Finding a way to save while costs go up

Welcome to the workforce. As college graduates prepare to strike out on their own, many face a substantial headwind: hefty student loan payments.

According the Federal Reserve, student debt outstanding totals more than $1.4 trillion, which is greater than all credit card debt. The amount per borrower is up nearly 70 percent from a decade ago, and monthly payments average close to $400. This burden is significant - almost 11 percent of borrowers are at least ninety days behind, which is the highest delinquency rate for any form of credit.

Those just starting out also face high - and in some cases sky-high - housing costs. Rents are rising faster than the rate of inflation. As of May 2018, the Consumer Price Index (CPI) for all items less food and energy rose 2.2 percent over the prior 12-month period. The CPI Shelter Index rose 3.5 percent over the same time frame.

Neither student loan payments nor lofty rents are excuses to postpone saving for the future. Managing your finances and building a nest egg should both be priorities at this stage in your career. The keys to success are honesty and discipline. Time is on your side. Even saving a small amount each month makes a difference.

Start with an analysis of your current spending. Download spending activity from bank, credit card, and mobile peer-to-peer (P2P) accounts. Look at every expense and assign it to one of three categories:

• Essentials: rent, transportation, groceries, utilities, insurance.

• Savings and debts: establishing an emergency fund, saving for retirement, and paying off debts.

• Everything else: travel, entertainment, shopping.

Totaling each category is a great diagnostic tool. It shows how you are spending your money and where you can make changes to improve your situation.

Some financial planners suggest that you budget 50 percent for essential expenses, 20 percent for saving and paying down debt, and 30 percent for nonessential expenses. This practice is often referred to as the 50/20/30 rule. Other planners simplify the rule and suggest that you aim to use 20 percent of your take-home pay for paying down debt and savings. The 20 percent rule may be easier to implement, but I prefer the 50/20/30 rule because it distinguishes between essentials, or "needs", and everything else, or "wants."

Your rent may take up a large portion of the 50 percent allocated for essential expenses. If you live in a high-rent market, you will need to reduce nonessential expenses to be able to tackle debts and saving at the right level. Can you negotiate a better cell plan or drop your cable service? Can you bring your lunch to work rather than eating out every day? Learning to cook and making meals with friends rather than dining out can be a big money saver.

When you are just starting out, your goal may be to make ends meet. It is essential to change your mindset, however, and shift your focus to net income and building your savings. Your take-home pay after tax minus all your expenses equals your net income. To increase your net income and savings, you must earn more than you currently do - ask for a raise, work more hours, take on a freelance gig - or you must reduce your current expenses. Focusing on net income also helps you avoid "lifestyle creep," which can happen when you increase your spending following a raise. If your income goes up, so should your savings.

• Nancy Doyle is the founder of The Doyle Group and the author of "Manage Your Financial Life: A Thoughtful and Organized Approach for Women and Manage Your Financial Life: Just Starting Out." Visit manageyourfinanciallife.com and follow Nancy Doyle on twitter @nancyfinance.