Starting a new job is an exciting milestone. But once you step into the office, there’s one thing that should be on your mind – budgeting. It’s easy to get carried away with your first paycheck and the newfound sense of financial freedom. However, if you want to make sure that you’re not living paycheck to paycheck, setting a solid budget from the get-go is crucial. Let’s break down how to prepare a budget when you’ve just started a job, and I’ll give you some tips that go beyond the usual advice.
1. Know Your Income and Expenses: The Basics
First things first – get a clear picture of what you’re earning. It sounds obvious, but many don’t account for taxes and deductions. Your salary isn’t what you take home. After deductions like taxes, provident fund, insurance, etc., your net salary is what you have to work with. Break it down into monthly figures to understand how much you’re truly getting.
Now, sit down and list out all your monthly expenses. It’s essential to know where your money goes. This includes rent, utilities, transport costs, food, loan EMIs (if any), and any other recurring costs like subscriptions or insurance premiums. Don’t forget to factor in the small stuff – like coffee, snacks, or any daily expenditures that seem insignificant but add up over time.
2. Create a Fixed and Variable Expense List
Once you’ve got your basic income and expense breakdown, it’s time to categorize your spending. Divide your expenses into two types: fixed and variable.
Fixed expenses are those that you can’t avoid. Rent, loan repayments, insurance premiums, and utility bills fall into this category. These are non-negotiable and have to be paid every month. On the other hand, variable expenses are things like dining out, entertainment, shopping, and travel – stuff you can adjust based on your financial goals.
The key here is to identify areas where you can cut back on your variable expenses. A latte every morning might not seem like much, but if you’re buying one every day, it can add up to a considerable sum over the month. Start by tracking every penny you spend.
3. Set Savings Goals Early On
The sooner you start saving, the better. As tempting as it is to splurge on things you didn’t have before, like a weekend getaway or the latest gadgets, make sure you’re putting away a portion of your income for the future. Aim to save at least 10-20% of your income, if possible.
It’s important to set realistic savings goals. If you’re not sure where to start, think about building an emergency fund. Aim for 3-6 months’ worth of living expenses in case of unexpected events. Once that’s set, you can look into long-term savings goals like retirement or buying a house.
4. Cut Unnecessary Expenses: Small Changes, Big Impact
We often make the mistake of thinking we can’t cut back on anything because the expenses feel too small to matter. However, small changes can lead to big savings over time. Take a close look at your subscriptions – streaming services, gym memberships, and magazines that you rarely use. Canceling one or two of them can free up a lot more money than you think.
Also, consider sharing costs where possible. If you live with a friend or relative, share expenses like rent, groceries, and utilities. You’ll be surprised at how much more you can save by just reducing those costs.
5. Budgeting Tools: Simplify the Process
Managing your budget manually on paper is one thing, but if you’re someone who prefers tech, there are plenty of apps that can help you keep track. Budgeting apps like Mint, Yolt, or Wally allow you to track your income and expenses automatically. These apps categorize your spending and show you exactly where your money is going, making it easier to identify potential savings.
If you prefer a more hands-on approach, a simple Excel sheet can do wonders. Create columns for income, fixed expenses, variable expenses, and savings. Add formulas to keep track of totals and ensure you’re sticking to your budget.
6. Avoid Lifestyle Inflation
As you start earning more, it’s tempting to increase your spending to match your new lifestyle. This is known as “lifestyle inflation,” and it’s something you want to avoid. Just because you’re earning more doesn’t mean you need to upgrade your living standards right away. Instead, try to maintain a modest lifestyle and save the extra income. Over time, this will help you build a solid financial foundation.
A smart strategy here is the “50/30/20 rule.” Allocate 50% of your income to needs (rent, utilities, etc.), 30% to wants (entertainment, dining out, etc.), and 20% to savings. Stick to this, and you’ll find that even as your income grows, your savings will grow too.
7. Prepare for the Unexpected
Emergencies come without warning, and it’s important to be prepared. If you don’t already have an emergency fund, now is the time to start. Your budget should include a category for “unexpected expenses” – things like medical bills, car repairs, or urgent travel.
A good rule of thumb is to save 1-2% of your income every month for such emergencies. This way, when the unexpected does happen, you won’t be caught off guard and will have the funds ready.
Conclusion:
Preparing a budget when you’ve just started your job is not just about tracking your expenses; it’s about creating a financial plan that helps you balance your immediate needs with your long-term goals. Keep your priorities in mind, adjust where necessary, and make sure you’re not overspending just because you can. Budgeting is a powerful habit, and when done right, it sets the stage for a financially secure future.
Take charge of your finances early on, and you’ll find that the transition into independent financial management becomes much easier. Keep adjusting and learning from your budget, and soon enough, managing your money will become second nature.
