In March 2007, Danialle Foy, a 29-year-old administrative assistant in Chicago, carried nearly $4,000 in credit card debt, $3,200 in student loans, and $11,000 in car loans. By next January she'll be debt free. While Foy wishes she could chalk up her financial success to a generous raise or year-end bonus, her household income stream has remained the same."Up until last February, (my husband and I) lived paycheck to paycheck and still had debt," Foy recounts. "We had no idea where our money was going and I just got tired of it. I thought 'I don't want to do this anymore. Why are we 28 and poor?'"
Like many 20-somethings, Foy dug her way out of debt through careful budgeting. Saving all household receipts for a month, Foy calculated how much she and her husband spent and then devised a simple budget for groceries, rent and utilities, household and pet expenses, emergency expenses and entertainment.
"I budget for everything and we take out cash for the things we buy," Foy says. "If you use actual bills to pay for things, it's harder to overspend. You won't have 45 ATM charges you forgot about."
Creating a budget is one of the simplest and most effective strategies recent graduates can use to limit spending, says Dan DeKeizer, a vice president and actuary in MetLife's Retirement Strategies Group. By learning to live on a budget early, recent grads not only save money now, they also set themselves up to save increasingly larger sums in the future.
"Learning to live on a budget is especially important to a 25-year-old because if you can live on less when you're young, you can put salary increases directly into savings," DeKeizer says. "You'll also have the advantage of more compounded interest on your savings."