When students graduate from college and begin to work and earn a salary, it makes sense for them to establish a budget. Unfortunately, that process can be both eye opening and frustrating. That is because most young adults will not earn enough money to pay for everything they think they need.

“Budget: A mathematical confirmation of your suspicions.” -- A. A. Latimer

The first realization will be that employees do not receive their gross pay. There will be a number of subtractions that will reduce the amount of money that they take home. These reductions may include the following:

Taxes and Deductions:

- Federal Taxes
- State Taxes
- Local Taxes
- Social Security
- Medicare
- Medical Insurance Contributions
- 401k - Retirement Contributions

After taxes and deductions, most students will find that their take home pay is about 65% of their gross earnings. Therefore, if they earn $600 /week, $31,200 /year, their monthly take home pay will be roughly $1,700 / month. That is the amount of money they will have to live on each month.

An initial budget should include recurring monthly expenses, periodic expenses, one-time payments and miscellaneous expenses.

1. Monthly Expenses

- Rent
- Utilities - Heat, Lighting, Water
- College Loans
- Banking & ATM Fees
- Credit Card Payments
- Car Loan
- Internet & TV Service
- Telephone / Cell Phone Service
- Insurance - Medical, Automobile, Life, Renters - Fire & Theft
- Savings

It is not easy to allot a limited income to so many necessary expenses. That is the dilemma that everyone faces. In fact, students probably did not notice that their parents have been making these same difficult choices for years. Now it is their turn.

“Why is there so much month left at the end of the money?” -- John Barrymore

2. Periodic Expenses

- Job Related - Transportation, Clothing, Laundry, Dry Cleaning
- Household - Cleaning Supplies, Small Appliances,
- Electronics - Computer, Phone, Readers, Games
- Clothing and Accessories - Work, Leisure, Shoes, Cosmetics, Jewelry
- Automobile - Fuel, Repairs, Maintenance - Oil Changes, Tires, Wiper Blades
- Food - Breakfast, Lunch, Dinner, Snacks
- Entertainment - Food, Movies, Concerts, Dating
- Vacation

There are a wide variety of periodic expenses that are necessary. However, when money is tight, this is the area where people tend to do without. There will be times when recent graduates will need to make sacrifices, in order to remain independent. That will require some tough and painful decisions.

3. One-Time Payments

- Apartment - Security Deposit, Furnishings -Furniture, Lamps, Curtains

4. Miscellaneous Expenses

- Small unexpected purchases, costs and fees

Before college graduates head out on their own, they should write down all of the items listed above. With their list, they can begin to assign the expected amount of money they will need for each expense.

As these new graduates total up their lists, they will see how well their estimates hold up against the amount of money they take home. With some difficult decisions and a little bit of juggling, the realities of independent living will become clear.