After you've calculated your fixed costs, Sherman recommends moving on to discretionary expenses, like groceries, clothing or entertainment – and making sure some money is left over for savings. Ideally, Sherman says, you should be working to build an emergency fund that can cover four to six months of expenses, and then another fund for something else you know you want to do eventually, like take a vacation, buy a house or earn an advanced degree.
Another way to look at it, says Elle Kaplan, CEO of Lexion Capital Management LLC, an investment management firm in New York City: "Use the 50-30-20 approach. Fifty percent of each paycheck goes to bills and necessities – your rent, bills, groceries. Thirty percent is spendable income for lifestyle expenses, such as entertaining and clothing, and 20 percent goes to savings. Think of it as paying for your future self."
True, if you're making well under the $44,928 average starting salary, and your fixed costs include some massive student loans, that may be easier said than done. But you should try to get in the habit before your future self buys the house, starts acquiring pets, marries and has kids. "The younger you start to save, the more flexibility you will have later," Sherman says. "And the only way to save is to spend less."
Add expenses carefully and slowly. Priya Haji, CEO of SaveUp, a free online rewards program that encourages consumers to save and get out of debt, says when you're in that first job, you should avoid or at least be choosy with subscription services like Netflix and cable. "Things that auto bill every month without you thinking of them are a way to get you to overspend," Haji says.
Which may mean Coffey should rethink the gym membership he recently signed up for. On the other hand, if he uses it, he'll be creating another good habit that could pay off for years to come. And that is what learning to budget when you're in your first job is all about – creating good habits, like paying bills on time and saving for retirement and emergencies.
"The temptation is to postpone saving until later. For many, that day comes too late," says James Heafner, president of Heafner Financial Solutions, headquartered in Charlotte, N.C. He says too many people delude themselves by saying "I'll make a lot more money later, and then I will be able to save."
But for too many people, Heafner says, later never comes.