Like many college students, when I was in college and nearing graduation, getting a job was my main concern. It hadn’t yet crossed my mind to consider how much I’d be paying back in students loans, or how much my living expenses would cost.
I just wanted to find a job, and preferably one that paid as much as possible.
After interviewing several places and getting a few job offers, I had options to consider and the top two things I looked at were salary and location. I ended up taking the job with the highest starting salary, which also happened to be located in a lower cost of living area than the others too!
I’m ashamed to say that not once during this whole process did I sit down and figure out what my take-home pay would actually be like once I started working so I knew how much I had to spend on living expenses and debt payments for my student loans and credit cards.
I just assumed since I’d be “making the big bucks” by working full-time I’d be able to afford my lifestyle with no problems.
The Debt Trap
This line of thinking is exactly what leads many new graduates into a debt trap. By not taking their gross annual salary and crunching some numbers to figure up how their take home pay will actually be, they are just assuming they will be able to afford a lifestyle similar to what they grew up with or what their co-workers have.
This is not true, especially for those just starting out in the work force. What your parents and older co-workers can afford is a lot more than what you can afford when you’re just starting out.
Most of the time, they’ve had years upon years to get salary increases and build up their wealth to where they are today.
Expecting a Smooth Road
Another huge mistake a lot of people fresh out of college make is expecting their salary to be increased steadily each year. The truth is that some years you may get a large salary increase, some years you’ll only get a small increase, and sometimes you may not get an increase at all. Unfortunately, you could even be laid off if times are tough for your company.
These dips in the road are a normal part of life, and we never know what the future holds, so spending money that you haven’t yet earned on a house, clothes, and furnishings isn’t the best decision.
Instead of making these mistakes, you should wait to make any large life choices, like buying a house or spending on non-needed things, until you know what your take-home salary will actually be.
Even then, you should plan to set as much of it aside in retirement funds, investments, or a savings account as you possibly can, and keep your living costs as low as you can for as long as you can while you build wealth.
It may not sound like the most fun path, but it’s certainly the most logical path and the one that provides the most peace of mind if you get into a situation where your income is not increased or is even reduced.
Have you ever overestimated your future salary? How did you fix the situation?