My college years were typical of many: dirt poor, working every hour I could manage for minimum wage, relying on student loans and the Bank of Mom and Dad to get by. I didn’t spend lavishly because I couldn’t afford it. I didn’t even spend modestly; again, because I couldn’t afford it.
Then I got that first post-college job with a regular paycheck. I could afford to eat something a little more exotic than college fare, but I also needed a different vehicle, a new wardrobe, had student loans to repay, a new apartment with higher rent and utilities, and wanted a little jingle to be able to mingle with coworkers and new friends. I had to come up with a plan or face the possibility that I may have to go back to the Bank of Mom and Dad again.
My first step was to do some simple arithmetic. I started with my new salary, and then subtracted my necessary expenses to see what was left over. Necessary expenses were the student loan payments, food, and rent and utilities on my current apartment. I’d not yet moved nor purchased a new vehicle, so part of this exercise was to figure out what I could afford for each. What was left over was my budget for new or upgraded items.
Determining how to spend my left over budget was challenging because I, of course, wanted more than I could afford, even at this stage. I opted to favor a new vehicle over the new apartment, reasoning that the vehicle was something that I needed to get to work and back, needs to be reliable, and while I’d never be able to sell it later for what I purchased it for, I’d at least have some value. Rent, on the other hand, was gone as soon as I wrote the check. This decision, I believe, is a good example of the financial trade-offs that many young adults need to make. And it’s a most of us will continue to make throughout our lives unless we’re extremely fortunate to have sufficient income and resources to satisfy all of our needs and wishes. The key to successfully navigating through this challenge is set goals, and then prioritize those goals, so you translate what you deem most important to a dollars and sense budget.
Eventually I did also upgrade my apartment. I also found a way to begin participating in the company’s 401k retirement plan. When ever I got a raise, I tried to increase the percentage I was contributing to my retirement plan, but admit that I didn’t always do so. As much as I tried to spend with meaning and purpose, there are times when you need to spend some of your hard earned cash for fun, without worrying about having something to show for it at the end of the day. I’ve found that it’s best to actually budget ‘fun money’. It allows me the opportunity to spend without guilt and without consequence, as long as I stay within my budget, rewarding myself without undoing what I’ve set out to accomplish with my personal finance plan.