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How to Live — and Thrive — on an Entry-Level Salary

Loans, Student Loans
How to Live — and Thrive — on an Entry-Level Salary

Earning your first paycheck after college is all kinds of fun — until you see all of the bills that come with it. You want to put away money for that trip to see your best friend or that new car you’ve been eyeing, but you’re just not sure how to scrape together any savings on your salary.

Meeting your savings goals in your 20s is no easy task when you have only an entry-level salary to cover all of your expenses — not to mention if you’re among the 7 in 10 grads who have student loans to pay back. But by taking a few hours to examine and understand where your money goes, you can set up a spending and saving plan that fits your lifestyle.

The good news: The average starting salary for the class of 2014 was about $45,500, up more than 6% from 2012.

Step 1: Pick a split that works for you

Experts often recommend splitting where your money goes into three categories: fixed costs, savings/investments and spending money. Many suggest a split of 50% for fixed costs, 20% for savings and 30% for spending, or 50/20/30. Maybe that works for you, maybe it doesn’t. It all depends on your financial goals.

The idea is to understand your costs and plan for them accordingly. If you expect to live at home for a bit, you can generally lower your fixed expenses and increase your savings. If you’re going to live in the city, plan to put a lot more toward your fixed expenses to cover rent.

Step 2: Add up your monthly fixed costs

What do you spend money on? Probably more than you realize. Print out your debit or credit card statements for the past three months and make a list. Here are a few things to help you get started. (And if you’re still feeling uncertain, try this budget worksheet for graduates.)

I need these:

  • Housing
  • Groceries
  • Clothes

I wish I didn’t have to spend money on these, but I do:

  • Cell phone
  • Utilities (power, water, Internet service)
  • Transportation (gas, car insurance, bus pass, taxis, bikeshare membership)
  • Moving costs
  • Health insurance (if not taken out of pay)
  • 401(k) contributions
  • Student loan repayments
  • Rainy day fund contributions

Step 3: Subtract your costs from your income

Where do you stand?

Say you make $45,500 annually and you take home $3,600 each month. Subtract your fixed expenses from that amount. If the costs listed above come to, say, $1,800, then you’re left with $1,800. This is what you’ll divide between paying for fun stuff and extra costs today and putting away for the future.

The fun stuff:

  • Bar tabs
  • Coffee
  • Dinners out
  • Movie and concert tickets
  • Vacations and trips
  • Other vices

Personal maintenance (extra costs):

  • Haircuts
  • Toiletries
  • Gym memberships
  • Manicures/pedicures
  • Doctors’ bills and co-pays

If you don’t already use a money-management app like Level Money or Mint, check to see whether your bank lets you sort your statements by category. This will help you to see where all your extra cash is going.

Image via iStock