Before you take out a single loan to pay for school, you should think about how much you can afford to pay each month after you graduate. To do that, you should estimate your out-of school budget.
Start by looking at how much you expect to earn once you land that first job, and then estimate how far that future paycheck will go.
By using our out of school budget calculator, you can begin to look at how far your future paycheck can go.
Let’s take each line individually:
Household Income (before taxes)
Annual Salary – Ask someone in your school’s Financial Aid Office or the Career Planning Office for the median starting salary for the most recent class. Have them show you different employment scenarios from low to medium to high starting salaries based on your career aspirations.
From there, decide what you think you’ll be earning upon graduation. (Remember to make a conservative estimate.)
Taxes – Deduct 1/3 for taxes. Yes, taxes do take a big bite. May as well get used to it now.
Employment Benefits – The vast majority of employers require employees to contribute at least some portion towards benefits like medical and dental insurance. These costs vary greatly from employer to employer based on the employer contribution and the overall cost of the plan. To be on the safe side, consider reserving 5-10% of your income to cover health care insurance for you and your family.
Estimated Student Loan Payment – Hopefully, before you borrow, you’ll read “Deciding How Much to Borrow: Steps to Borrowing Less.” That should give you a rough idea of how much to set aside each month for your student loan payments.
If you’ve already borrowed, use our simple loan repayment calculator to estimate your monthly payments.
The amount remaining is how much you have available for living expenses, savings, and investments. Warning: You might not like what you see. But don’t be discouraged, there are ways to improve the picture.
Housing – You can look at this cost in several ways. First, you could assume that you’ll have a roommate and be paying half the rent on a two-bedroom apartment. A second option is to assume that you’ll live alone and pay rent for a one-bedroom apartment. And a third way is to imagine you have the ability to pay more and you’re renting your own bigger place or have a mortgage. Use the scenario that you think will match your picture.
Utilities – Do some research to match your living scenario. You can assume between $100 and $400 depending on if you’re sharing expenses, paying it all yourself and so on. This covers gas/electric, cell phone, Internet, and if you have a home, things like water, sewer, etc.
Food -– You can expect to pay at least as much on food when you graduate as you do now. Most likely you’ll pay even more. Your food purchases include groceries as well as dining out and takeout. When in doubt, assume somewhere between $400 and $600 depending on your appetite!
Transportation – It might be hard to see into the future for this one so we’ll make some assumptions. Let’s assume you’ll have a car (and a car loan), insurance and you’ll have to pay for gas and maintenance. Figure $300-$350 for the loan, $100- $150 for insurance and $100-$150 for gas and maintenance. That’s roughly $600 a month.
If you take public transportation your monthly cost will be less depending on where you live.
Retirement – We understand that retirement might not exactly be at the forefront of your thinking, but financial planners will tell you that the time to start saving for retirement is as soon as you can, preferably in your early 20s. And they recommend putting aside and investing at least 10% of your gross monthly earnings if you hope to retire by age 65 and have a comfortable lifestyle.
Other Debt: Don’t forget to include any other payment(s) you’ll have to make such as outstanding credit card debt. Of course, you will be smart and not have any credit card debt, right??
Other Expenses: Include items like clothing, entertainment, personal care, gifts, and household goods. Consider dependent care expenses, if necessary.
Will you have any cash left?
This isn’t the federal government! Your budget cannot have a deficit!
What can you do?
If you haven’t borrowed for school yet, it’s important to start now by looking at how you can balance your budget by reducing your borrowing. Remember, you’ll have to pay all of your expenses, including your monthly student loan payments, from the income you earn each month.