A College Grad's Guide to Saving Money

For me, this month has been the perfect storm of finances: along with daily expenses, I’ve had car trouble, had to do a lot of Christmas shopping, and have begun paying off my student loans. I’m sure I represent a lot of the people who graduated last May.

Like me, I’m also sure there are tons of people who know very little about how to save money and build a solid emergency fund.

Now that we’re out of college, it is vital to stop living paycheck-by-paycheck and soundly manage our own money.

I’m not saying I know a lot about this stuff, but I’ll share the little knowledge I have and the system that I’ve begun to implement....

How Much Should I Be Saving?
As a recent college grad that lived comfortably off of my parents paying my tuition, getting into the real world and realizing that I need to start saving up my own money was kind of shocking. Now that I’m out of school, using my parents as my savings account has become less plausible.

The first question that I had was, “How much money do I need to save?”

Ultimately, the goal of saving money is so that you have safety net in case you lose your job, or have some other kind of financial emergency. That way, you’ll have enough money saved up to avoid becoming a hobo and make it through your rough patch.

While many people have different opinions on how big a safety net should be, the general consensus is that you should have 2 – 6 months of expenses saved up.

Of course, you aren’t going to save all of that money in a one shot. After all, you still have a lot of expenses to worry about in the present, let alone saving up for future bills. So, in order to build up this emergency fund, the general rule is to save 7%-15% of your check and put that directly into your savings.

Forming a Budget
So you’ve started saving 7%-15% of your check, but what do you with the rest of that money? Along with saving money, it’s important to set a budget and track your spending. Everyone’s spending habits and needs are different, so I’ll explain the system that I’ve recently starting using.

I started by giving myself a weekly spending limit that was reasonable and yet still helped me save as much money as possible. For me that number was $240 a week ($30 a day, plus $30 for gas).

ED: Now before you start thinking that is a lot of money, you have to put that in perspective. Granted, some days you can go spending $10 or less, but how about when you hang out with friends? A night at a bar or a date can get rid of 2-3 days of spending. If you drive a lot in a week, a whole day can go solely to gas. Hell, just buying a movie ticket gets rid of 1/3 of a day. All of that adds up quickly.

Now comes the hard part: tracking every penny spent. I had tried many other systems of tracking my spending and all of them have failed, but I have finally found one that works for me. Every time I buy something, I add it as an entry to my cell phone’s calendar. I always have my phone in my pocket, and it only takes a couple of seconds to type up “diner – 9”, so it’s pretty convenient.

After doing that, I use this really nifty website, expensr.com, to electronically monitor my spending. This very web 2.0 site allows you to enter your spending, and lets you to graph out where your money is going. That way, any time I want to, I log on and see how money I’ve used during the week.

This system is pretty hassle-free and very effective for me.

Get Yourself a Good Savings Account
In case you didn’t already know, your emergency fund shouldn’t be stashed away in a shoebox at home. The best option for this money is a savings account. And ideally, you’re looking for an account that yields the highest interest. Nowadays, getting a high-interest savings account means using an internet bank. Their rates blow traditional banks out of the water.

Finance blog, Get Rich Slowly, has a pretty comprehensive list of the best savings accounts available. Oh, and before you open an account up, find out if any of your friends already has an account, as they may be able to get referral money when you join (which they can then split with you).

Pay Off Your Debts
When it comes to debts, especially credit card debts, people do not realize how much money they are wasting on interest. After you’ve created a fairly large emergency fund (and arguably even before that), you should want to get rid of credit card debt over saving money.

Why is that? Because while the average savings account will yeild 4% interest, the average credit card interest rate will cost you 20%. So, essentially, by putting your money into a savings account instead of into your credit card bill, you’re losing 16% of your money.

It’s also important to note that paying more than the minimum payment on credit cards and student loans can save you a significant amount of money. This website lets you input your debt, interest rate, and amount you plan on paying a month, and it spits out how long it will take you to pay off your loans.

I used the site for my student loans and found that by paying $200 instead of the minimum $135.11 a month, I’ll save $1,742.98 and finish paying off my loans 47 months earlier.

Be Smart With Your Money
In the end, by keeping a budget, creating a financial safety net, and paying off your debts, you’ll be setting yourself up for a much more secure future. It definitely takes some time to get used to putting money aside and tracking it, but as the New Year rolls around, it’s the perfect time to start.

And even if you do take a little longer, at least now you know what you’re up against. And as we all know, knowing is half the battle.