Budgeting: outside of business majors and the fastidious, most of us would much rather not deal with something so complicated other than in broad strokes. But budgeting is extremely important, especially during and after college, and undoubtedly something that all of us should become more familiar with. Together we’ll become more familiar with how to calculate your monthly budget after college.
This will be a list of general tips and at the bottom, some more precise methods for calculating your monthly budget determining goals and expenditures.
Overestimate money spent, underestimate money earned.
Without making a spreadsheet or using a budgeting app, this is a good way to think about the money that you spend if you just want to roughly calculate your monthly budget. When you make a transaction, round up to the nearest 1, or 5. So $21.24 would round up to either $22.00 or more conservatively, $25.00. Approximating high, and rounding down dollars earned changes the dollars and cents that you would normally think of as being yours, to being spent. When doing mental calculations, this can definitely help save you from overdrawing. A caveat: while this method is effective, it is not suited for long term budgeting so be wary!
The rule of thirds and the rule of halves
These two rules are pretty common wisdom, things that I’ve heard from family friends and parents for years. The rule of thirds: take your income and divide it into 1/3 bills, rent, electric etc., 1/3 food, eating out, household needs, and 1/3 savings. The rule of halves is similar, 1/2 for necessary things, 1/2 for savings and unnecessary things. While the wisdom is pretty sound, it’s predicated on having employment that more than covers your expenses, and for many of us in the millennial generation and younger, that just isn’t the case right out of college. I’d steer away from these two.
Okay, now for something a little more precise.
Begin to calculate your monthly budget by identifying what you spend your money on. For now, broad strokes are fine, but the more energy you put into this, the better and more precise your budge will be. Your expenses will likely take the form of three broad categories: mandatory, necessary, and variable.
This category will include things like rent, utilities, car payments, and student loans. You have 6 months before your repayment begins, prepare for this. These are expenses that must be paid and are often immutable. This makes a stable basis for a budget. Add these together, making sure that you collected everything that you need to pay.
These are other expenses that are necessary for you to live your life. Included in this category are items that might change or that you have agency over. Necessary expenses might be gas, food–groceries and eating out, and household expenses. While you will need these items, you have agency how much you allocate to these expenses and what gets prioritized when. Your food budget is undoubtedly a place to exercise jurisprudence. While it might seem reasonable, never going out ever inevitably fails
If you’re anything like me, this is the smallest portion of my monthly budget. This category is all other things: Netflix subscription, nights out with your friends, movies, late night Amazon orders, etc. etc. while many of these things may have become habit or commonplace, this is the easiest place to trim down a budget when necessary.
With these three major categories in mind, and the ever looming specter of student loans haunting your every waking moment, let’s turn to savings. When you calculate your monthly budget, do so with three time frames in mind: short, medium, and long. Short term savings asks what is a priority in the near future, within a year. Medium asks what should be a priority between 1-3, some things say withing 1-5 years. Long term is anything beyond medium range savings.
When calculating your monthly budget, be sure to factor in an emergency fund.
This is a pool of money that’s readily available to help cover large unexpected events in your life, such as hospitalization, car repairs, emergency travel or a loss of occupation. Typically an emergency fund is your cost of living for 3-5 months, or approx $5,000, enough for to float you through something bad happening in your life.
There are many tips and tricks and many additional resources such as budgeting apps and spreadsheets to help you organize. These are wonderful tools to help you calculate your monthly budget, but they rely on manipulating your incoming and outgoing expenses to realistically meet your goals.