Fast Facts
Create a Budget:
Track your income and expenses to ensure you live within your means and can save for future goals.
Start an Emergency Fund:
Aim to save at least three to six months' worth of living expenses to cover unexpected costs.
Save for Retirement:
Enroll in your employer’s 401(k) and contribute enough to get any employer match.
Manage Debt:
Prioritize paying off high-interest debt and use credit responsibly to build and maintain a good credit score.
I still remember my first paycheck 15 years ago. This was before I found my calling in writing professionally. Twenty-year-old me used to work at a call center (that guy trying to sell you DISH was probably me). The payroll manager asked for me in his office and handed me a check with a payment that felt like a million dollars at the time. I blew it in a few weeks. And the next. And the next. And many more that came after.
Overspending, especially after landing your first job, is one of the biggest financial mistakes you can make. With Benjamins rolling in, items you probably don't need begin to look tempting. Let's be honest: You don't need a new smartphone every year. Aggravating this situation is the fact that many of us are not taught the basics of personal finance. So we're left to figure it out as we go.
But getting a full-time job is a monumental milestone in anyone's life, one that thrusts you into adulthood and thus comes with great responsibility. This is also the beginning of a balancing act between needs and wants. Being able to master this balance is the key to wealth and a stress-free lifestyle. So, instead of making an impulsive purchase, here are money moves and financial decisions you can make to secure your financial future.
Think retirement
Once you start your first job and steady income begins rolling in, you can enroll in your employer's . Here's how it works: each month you'll contribute a certain percentage of your salary towards 401(k), and most employers match it. So, if you're putting 5% towards your retirement, your employer match will be 5% as well, for a total of 10% towards retirement savings.
Another way of looking at it is you shouldn't leave money on the table, meaning if your employer offers a 6% match, you should contribute 6% as well. You're essentially throwing away free money if you don't. Set aside money for retirement each month and watch compound interest work its magic.
Having a retirement plan from the get-go and making retirement contributions each month gives you the jump on that nest egg. If you don't have access to an employer-sponsored retirement account, you can always open a .
Related:
Set up an emergency fund
Life is unpredictable. You could lose your job, have a medical emergency or face a huge car repair bill.
An emergency fund acts as a safety net, and you wouldn't have to dip into your savings to pay for unforeseen expenses. Hopefully, you won't need this money, but a "rainy day" fund not only provides cash but it also gives you peace of mind knowing you're prepared financially when an untoward situation occurs.
It's best to contribute each month toward emergency savings and build it up to a point where you can sustain yourself for a few months. There are moving parts to your expenses. For example, you wouldn't continue a subscription to your favorite podcast if you're out of a job. But your mortgage payments and rent don't stop. So, it's best to save up a few months' worth of your salary for any budget crushers.
However, it is very important that cash in this fund be only used for genuine emergencies and not to finance your lifestyle. But if you do dip into this fund for any reason, always replenish it. One easy way of separating your emergency savings and your other savings is to open a high-yield savings account dedicated to emergencies.
Save, save and save
"Don’t save what is left after spending; spend what is left after saving," goes a quote widely attributed to Warren Buffett.
Investing your money is a good way to generate wealth. But, there won't be any money left to invest if you spend all of it. It all has to do with having savings goals; not just establishing them, but sticking to them as well. You'll need money to fund a variety of big purchases later in your life. These run the gamut from a car, a home to your children's education. A checking account with a direct deposit is the right step in that direction. So every time you get paid, it automatically deposits a set amount.
And the best time to set aside money toward savings is as soon as the paycheck comes. If you have discipline and continue to put money in your savings account each month, achieving your financial goals remains within grasp.
Spend and track
I'll be the first to admit it: budgeting isn't sexy. But knowing how much you're earning and which living expenses are eating up your cash puts your financial picture into perspective. There are countless
budgeting apps and methods you can choose from, but budgeting isn't a one-size-fits-all approach. Something that works for someone may not necessarily work for you, or vice versa. You don't want to find out you can't pay your internet bill because you blew too much on a few dinners.
At the very least, have a plan in writing that outlines how much you're earning that month and how you plan to spend it. You can use a paycheck calculator to help you calculate your take-home pay after taxes and other withholdings.
Pay off debt
There aren't many things people agree on these days, but becoming debt-free is not only something most would agree on, but it is also considered a major financial milestone in anyone's life. But becoming debt-free requires a lot of financial planning, and figuring out the best strategy can be confusing.
But you should be aware of a couple of debt payoff methods — the
debt snowball method and the
debt avalanche method. The debt snowball approach is considered the best plan for an early win because you start with the smallest debt first, while debt avalanche is theoretically the fastest way to pay off debt as it prioritizes loans with the highest interest rate. Decide on whatever feels better to you and stick to it.
Get insurance
In addition to health insurance and life insurance, you should select insurance specific to your situation. Choosing the right insurance may even help you minimize the need for emergency funds. Remember this, you're one accident away from depleting your emergency fund, and insurance is a great way to avoid that situation.
If you don’t have cash on hand to purchase a new vehicle if it got totaled in an accident, you could consider comprehensive coverage. Once you have children, you should buy
term life insurance. But before signing the dotted line, educate yourself and get multiple quotes. And if you don't understand something, don't hesitate to ask questions.
Treat yourself
Yes, you read that right. It's important to celebrate your wins and reward the hard work you put in. But there's a limit, of course. You wouldn't want to spend all of your bonus or a pay raise on lavish items. Sure, the boost from getting a raise is awesome, but you know what's better? Laying a strong financial foundation for your future. Allocate your money in a way that pays you dividends over a long period.
So every time you get a raise or a bonus, consider setting aside half of it. This will help accelerate your savings and allow you to have some money for splurges and fun.
FAQS
How can I start saving for retirement?
Enroll in your employer’s retirement plan, such as a 401(k), and contribute at least enough to get any employer match. Consider opening an IRA for additional savings.
Is it important to understand my benefits package?
Absolutely. Understanding your benefits package can help you make informed decisions about health insurance, retirement plans, and other perks that can save you money.
How do I set financial goals?
Set SMART goals: Specific, Measurable, Achievable, Relevant, and Time-bound. Examples include saving for a car, paying off student loans, or building an emergency fund.
Why is it important to start investing early?
Starting to invest early allows your money to grow through compound interest over time. Even small, regular investments can significantly grow your wealth.
How can I improve my financial literacy?
Read books, take online courses, and follow reputable financial news sources. Understanding basic financial principles will help you make informed decisions and achieve your financial goals.
The bottom line
A job is an opportunity to start your adult life on firm financial ground, and your first paycheck can feel like an endless supply of cash. But it does end, and if you're not careful, you may find yourself in this vicious cycle where you spend every penny you earn. Needless to say, it's not an ideal situation to be in.
Making smart money moves will accelerate your path to financial freedom. It's fine to buy your friends a round of drinks on your first paycheck. But it's time to set yourself up for success once the second paycheck hits. Future you will thank you.
