Expenses 101: The Missing College Course

Do you remember thinking in college, 'I can't wait to get a real job so I can have money?' I do and boy were we wrong on that one! Unless you are one of the few lucky ones who made a lot of money right away or you live(d) without regular expenses like rent, car loans or student loans, chances are you've experienced the pain of watching your paycheck leave your bank account just as quickly as it deposited.

Let's take a typical post-grad scenario to break down exactly how much cash flow a salary of around $35,000 actually is, assuming this person is lucky enough to find employment. About $24,000 of that income is actually theirs, while Uncle Sam graciously accepts the rest. This leaves about $2,000 per month, which at first sounds like a pretty good chunk of change.

Now, let's check out this young person's monthly income vs. expenses

$2,000 Paycheck
-$700 Average rent
-$150 Utilities (TV, Internet, Heat & Electric)
-$200 Student loan bill
-$250 Car loan bill
-$150 Gas/Oil Changes (30 mi. commute)
-$80 Car Insurance
-$200 Groceries
-$100 Entertainment
-$100 Gifts/Occasions
-$50 Toiletries/Cleaning Supplies
=$20
Suddenly, $2,000 turns into $20 - leaving you just enough for a movie night.

You may be fortunate enough not to have some of these expenses, but chances are your net income is probably still closely aligned. Notice how I didn't include savings, car repairs, excise tax, vacations, clothes, furniture or retirement. Life is expensive and the sooner you realize this, the earlier you can take the reigns of your present and future financial value. If you don't, lenders (family included) will gain control of your life, which is definitely not what you want.

Here is a little advice I wish I learned in a college or high school course. Although, who knows If I would have listened intently back then.

1. Live At Home. If you are comfortable and welcome to live with loved ones take them up on it, at least temporarily. Housing is a huge chunk of your monthly income. Stack away some cash each month as if you are paying rent. You will get use to paying rent and have a cushion for when you're ready. If you dont have this opportunity, find roommates to lower the cost.

2. Always Pay Yourself First. Even if it's $30 at the end of the month, set up an automatic savings plan with your bank. You will be surprised how quickly it will add up and after your hard work to save it up, you may find the last thing you want to do is spend it on a pair of shoes. Use this Savings Calculator to see exactly how much you will save over time.

3. Save For Your Hobbies. With all the new stresses of real life after college, make time for for your fun hobbies - you will need the outlet. If they are expensive like mine, triathlons, or like Matt's musician equipment, check out used and discounted options at Amazon and Craigslist. Do yourself a favor and take proper care of your possessions, they will last longer and save you money. Heck, you may be able to sell them on these sites down the line.

If one of your hobbies involves continuously spending cash, try to tone it down a bit. For overspending on clothes, stay away from designer stores and malls in general. I usually check out TJMaxx or Kohls before I consider heading to a strip mall. They have designer clothes cheap and Kohls often has huge weekend sales.

4. Create a Budget and Stick To It. Budgeting is not fun, especially if you know in the back of your head that you really can't afford certain things, but you want them so badly! Too bad, if the money isn't there, it isn't there. Take a serious look at your financial health. If it's that important to you to afford vacations or go to bars each weekend, analyzing your budget may motivate you to find a second job or choose another career. Skim through this Learn to Budget website for tips on getting started.

5. Pay off Principal of Loans. Let's say you've discovered you have an extra $40 each month you could put in savings with or pay off loans. Compare interest rates and if you can't earn more than you are paying, try putting a little more toward loans instead and be sure to indicate with your bank that you are paying down principal. Your future self will be thankful if you chop off a few months from your loan. Be sure to recognize whether you are better off keeping the cash on hand. Credit interest rates are much higher (14-22%).

6. Seize the day, for tomorrow! I didn't really consider how important my retirement was until age 25. The difference between starting retirement at 25 versus 30 is literally tens of thousands of dollars when you retire. Take action now, because we have one advantage above all others that will expire, time. Look into your company's 401K plan, if you aren't participating you are literally throwing away free money. If they don't provide one, look into IRAs - Roth or Traditional. I suggest investing with a company like T Rowe Price or Vanguard. Don't go with a default plan either, look into risk options for your circumstance.

7. Get Creative! You might have very little extra cash, so challenge yourself to find cheap ways to have a blast. While our friends were out at bars blowing easily $100/night in Boston, Matt and I tried our best to make do with what we already had. We went camping, ran races, spent weekends with friends and family outdoors and packed lunches. A special night for us includes renting a $1 Red Box movie and buying dessert. It may not be your idea of fun, but living this way made our tri bikes, new cars and comfortable lifestyle affordable. If going out in the city is a priority for you, you can save by slimming down in other areas such as housing. Find a balance and get creative where you want.

8. Check Your Credit Score (sometimes). Your Credit Score measures your risk to lenders based on ability to make payments on time, in full and the amount of debt you have. I don't recommend using websites like FreeCreditReport.com to monitor it. Although accurate, these websites will give you a few months free, but then charge your account each month following with an almost impossible canceling process. At our age, I recommend getting it checked through a lender or only if you don't get approved for a particular credit card. In this case you might have outstanding debt payments or fraud issues. Not until you are making a large purchase is it truly important to monitor it consistently.

9. Be Patient. The hardest part about being on a budget is having the patience while you slowly pay down debt, save some cash for things you want and stop pulling out your credit card. Time does fly though and it will pay off (literally). It took me 2 years just to get a small amount into savings and almost 3 years to get a retirement rolling on my own. Now, I've paid off 1,000s of dollars in car and student loans as well as credit card payments. I did my best to avoid overspending on things like clothing, big vacations, weddings, but I am guilty of a few setbacks. I had the help of family & friends providing clothes, laundry machines and food too. If you want to set some priorities right, read this article on the 10 biggest wastes of money.

10. As Always, Treat Yourself. Similar to saving for hobbies and fun, if your weakness is Dunkin Donuts coffee, put that in your budget. Don't try to kid yourself that you will break free of this habit and don't deprive yourself either. I am not a coffee person, but my vice is getting myself a small bottle of $10 wine most Fridays. I end up drinking a glass or two, but it does the trick for treating myself for a hard work week and avoiding going out over the weekend.

Most of all, keep in mind you are not alone. There's no reason to pretend you have more than you do - your real friends and family won't judge you either way. They may appreciate you suggesting a cheaper alternative for fun. Everyone's on a budget, so don't worry about keeping up with designer clothes or luxury cars. Chances are those who do are in over their heads. Find out whats important to you and spend on that. You will learn more about yourself in the process. Check out this article about dealing with Money in your 20s.

For more high-level financial advice, check out these sites: MSN Personal Finance, Money and Mint.