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By Elizabeth LaScala

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About this blog: I post articles to offer timely and substantive college admission guidance on important topics and issues. Originally from New York, I have a B.S. from Hunter College in NYC and advanced professional degrees from the University of...  (More)

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Budget Basics for New College Graduates

Uploaded: Jun 8, 2014
Here's a question I'm often asked by new or soon to be college graduates: "I am looking for a job. Can you help me figure out how much income I will need to pay bills and start to reduce my student loan debt?" The answer to this question will depend on your net income after taxes, rental costs for your residence, and the cost of living in your area. In California, you can count on about 30 percent of your paycheck being withheld for federal and state income tax, social security, Medicare and California State Disability Insurance. You can get an estimate of these costs by working with a paycheckcalculator and experimenting with deductions for dependents, retirement contributions, health insurance premiums and more.

With regard to household rents, most sources agree that you should spend no more than one-third of your gross pay (pretax earnings) on rent. This figure includes basic utilities like gas and electric. Whatever's left after this is available to pay for food, clothing, transportation, phone usage, and insurance . . . and, of course, your student loans. Including loan payments the most common recommendation is to plan on spending no more than 40 percent of your pretax income on housing and loan payments (this amounts to a loan payment of $280 a month). Use a good resource on student loans and loan calculators to help you estimate income needed to pay off a particular loan amount.

An example will help make these costs clear: if you make $48,000 a year or $4,000 a month before taxes, you should plan on spending up to $1320 on rent plus basic utilities (about 33% of pretax income). If you have student debt, you should plan to spend no more than $1,600 a month (about 40 percent of your pretax income) on housing and loan payments combined. In this example, your after tax income with be about $,2800 and after rent, utilities and student loan are paid, only about $1,200 will be available to pay for food, clothing, transportation, phone usage, and insurance. This is a pretty tight budget.

Before shopping for a place to rent, be ready for landlords to check your credit report. If you pay them a fee to check your credit, you are entitled to a copy of the report. Remember that it is illegal to discriminate on the basis of sex, race, religion, sexual orientation, or marital status, but under some conditions a landlord can require that you prove you make a certain amount of yearly income before renting to you. In addition, if this is your first time renting, the landlord might ask for a cosigner on the lease. It is also common for landlords to ask for your first month's rent plus a security deposit equal to two months' rent. Gas and electric companies require a security deposit as well. Your landlord must refund your deposit when you move out, minus unpaid rent, and a basic cleaning charge. They can take money to repair any damage as well so take photos when you move in so you can prove the prior condition of the premises when you move out. Finally, figure on moving costs—out of college (or your parents' home) and into your new home. Now that you have your college degree, welcome to the real world!

Elizabeth LaScala Ph.D. guides college, transfer and graduate school applicants through the complex world of admission. Elizabeth works with students to identify majors and career paths, and develop best match college lists; she offers personalized essay coaching, and tools and strategies to help students tackle each step of the admission process with confidence and success. Elizabeth guides students from all backgrounds to maximize scholarship opportunities and financial aid awards. For more information visit Elizabeth Call (925) 891-4491 or email her at elizabeth@doingcollege.com

Comments

 +  Like this comment
Posted by Ashley, a resident of Las Positas,
on Nov 4, 2014 at 6:01 am

Thank you for the clear explanation, unfortunately students nowadays are not very good at budgeting and often have financial difficulties not only due to the student loans they have. They also often use services like Web Link for their everyday expenses, while it's very costly and such measures would better be used only in emergency cases.



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