Budgeting Tips for Career Starters

Budgeting is an essential part of any financial lifestyle. If you’re just starting out in your career, you may be making more money than before or starting to make decisions for the future. It’s important to start budgeting early in your career so you can start saving money and building wealth.

A good budget should account for all the purchases you make in your life. This might include major, big-ticket items like a new car, monthly expenses like rent or utilities, and disposable income used for fun and entertainment. Fortunately, it’s easy to keep track of spending these days. Use these budgeting tips to start living comfortably within your means:

1. How to Budget Your Money

How you spend your money will depend on a few different factors, such as your income, lifestyle, and purchasing habits. The easiest way to understand your spending is to divide your budget into what you need and what you want.¹

Needs are things required for you to live safely and comfortably. Needs include rent, utilities, debts such as student or car loans, medical expenses, and savings. If you have medical conditions, you may need specialized treatment or medication. You might need a laptop for work or internet to answer emails. Being able to cover these expenses ensures that you can provide the essentials within your budget.

If an item is not a necessity, it’s probably a want. Wants include things like new clothing, entertainment, travel, and subscription services. Budget for your wants each month, but make sure to set a specific limit on your spending in this area so you don’t overspend. Some financial advisors recommend limiting yourself to no more than 30% of your overall budget on wants, but this figure could be higher or lower depending on your finances.²

Fortunately, your employer may offer benefits that cover some of your needs or wants. For example, you may receive health insurance, a yearly bonus, contributions to retirement savings, or paid time off for holidays or medical leave. Other employers might give perks like on-site childcare, gym membership, or a per-diem for gas or travel. These benefits can reduce spending on both wants and needs, potentially leaving you with more money to save. ³

2. Keeping Track of Expenses

The first thing you must do to keep a budget is to identify how you are spending. The best way to do this is to track your spending and write down everything you spend, including rent, utilities, entertainment, online subscription services, and shopping. Even small daily purchases like coffee or a bus ticket should be included when tracking your expenses. ⁴

You can download special programs or apps to help you track your spending, or you can make your own expense tracking spreadsheet using a program like Microsoft Excel or Google Sheets. Some people prefer writing down their expenses by hand in a journal or on graph paper. Choose the way to track spending that works best for you.

Always remember to track what you put on your credit card, in addition to items you pay for with cash or a debit card. This will ensure that you have enough money to pay off your balance each month, helping you avoid costly interest while maintaining a good credit score.

3. Build an Emergency Fund and Start Saving for Retirement

It’s important to learn how to start saving money at a young age. The earlier you start to save, the more comfortably you’ll be able to live later in life. When creating your budget, set a specific amount of money to put aside each month. Ideally, you should set aside at least 10%–20% of your income for savings each month, but if that is too much for your current financial situation, any little bit helps.⁵

First, start putting money toward an emergency fund. Aim to have three-to-six months’ worth of expenses saved up in case you lose your job, have a medical emergency, or need to take time off. Do not touch this money unless you absolutely need it.⁶

In addition to an emergency fund, start saving for retirement as early as possible. The easiest way to do this is to open a 401(k). Your employer may even contribute to it. If you are able, contribute the maximum amount each year to increase the amount you’ll have available when you retire.

4. Pay off Debt Each Month and Raise Your Credit Score

If you have any type of debt, including loans, mortgages, or credit card balances, make sure you are factoring your monthly payments into your budget spreadsheet. Calculate your student loan payments, car payments, and any other type of loan to ensure that you can pay it each month. Making your payments on time is important to raising your credit score. Your bank or lender may even help you set up automatic payments so you never need to worry about forgetting or missing one.

If you have a credit card, set a spending limit each month so you don’t end up owing more than you can afford. If you don’t have a credit card, consider getting one to start building a credit history. That said, don’t use the credit card for unnecessary spending.⁷ Try to keep a low credit utilization ratio by using only 30% of your available credit at any time. Always try to pay off the full balance each month.

This will help you raise your credit score and reduce interest payments.⁸

5. Reduce Spending Habits

An effective budget can go a long way in helping you reduce spending habits. You might realize you are spending more in certain areas. To help save more money, find ways to reduce your unnecessary spending wherever you can.⁹ For example, if you spend too much money on food, you might consider cooking meals at home instead of eating out. You might try planning your meals around what’s on sale each week or cooking large batches to cut down on costs.

Limit your unnecessary spending by setting a specific amount for entertainment, clothing, electronics, or other desired items each month. If you typically drive to work, consider commuting using public transport. If public transport isn’t reliable in your area, you might consider setting up a carpool with coworkers to save on fuel costs.

Conclusion

Learning how to budget may seem daunting at first, but it can easily become a simple habit that will follow you for the rest of your career. Who knows? Once you start budgeting, you might even enjoy shopping for deals or managing your savings.