Budgeting 101: manage your money as soon as you start earning it

Starting your first job after finishing school is an exciting time. A steady paycheck means having the financial stability to pay bills, to stash money away in savings and even to make some of the purchases you have dreamed about, such as a vacation or a new car.

Of course, there are pressing practicalities to consider, too, like daily living expenses and paying back student debt. With so many demands for a piece of your paycheck, it’s important to have a financial plan.

By getting a grasp on exactly how much money is coming in and how that can affect your goals, you can start saving and investing effectively while still paying what you owe each month.

Below are some tips for managing your money.

Setting up good spending habits

If you have unpaid student loans, it makes sense to live through some leaner years after graduation in order to put a dent in your education debt. Getting out of debt earlier means paying the lender less interest and ultimately having more money available for other financial goals.

Living below your means isn’t as exciting as eating out frequently and buying whatever product you want. But beginning your work life by reining in spending means you’ll have a better future financial base.

For example, think about setting aside an emergency fund for unanticipated needs and saving for retirement. Some student loans allow you to delay initial payments for six months after you start your job. Consider repaying them earlier than that. Not only will you pay them off that much sooner, but you’ll get used to knowing that this money is not available for spending.

Implementing conservative saving habits

It’s helpful to understand your living expenses and what payments you must make each month. Then take stock of the other places where you’re spending your money. Now you’re getting a clear picture of where your money is going. You may decide that you’re spending too much on restaurant dining or on the cable bill. Consider having your employer directly deposit a certain amount of each paycheck into a savings account or funneling raises or bonuses straight into savings.

Retirement may seem a long way off or hard to comprehend in the early adult years. But what you save now has a huge impact on a comfortable retirement later. Young adults can’t rely on Social Security as their only retirement plan, and companies have generally moved from offering defined benefit retirement plans to 401(k) plans, which rely heavily on individual contributions. You need to be vigilant about investing for retirement.

As an employment benefit, many companies offer retirement plans with matching contributions, helping you to save for the future while you get paid. A company offering matching funds gives dollar for dollar, for example, up to a certain percentage of your salary. So if you’re earning $50,000 and they match up to 4% of your salary in retirement funding, your retirement fund gains an extra $2,000 a year in company money when you contribute $2,000 of your salary.

With compounded interest, your money works for you. At 5% interest compounded annually for 40 years, for example, that $2,000 company match becomes $14,080. With your money added, $4,000 in one year becomes $28,160 at retirement. Imagine this happening every year!

Making financial life goals

It’s easier to save money if you have goals. Write down your goals and what it will take to get there. One goal might be paying off student loans within five years. To make that happen, find out how much you owe and determine what you must pay in that time frame to make it happen. With a number in front of you, you’ll better understand how to meet the goal and you can adjust your budget or look for supplemental income to make it happen.

Some people avoid using credit cards to better track their spending. If bill payments are coming directly from your bank account via debit card or cash, you’ll pay more attention. When using a credit card, pay it in full each month and don’t charge things you can’t afford to pay for immediately. Credit card interest rates are high; by paying your bill over time, you’re paying much more for your purchases.

Getting your first job is exciting and challenging. Maximize your employment benefits and don’t take them for granted. Be proactive about managing your new income and balancing that with your financial obligations. By setting goals with a personal finance management tool, and saving and investing rather than spending, you’ll be in a better future position.