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When you get your first paycheck, it can seem like you have earned a lot. But you will not know how much money you have to spare unless you know what your outgoing expenses are.
It is important you begin budgeting from day one so that you can effectively handle your finances and prosper in the long run. To get started, check out the following six fantastic tips.
Calculate Your Outgoings
Many people who become employed for the first time make the error of not tracking and calculating their spending. But that will eventually result in seeing your hard-earned cash disappearing without understanding where it is going. That is one key reason why it is so important that you budget.
You need to know how much your monthly outgoings are so that you can budget accordingly. Begin by adding up your monthly essentials, like rent, groceries, utility bills, insurance, loan payments, and any other necessary expenses. Then subtract the total from your monthly income. You can then budget how much you can afford to spend on your leisure time, such as going out to dinner or a concert, and how much you want to put aside as savings.
Consider Renting Versus Mortgage Costs
Out of all of your monthly outgoings, the largest cost will usually be your rent. You could lower your monthly expenses when you are freshly employed by sharing accommodation with someone else. Alternatively, you could consider getting a mortgage. While you will need to have money put aside for a down payment, once you own your own home, the monthly mortgage payment could be lower than the rent for your own place.
More importantly, as you make your monthly mortgage payments, you are investing in capital. When paying rent, you do not get anything back. With a mortgage, you eventually get to own your own property. So, it can be worth budgeting for a down payment early on so that you can save money in the long run and end up with capital. Compare current mortgage rates with different lenders via Moneywise to see how much your rates could be. Whether you decide to rent or get a mortgage, visualize your long-term goals so that you can start budgeting accordingly today.
Know What Benefits Your Company Provides
When you get a new job, your company will likely provide several benefits. If you do not know what they are, make sure you do! Simply make an appointment with human resources to go over the benefits so that you fully understand them.
Knowing whether your company provides benefits like transportation costs and gym memberships will enable you to create a more accurate budget, which can help you save money.
Most experts recommend setting aside at least 10% of your monthly income to put in a savings account. Once you have calculated your outgoings in relation to your income, you will know precisely how much you can afford to save each month. Having a savings account is always a good idea because you never know what the future may hold.
Should you hit any financial roadblocks later down the line, you will have peace of mind when you have savings in place. Furthermore, many companies offer the benefit of 401(k) matching, which means your employer matches the contributions you make to a 401(k) savings plan, enabling you to save a greater amount much more quickly.
Take Advantage of Tax Strategies
A large chunk of your paycheck goes to the taxman. But you may be able to develop sound tax strategies to pay less. Firstly, the IRS has a withholding calculator that you can use to determine the correct number of tax deductions to claim, which enables you to not overpay or underpay your taxes.
Secondly, your company may cover some business-related costs such as travel. If your employer covers such expenses, make sure you keep receipts so that they can be written off during tax return season.
Reduce Your Debt and Improve Your Credit Score
If you are straight out of university, you will probably have some debt. Even if you are not a graduate, you could well have debts you need to pay. If so, they need to be calculated as part of your monthly outgoings. But when you take active steps to reduce your debt, over time, you can pay it off. In turn, that means you get a better credit score. And when you have a good credit score, you will be able to much more easily qualify for things like mortgages, auto loans and credit cards with awesome perks !
The sooner you tackle your debts, the sooner you will have more money to play with. You can reduce your debts faster by ensuring you always pay your bills on time, and if possible, paying more than the minimum. At the same time, with a budget in place, you can control your spending to ensure you do not rack up any more debt.