Staying out of Debt Trouble When You Graduate
When you first graduate from college, it can be very freeing. For perhaps the first time in your life, you’ll be living on your own and making your own financial decisions. Of course, this can feel great, but it can also be scary. It’s often tough to manage money and stay out of debt trouble, especially if you’ve never needed to manage a personal budget before. This can be especially true if you have a large student loan debt to repay.
Here are some tips for avoiding debt troubles when you graduate college.
One temptation when you leave college is to want to live life “like an adult” and not like a college student. This makes sense and it’s often a good idea to “grow up” once you’re out in the real world, but it’s important to remember that leaving school doesn’t mean you immediately have to start overspending. For instance, you may not need to immediately buy designer clothes or a luxury car just because you’re out on your own.
When you first start earning money from your job, it makes sense to want to increase your spending, but it’s a good idea to take things slow. It’s much harder to cut expenses when you’re used to spending them than it is to not spend the money in the first place.
In fact, some of the tactics you used when you were a college student could come in handy even after you graduate. For instance, living with a roommate can be a good way to share costs with another person and it can help you stay on budget.
Of course, some expenses will be required. You might need to buy furniture for your home, a car so you can get to your job, clothes to wear to work, and much more. While it’s tempting to go all out on these purchases, it’s important to live within your means. Think hard about whether you can afford something before you buy it and look for deals and discounts.
Have a Budget
Having a budget is critical for everyone, and especially for recent graduates who are just getting used to the idea of “living in the real world.” Add in the fact that you might be paying down a large student loan, and it’s crucial that you prepare a monthly budget. Otherwise, it’s incredibly easy for you to spend more money than you have available, which can cause you to get into debt trouble while you’re trying to make ends meet.
Start by writing down all of your monthly expenses. Break this list into two lists: Fixed expenses and variable expenses. Fixed expenses are ones that don’t change very much from month-to-month, such as rent, utilities, etc. Variable expenses are just about everything else. These expenses are at least somewhat in your control as you have some ability to spend more or less in these areas each month. For instance, examples of variable expenses are groceries, clothing, transportation, entertainment, and other similar expenses. If you need to make cuts to your budget, cutting variable expenses is a good place to start.
You’ll also need to include debt repayment in your budget. If you have student loan debt to repay, credit card debt, a line of credit, a car loan, etc. you’ll need to make sure that you have room in your budget to make these payments.
Once you’ve written down all of your expenses, you’ll need to make sure you can afford them on your monthly salary. If you can’t, you’ll need to make some cuts, likely to your variable spending since fixed costs and debt repayment costs can’t be adjusted very easily.
Track your Spending
It’s incredibly easy to lose track of spending. This is especially true when you’re first starting out on your own and you have a lot to buy. One of the best ways to stay on budget and avoid overspending is to track what you spend. You can do this in several ways, from an app on your phone to a spreadsheet on your computer to good old-fashioned paper and pencil. Use whatever method is the most convenient for you and try to track purchases as soon after you make them as you can. This makes it less likely that you’ll forget something.
Save for Emergencies
It can be tough to save money when you’re just starting out. You might not be making very much money and you probably have a lot of bills. But saving for emergencies is important. If a sudden expense comes up (such as if your car breaks down) or if you lose your job, you’ll need to have some money saved up. Otherwise, you’ll probably be forced to take one some additional debt to make ends meet.
Any little bit helps, so even if you can only put aside a few dollars a month at first, it’s wise to do. Include a “savings” category in your budget so that you stick to your goals. And, once you’ve built up an emergency fund, don’t dip into it unless you have an actual emergency.