As a new college grad, you’ve likely spent the past few years studying and meeting new friends. If you worked, you probably earned enough to fund nights on the town and the occasional wardrobe touch-up but not enough to start building savings.
Now, your circumstances are changing. Hopefully, you’ve found your first real job in your preferred career path and are ready to branch out independently. You can expect significant changes in the next six months as you grow accustomed to being responsible for your finances. One thing you’ll need to pay particular attention to is your savings.
Why You Need A Savings Account
When most people open a checking account, they also open a savings account. A savings account houses your rainy-day fund; it’s the money you can use for emergencies. According to experts, you should have three to six months of your typical expenses in your savings account.
However, as a new grad, it will take some time to build up your savings account. That’s why we’ll start with $1,000, which can get you on the right path to building healthy financial habits. According to statistics, 42% of Americans have less than $1,000 in savings. If you can grow your savings above the $1,000 mark, you’re setting yourself up for the future.
The money you keep in savings should remain untouched. You’ll only use it in the direst of emergencies, like unforeseen car repairs or medical expenses. Ideally, your savings should continue to grow well past the first $1,000 you save.
Without a healthy savings account, you’ll need to rely on debt to stay afloat in a financial crisis. Debt can quickly add up, leaving you with regular monthly payments to creditors for the money you have long since spent. Debt also comes with interest charges, which makes it much more expensive than relying on savings.
You want to avoid debt in the first few years following graduation. You need to learn to manage your spending without turning to credit cards or loans.
Steps to Saving Your First $1,000 in Four Months
Saving $1,000 may sound challenging, but it doesn’t have to be. We will set a goal of saving $1,000 over four months. That’s only $250 per month, which should be entirely doable for anyone who makes an effort.
Here’s what you need to do:
1. Write Down Your Monthly Expenses
Before you start your savings adventure, sit down with a copy of your monthly bank statement to determine where you’re spending the most. You can download your bank statement through your bank’s online interface. Some banks allow you to convert your information to Excel, which makes it easier to work with on the computer.
List your top-priority expenses, like rent, utilities, groceries, car payments, and insurance. Top-priority costs aren’t going away, and you’re responsible for them no matter what. The superfluous expenses are the ones you’re most interested in. Unnecessary expenses can add up quickly, cutting your ability to save.
2. Cut Out Unnecessary Expenses
Note any unnecessary expenses you can do without for a few months. For instance, if you’re regularly buying a daily coffee from local shops, eating lunch out, or shopping on Amazon, you can cut down on those activities for a few months. Look for subscriptions you don’t regularly use, like multiple streaming services you’ve long since forgotten about. Take a few minutes from your day and cancel them.
When you start a new, independent life, getting caught up in going out with friends to expensive bars or clubs can be easy. While no one’s suggesting you completely cut out your social life, you may need to make adjustments if you’re serious about saving.
Try to host some activities at home that your friends will enjoy. You can try a board game night or ask everyone to bring food and drinks for an evening at your place. If your friends prefer going out on the weekends, cut your spending by ordering lower-cost food and beverages, and try to minimize the time you’re out. You can join them later in the evening after you’ve eaten a full dinner at home.
3. Set Up An Automatic Transfer to Your Savings Account
Ready to make your savings dreams a reality? Then you’ll need to set up automatic transfers to your savings account. Once you’ve picked the items you want to eliminate from your bank statement for a few months, set up a regular transfer that moves money into your savings. Your transfer should mimic the amount you’re saving each week.
For instance, you may have more bills at the beginning of the month, like rent and your car payment. You may only be able to save a little then. You can set your transfer to $75 for the 10th of every month, then park the remaining $175 on the 20th of the month when you have more disposable income.
You’re ensuring you don’t forget about your savings plan by setting your automatic transfers. Your bank handles the transfer for you, and you simply sit back and watch your account balance grow.
4. Monitor Your Checking Account Daily
While you work on building better savings habits, you’ll want to ensure you keep a close eye on your checking account. Sometimes you may think you have enough money to cover your necessities, but you don’t. You may incur an unnecessary overdraft fee if you don’t keep enough money in your checking account.
Think of building good financial habits as a process. You may need some time to get used to saving money. If you can’t meet your goals the first time, try again with your next paycheck. Determine where you overspent and try not to make the same mistake again.
Building A Savings Is Personally Rewarding
While you may be reluctant to give up some of your more costly habits, like eating out or shopping, saving money prepares you for things you’ll need later in life. With savings, you’ll be able to put a down payment on your first home or take care of yourself if you lose your job.
If you face a financial emergency, you won’t need to take on debt or seek help from your parents; you’ll be able to handle the issue independently.
The more you’re able to save, the more financially flexible you’ll be.