The New Grad’s Guide to Building a Credit History and Budgeting, Part 1

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shutterstock_125381426This is the first in a two-post series that will offer new graduates some tips and tricks for how to go about building a credit history and manage budgets as they begin the next chapter of life beyond school.

After spending years pinching pennies as a money-starved college student, it can be very exciting to receive your first paycheck. And while it’s a great thing to be financially rewarded for all of your hard work, caution must be exercised to ensure you’re not squandering that money as fast as you’re earning it. When it comes to fiscal upgrades, this is not the time to jump from sesame flavored ramen to filet mignon!

Track Your Spending

When it comes to managing your money well, one of the most crucial habits anyone can establish is to track your spending. By tracking your money, you’ll know where your money is coming from and going to. This can be immensely helpful for identifying small issues before they become detrimental catastrophes.

Establish a system that works for you and utilize it—anything from recording expenditures daily in a notebook or your phone to doing a weekly reconciliation of transactions on your laptop.

Create a Budget

Budgeting, while not the most enjoyable way you can spend your time, gives you power over your money. A budget is a tool that helps you make informed decisions about your money, helps you set and reach goals, and is a way to stay accountable.

[Free Resource: Check your free credit report and score]

To set up your first budget, you merely need to establish a list of financial priorities and assign dollar figures to each. Beginning with your needs (shelter, food, transportation, insurance), list all of your fixed monthly bills and payments. Next, list out the various debt, savings and retirement payments/deposits you’ll need to make throughout the month (student loans, 401K, Roth IRA, long-term savings). Finally, list your wants and variable expenses such as entertainment, dining out, etc.

Once you total everything up, the money going out needs to match what has come in.

Resist Lifestyle Inflation

With each shiny, new paycheck, the urge to spend will be every-present. You might see classmates buying brand new cars, donning designer clothes, and spending wildly when out at bars and restaurants. Resist urge to keep up with them; resist the urge to inflate your lifestyle just because you’re making more money. Doing so will afford you even greater opportunities in the future—and you won’t be saddled with maxed-out credit cards.

Spend Less than You Earn

On the surface, this is an easy one to say. What’s not so easy is actually doing it. But in order to have complete control over your money, you need to spend less than you earn. No matter how hard it might seem to be, there are always ways to cut back, earn more, or change your priorities in order to secure a balanced budget.

Invest in Your Future

Your youth is the absolute best thing working for you when it comes to saving for your future. Even if it’s only $50/month, open a retirement account (the best right now would be a Roth IRA to take advantage of the future tax benefits). Fund it consistently, and work to bump up your contributions whenever possible. Compound interest is a beautiful thing that will pave the way to a beautiful financial future if you get started now!

Look for part two of this series in the coming weeks!

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Jen is the owner of The Happy Homeowner, where she writes about living a healthy, balanced life one cent at a time. Previously, she paid off $14K in credit card debt in less than a year and hasn’t looked back since. Follow along on Twitter with her financial, fitness and travel adventures @bthhomeowner!