We have all been there! You nailed your interview and you finally got the job. a couple of weeks later on a glorious Friday, you receive your first paycheck. Getting that first job after college or higher school is a very exciting, yet stressful event. You’re probably overwhelmed with many new challenges, opportunities, and commitments. You likely have a lot of questions. One of the greatest new challenges may be the direction of money and personal finance.
This new job may provide a substantial monetary increase from your days in college waitressing your way through minimum wage. However with this increase of salary, you may find that you also have new responsibilities and financial considerations.
It could feel like you finally have a small bit of pocket money. Either way, this is a vital time to start managing your cash wisely both for now and for your future.
Here are 4 things every post-grad should do with their first paycheck.
1. Create a Budget
If you have been in college before this new job, your finances were probably comparatively simple. You probably had your cellphone bill and the occasional bar outing to pay and your schooling might have been financed your parents or perhaps you took out some student loans. Now that you are a grown up and are starting your life in the workforce, your cash flow needs will probably change significantly.
When you have some idea of how much your paychecks will be after income and payroll taxes, now is the time to sit down and decide what your expenses will be. How much is rent? Are you going to be moving to a nicer place? Do you need a car?
Purchasing a car? How long before you have to begin repaying the student loans, and how much could you afford to pay? These things will play an essential role in determining where your money must go.
Creating a budget doesn’t have to be hard and it may be done in a couple of easy steps. It’s important that you set this spending plan as soon as possible so that you don’t find yourself in financial trouble later on.
2. Tackle Your Debt Head On
With this new money, it is a perfect time to get serious about repaying your debt. For those who have credit cards, you may have been used to only paying the minimum payment each month, but it is time to break that minimal payment habit as soon as possible! Minimum payments may drag your repayment out to ten years or more, costing hundreds or even thousands in interest. Make it a priority to accelerate repayment of any high-interest credit card debt.
If you have student loans, then you generally have three to six months following graduation prior to payments must start. Don’t use this grace period to take a break from paying, start to plan for the payments before they start. Find out how much the minimum payment will be and factor it in your budget now. Can you manage over the minimum? Great, accounts for this in your budget. The quicker you pay down these loans, the less it will cost you in interest over time. But do not let making student loan payments above and beyond the minimal, a priority over say, building up your emergency or “rainy day” savings. There is always a balance to managing debt and building your own savings. Always tackle the high-interest debt first, and proceed from there.
Just take care not to miss any obligations, even if it’s just the minimum. Missing a payment may have a significant impact your credit score. If your lender offers automatic electronic payment, then consider setting up monthly or bi-weekly obligations to come right from your bank accounts.
3. Grow a Savings Plan
Now that you’re on your own and possess a steady stream of income, you should begin saving just a little bit of cash each paycheck to get an emergency fund. Possessing an emergency savings fund can give you a hand at a jam so that you don’t need to rely on high-interest charge cards or even face a fiscal crisis.
The ideal way to start saving would be to create an automatic savings plan. If you have a set quantity of money being set aside from each paycheck automatically, it is impossible to forget. Moreover, once the money is saved automatically, after a couple of paychecks, you won’t even miss the money, but it will be there if you need it.
Being prepared for unexpected occasions and expenses is part of becoming a responsible adult.
4. Save For Retirement
If you’re like most young people starting out on your very first job, the thought of retirement seems to be an eternity away. While it may be true that you’ve got 40 or even more years until retirement, don’t wait to start saving. Even a tiny amount can start to add up thanks to the impact of compounding interest.
Check with your employer to find out whether they offer you a retirement plan like a 401k plan. Many companies also provide a matching program where you can basically get free money just by saving yourself. So just how much to begin saving? The normal answer is to start contributing as much as you can manage to, but a fantastic starting point is to take whole advantage of any employer match. As an example, if your employer provides a dollar for dollar match up to 3% of your salary, contemplate at least donating 3 percent of each paycheck. This way you’re optimizing your savings by not leaving some money on the table. If your employer doesn’t sponsor a plan, the next best thing to do is to start an IRA or individual retirement account. There are little limits on which you could donate a year, but every little bit helps.