How To Set Up A Budget With a New Job

Getting your first job, or any new job is an exciting milestone for anyone! It’s not only a step forward in your career, but can also be an alleviation of stress, excitement for growth, and yes, making money is exciting, especially if it’s your first job out of college, or you’ve been out of work for awhile.

It’s important to not get caught up in the excitement though, and realize that even though you could potentially be making more money than ever before, you still need to budget in order to make sure you’re not living paycheck to paycheck, or not making progress towards your long term goals.

Understanding Your Income

The foundation of a successful budget is a clear understanding of your income. Start by calculating your net income, which is your take-home pay after taxes, health insurance, retirement contributions, and other deductions have been subtracted. If your income includes variable components like commissions or bonuses, average these out based on past earnings or conservative estimates to prevent overestimating your income.

When starting a new job, it’s important to take the time to review the benefits provided by your new employer, from insurance, to retirement accounts, maternity or paternity leave, even pet insurance! Taking the time to understand and take advantage of all the benefits offered can save you hundreds of dollars, and make sure you’re not leaving any money on the table.

Setting Up Your Budgeting Framework

There are several budgeting methods out there, from the 50/30/20 rule—which allocates 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment—to zero-based budgeting, where every dollar is assigned a job. Experiment with different frameworks to find one that aligns with your goals, spending habits, and lifestyle.

Fixed vs. Variable Expenses

Next, categorize your expenses into fixed and variable. Fixed expenses, such as rent or mortgage payments, are predictable and remain the same each month. Variable expenses, like groceries and dining out, can fluctuate. Identifying these helps you understand where your money is going and where you might have flexibility to adjust spending. Understanding the difference between fixed and variable costs will help you have a clear understanding on where you’re starting every month. If you take home $5,000 but have $3,000 in fixed costs, you have much less to allocate to savings and variable costs. Keeping fixed costs low as your income rises is one of the best ways to build a solid base of savings, and one you can continue to build off.

Prioritizing Expenses and Savings

In budgeting, it’s crucial to differentiate between needs and wants. Needs are expenses essential for your survival and well-being, such as housing, food, and healthcare. Wants, on the other hand, include non-essential spends like entertainment and leisure activities. Prioritizing savings is also key; aim to build an emergency fund and contribute to retirement savings regularly.

It’s also important to be honest with yourself about the differences between wants and needs. Oftentimes, we kid ourselves about what’s actually a need vs a want. A working phone is probably a need, the latest iPhone is a want.

Setting Financial Goals

What do you want to achieve with your money? Setting both short-term (saving for a holiday, paying off a small debt) and long-term (buying a house, investing for retirement) financial goals gives your budget purpose and direction. Ensure these goals are realistic and factor them into your budgeting plan.

Tracking and Adjusting Your Budget

A budget is not set in stone. Use budgeting apps or spreadsheets to keep track of your spending and review your budget monthly. This will help you stay on track and make necessary adjustments as your financial situation or goals evolve. There are tons of great resources out there to help you track your spending. The important thing, regardless of your choice of tool, is to make sure every expense gets tracked and categorized.

Common Budgeting Pitfalls to Avoid

New budgeters often underestimate expenses or forget to account for irregular costs like car maintenance or holiday gifts. To avoid these pitfalls, be realistic about your spending habits and include a buffer for unexpected expenses. Also, avoid viewing budgeting as a restrictive practice; instead, see it as a tool for achieving financial freedom.

Conclusion

Starting a budget with your new job is an empowering step toward managing your finances effectively. By understanding your income, choosing a budgeting method, categorizing expenses, prioritizing savings, setting goals, and staying flexible, you can create a budget that supports your financial well-being and goals. Remember, the goal of budgeting is not to limit your life but to enhance it, ensuring that every dollar you earn is working towards something meaningful.

Don't wait for the "right" moment to start budgeting. Your future self will thank you for taking the time today to set up a budget. Whether it's downloading a budgeting app, setting up a spreadsheet, or simply jotting down your goals on paper, take the first step towards financial independence. For more tips and resources on managing your finances, continue exploring our blog and join our community of savvy budgeters embarking on their journey to financial success.