What are the primary expenses I should account for in my budget upon college graduation?

Question

I'm 22 and about to graduate from college in Chicago, Illinois with a bachelor's degree in a few months, and I'm creating a detailed budget based on my anticipated expenses. After significantly overestimating these expenses, my salary is completely gone, but I'm very confident that there are some expenses I must be missing.

So far, I've included these expenses:

• Rent
• Electricity
• Public transportation expenses
• Internet
• Total taxes (estimated at 30% of my gross income)
• Medical insurance premiums
• Food
• Other side purchases, e.g. entertainment, clothing, etc.
• Charitable donations
• Roth IRA contributions (the maximum $5,000 per year)
• 401K contributions (the maximum 6% my company will match)
• Emergency fund / general savings

I have not included the fact that several of these expenses are deducted from my income pre-tax, which should reduce my overall tax burden. These are the expenses I'm not including:

• Heat, water, or cooking gas. These are included in my rent.
• Car-related expenses. I don't own a car and I have no plans to purchase one
• Family expenses. I'm single with no plans to start a family
• Home ownership expenses. I don't own a home.
• Phone expenses. My workplace covers all of these.
• Cable/satellite TV bills. I don't own a TV.
• Outstanding credit card debt. I have none.
• Outstanding student loan debt. I have none.
• Costs of furnishing my new apartment. These are already covered by my savings.

What are the primary expenses I should include apart from these?

Answer 1

Do you need such a detailed budget? I have found that a detailed budget creates two problems:

1. It becomes inaccurate faster, as there is more room for mistakes
2. It doesn't get updated or maintained because it is a lot of work.

I would suggest starting simple, and adding complexity as you discover you need it. Create a budget with just a few categories

1. Income. (Of whatever type)
2. Required Expenses. I break mine down
   • Utilities
   • Loans
   • Rent
   • Food (dining out, groceries, work lunches)
3. Optional Expenses. This is the one I don't get into details. Maybe I want to see a movie, go out to a bar, or buy a new couch.
4. Savings / Retirement. I can skip "retirement" because it happens out of my paycheck automatically.

Then, I enforce my budget with my auto deposit.

My required expenses, which I have a pretty good notion of the total amount get paid from one online bank. Enough money goes in and I electronically pay.

Retirement money and e-fund money get deposited into the brokerage and credit union where I keep those piles at.

Finally, my optional expenses go into a second bank (I am using simple.com at the moment) and I spend from there with a card. They have a nice reporting feature, and if I want to save up for a toy or something I save up there. Bonuses and other extra income end up there as well. This way, I really only have to monitor the last account to see if I can have fun or buy a new item. My bills and retirement are different pools of money, and I don't carry around a card that can access that money.

Answer 2

I would add one thing, renters insurance. It shouldn't be terribly expensive, but having to replace all of your belongings could be.

Answer 3

Your list seems fairly complete. Try tracking a few months of actual expenses. You could do this with an Excel Spreadsheet.

Personally, I pay for most things electronically and/or with a credit card (which I pay off in full every month). I use Mint.com to catalogue my transactions and get an instant snapshot of where I've been spending my money.

Answer 4

Regarding Medical insurance premiums - The premiums are only part of the cost. You need to know if you have a deductible, your out of pocket maximum and what co-pays you have. If you take medications on a daily basis you need to account for those costs. Some programs allow you to put money aside pre-tax to pay for these known expenses.

I would split Emergency fund / general savings into two lines. You can set a goal to save X months worth of expenses as an emergency fund, but the general savings will be whatever is left over from the rest of your budget. Unless you have a goal for the savings: car, home...