be smart with your money and you’ll be on your way to a financially successful life.

Recent surveys and studies suggest that many young adults lack basic money management skills. Too often, students enter college at a loss for managing their personal finances. College may be the first opportunity you have to experience some independence, and may be the first time you are faced with budgeting and making financial decisions on your own.

One of the simplest, yet most important steps to controlling your finances is budgeting. To start the process, determine your take home income and total expenses. Then break it down to a simple formula:

Income – Expenses = Positive or Negative Outcome

As you can probably guess, you want to end up with a positive outcome. To accomplish this, you need to spend less than you earn. It may sound easy, but it can be difficult. In order to calculate this number, you’ll want to sit down with a list of your monthly expenses. Worksheets like this one can help ensure that you’re accounting for everything – even that daily latte.

Here are some steps to get you on track to creating a budget and taking control of your financial future.

Know your income sources.

This is usually pretty straight forward. It’s typically money you earn from a job, but if you’re a student it can also be money you’re receiving from financial aid sources (grants, scholarships, or loans), money from your parents or other family members. To ensure your funds last the entire semester, you may need to average out your financial aid to a monthly amount.

Identify your expenses by using a daily spending diary.

Fixed monthly expenses like rent, car payments, insurance, and any other expenses you pay every month are easy to identify. The daily spending diary can help you track your variable expenses like food, entertainment, and clothing. After tracking of all of your expenses for a month, you may be surprised at where your money is going.

Figure out needs vs. wants.

When looking at your expenses or potential purchases, it’s important to make a distinction between “needs” and “wants.” There are some things you absolutely need – like housing and food. However, some things may fall into the “wants” category, like frequently eating out.

Find room for improvement.

After you’ve identified all of your expenses, find areas that can be reduced or even eliminated. Remember, you want to spend less than you earn. That goes for credit cards, too. It’s easy to spend what feels like “free money” but that debt can catch up with you quickly with interest.

Stick to it.

The last step, and possibly the most difficult, is to stick to your budget and resist the temptation of unnecessary spending.

After you’ve crafted your budget, stick to it each month, then evaluate how you’re doing. Are you staying within your budget? Are there problem areas you need to address with some of your expenses? You can find more money saving tips here to keep your expenses under control.

After you’ve created your budget, you’ll start to experience the benefits.

  • Ensure you don’t spend money you don’t have
    • Far too many of us spend money we don’t have using credit cards or student loans. A good tip is to only use credit cards when you can pay the balance each month and only use student loans for what you need (not want).
  • Shed light on bad spending habits
    • Building a budget forces you to look at your spending habits. You may find areas where you are spending money on things you don’t really need.
  • Leads to a brighter future
    • Budgeting allows you to position yourself for a more successful future. It’s far easier to “live like a student” when you’re actually a college student as opposed to trying to climb out from under a mountain of debt later.

Budgeting doesn’t mean spending as little money as possible or feeling guilty about every purchase. It’s about knowing your limits and making sure you have control of your finances.