On your own at last. You have a new job that finally allows you to be independent from your parents and move into a “crib” that is all yours. College may have taught you a little about managing money, especially if you split rental and utility costs with roommates. But your newfound freedom comes with responsibility that is also all yours.
If budgeting in your case involves a learning curve, you’re not alone. See how much you know about the subject by taking this five-question quiz.
1. Why does your credit rating matter?
Lenders reward you for a good credit rating with lower interest rates when you want to buy a car, a home, or anything. A bad credit history takes years to erase. Remember that you are allowed one free credit report a year from www.annualcreditreport.com but you will have to pay to get your credit score.
You should make credit cards your top priority on the payoff list. Set limits on how many cards you carry. Start with credit cards that carry the lowest balances and permanently get rid of the ones with the highest interest rates once the balances reach zero.
2. How many deductions should you take on your paycheck?
Besides deductions for Social Security, medical coverage, so on, the amount of your take-home pay depends on the number of income tax deductions you choose: the lower the number, the higher the amount that comes off your check. On the other hand, if the number is too high, you might end up owing money when you file your return. For tax information and forms, go to www.irs.gov.
3. How do you figure out what rent you can afford?
Rent typically accounts for your biggest monthly expense. Make a list of all other living costs: utilities, groceries, cable, gas and car insurance or public transportation, maybe a car payment too. You may have to save the rent amount in two portions, say half from payday one and the other half from payday three if you get paid weekly. If expenses total more than you earn, you will have to find a cheaper place or a roommate to share the cost.
Keep in mind that prices can go up, so give yourself some wiggle room to avoid living from paycheck to paycheck. Also remember that emergencies happen. If you’re working at an hourly job, you may not get paid for sick days. So make sure you include savings in your budget. Even the smallest amount can add up. Since overdrafting is very expensive, plan to never go below a set minimum amount for your bank balance.
4. Can you defer student loan payments?
You must pay back student loans, but if you make prompt payments for an extended period of time, you can usually arrange for a deferment until you are more financially secure. Review those papers you signed.
5. Should you sign up for automatic bill payments?
It’s easy to forget that a bill is due. If you pay bills online at the sites of individual creditors, you could be surprised when that amount comes out of your bank account. Instead, pay all bills on your bank’s site. It won’t be necessary to sign up for automatic payments since you can see when and how much you paid each creditor each month.
You can track your spending by using a ledger, checking your bank account regularly, or entering receipts in a software program such as Quicken. Experts such as Suze Orman offer financial advice that may help in your particular situation. You can also read Orman’s book titled “Young, Fabulous and Broke.”