The Smart About Money website will be retiring on July 31, 2021. Learn more about this decision.


Budgeting for the New College Grad

Recent college graduate smiles as she begins planning her budget for life in the real world.

Budgeting principles are pretty universal. Whether you’re young or old, rich or poor, the No. 1 rule is: Spend less than you earn. This might sound easy, but the realities of life after college graduation can be a cold wake-up call, especially when student loan bills start arriving.

Managing debt and living within one’s means aren’t the only considerations. The beginning of your career is a once-in-a-lifetime opportunity to get the highest returns on retirement investments.

Looking for information for recent high school graduates? CashCourse offers free resources for college students.

Identify Cash Flow

Some people dislike the term “budget” because it sounds too much like a diet. You might prefer a spending plan, which is less about restricting and more about planning how to spend your money. Whatever you call it, the first step is to identify all the sources of money coming in and all the expenses, debts and obligations going out.

Build a budget using known bills. Check bank and credit card statements from the past several months to calculate how much you spend on food, personal care and entertainment. Add any new bills that will transfer to you after graduation, such as your phone or car insurance.

When looking for a job, create a mock budget using estimated living costs to come up with your desired salary. Use cost-of-living calculators and salary estimator tools to get ballpark numbers.If your income and expenses don’t add up, you might need to reduce costs by living at home for a while, getting a roommate or choosing a less expensive city.

Plan to Pay Off Debt

Student loans are the first large debt for many new graduates. By the time you are nearing graduation, it’s too late to go back and take out fewer loans. Once you’ve signed the paperwork, you’ve agreed to it, so you have to pay it back. (Unless you qualify for loan forgiveness.)

Be cautious of anyone who charges a fee to help you with your loans. Explore the free resources at, including:

  • How to pick the right repayment plan
  • How to make payments
  • What to do if you can’t make payments
  • Options for discharging or cancelling your loans

It’s wise to get other debts paid down also. Carrying debt lowers well-being and increases stress. The more you pay each month to satisfy your debts, the less you have to save and invest. Check out SAM’s free Credit and Debt course to make a plan.

Investing for the New Grad

Young adulthood is a critical time to invest for the future, thanks to compound interest. The more you invest while you’re young and the longer you keep that money invested, the faster the money will grow.

A workplace 401(k) or similar retirement account is the perfect opportunity to build your nest egg. Contribute at least up to your employer’s matching contribution and consider investing and/or saving up to 10 percent of your income each year. If possible, gradually increase those contributions to keep up with cost of living and your increasing salary.

If you don’t have an account at work, you can open an individual retirement account (IRA) or Roth IRA at a traditional brokerage or online.

Save Now, Save Often

Money can be tight in the beginning, but that’s more reason to save a little bit each month. Emergency savings help cover unexpected expenses such as car repairs, medical bills and surprise pet expenses so that you don’t have to put them on a credit card.

Add a line to your budget specifically for savings. Treat it like a non-negotiable bill to be paid to your future self. It’s easier to put aside small amounts over time than to come up with hundreds or thousands of dollars at once. If you automate your accounts to transfer savings each month, those small contributions will add up and you’ll be starting a healthy habit to last a lifetime.

[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]