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Shutterstock_690887317What if you put together a budget but forgot about income taxes that would be deducted from each paycheck? That’s what happened to me when I graduated from college, so I can tell you: It would be a disaster! My first paycheck was a huge shock, since I was taking home much less than I had expected. But incorporating a few easy budgeting tips can help set you up for a path to prosperity and avert potential disasters.

Start early. Right after graduation, create a budget before committing to long-term expenses – like rent – so you start with a clean slate. The largest part of any budget will likely be housing costs. A good rule of thumb is that they should not add up to more than 30% of your salary. For example, if you make $50,000 a year, your total rent should be no more than $15,000 a year, or $1,250 a month. If you live in a high rent area, then 30% may not be realistic for an entry-level salary – which means you may have to scrimp on other items or find roommates.

Don’t overlook key items. In addition to income tax, include your monthly student loan payments in your budget. I recommend choosing an aggressive payment plan to minimize your overall interest costs because you’ll pay off the loan sooner. If you can’t manage more than the income-based payments, be sure to revisit this choice regularly as your career progresses. If you’re getting raises along the way, look for chances to switch to the higher payment plan.

Make savings a priority. Instead of saving whatever is left at the end of the month, a better approach is to budget your disposable income after you’ve factored in your savings. Do this by setting aside a designated amount at the start of each month. If you’re able to follow this approach, you’ll see that your savings will build steadily over time.

If your employer offers a 401(k) retirement plan, start contributing as soon as you’re eligible, and be sure to save enough to get the employer match, which is basically free money. By committing to these two habits early, you’ll have a head start on a down payment for a home and a head start on saving for retirement.

Note: You should actually prioritize this even above paying extra on student loans or other debt, since getting a guaranteed 100% or sometimes 50% on your money through the match will always beat any interest rate you’re paying on debt.

Bust budget leaks. Have you ever opened up your credit card statement and been amazed at how much is on there? Or by how little there is left in your checking account a few days before you get paid? Budget leaks—things like regular happy hours, and services or subscriptions you’ve signed up for but rarely use— are probably the culprit. Two steps can help cure the problem.

  • Identify and cut back on unnecessary spending. One approach is to say so long to the temptation of credit cards and set up two checking accounts instead. Start with one for essential bills, such as rent, loan payments, savings, transportation and utilities, and deposit as much of your salary into that account as necessary each month. Put whatever is left into the second account. Use it for splurges and stop spending when you run out of cash.
  • Anticipate potential budget setbacks. You can do this by setting up an emergency fund to dip into if you’re faced with an unexpected car repair, job loss or other financial crisis. Also remember that when you move into your first apartment, that first month’s rent plus required deposits and a variety of moving costs could consume your entire first paycheck. If you have savings in hand at graduation, this can help offset some of those initial costs and get you started free of debt.

It’s not unusual to find yourself in a financial pinch at times during your first 10 years out of college, but don’t panic as long as you’re keeping up with your bills and keeping track of your big picture goals. This is an exciting time in your life, and smart budgeting can help you really enjoy it.

As your financial situation becomes more complex you may be interested in seeking out the advice of a CPA financial planner. Visit www.findacpapfs.org to find a CPA/PFS.

Kelley Long, CPA/PFS, Unbiased Financial Planner, Financial Finesse. Kelley is a member of the AICPA Consumer Financial Education Advocates and is a resident financial planner with Financial Finesse, the provider of unbiased workplace financial wellness benefits to employers throughout the U.S.

Originally published by AICPA.org