Having a first job can be a great feeling, especially if you’re fresh out of school, or looking to fund your life as you’re going to school. However, that great feeling can turn into dread as soon as you realize how important it is to work hard in your first job. You have to make a good impression right? Plus, the need for having money in your bank account will be influenced by working full-time, because with a job comes the desire to buy things.
But a paycheck is more than a paycheck – it’s your chance to start your life anew and on the right foot. And it should be that way.
With that said, here are 8 tips for how to manage finances when you get your first job.
How To Manage Finances Before You Get Your Paycheck
There’s a lot that can happen to you before youget your paycheck. Taxes, for instances. There are also options for investing in a retirement plan (at most places). Some companies may also offer you a chance to invest in their stocks (post tax of course).
It’s important to go over these options and opt in to some of it as it can have great long term benefits.
First things first:
1 – Go Direct Deposit
This way you never lose a check, or forget to deposit one.
2 – Start A Retirement Fund
Surprisingly, a lot of young adults don’t think about retirement, until they’re much older. Therefore, they might not think about saving for retirement.
First, think about saving for retirement. If your company offers a matching contribution, contribute up to that percentage, so that you can take full advantage of the match.
Next, if there are additional options for saving into pretax accounts, then look into them (these may be 403b or a 457b, Health Savings Accounts, etc). Even if you can’t make it up to the maximum amount, every little bit counts and will pay off in the future. Remember: The earlier you start, the less you need contribute, thanks to compounding interest. The most important thing is to start.
If there are no other options through your work, then you can consider opening an IRA- an individual retirement account, this can be traditional or a Roth. A traditional counts as pre-tax and you will likely get a tax refund because of it. A Roth is a post-tax account. To get the tax break, or to contribute to a Roth both require that you are below a maximum annual earnings level. If you call a company that handles these accounts and speak to them about it, they can give you more information.
The maximum yearly contribution for IRAs is $6k.
Once You Get Your Paycheck
3 – Have A Budget
In truth, just because you get your first paycheck, doesn’t mean that it will last forever.
The first rule of how to manage finances is to figure out what your take-home pay is. Then, make a list of the things that you would normally buy – the necessities:
- Gas (if you own a vehicle)
- Commuting costs (if you ride a bus, taxi, or Uber)
Then, make a list of “wants” – the things that you don’t really need:
- New devices
- Tickets to a show or a game
- Media – movies, games, etc.
As you evaluate these two lists, determine which ones need the most prioritizing. For example, you may want to sacrifice going to a movie, so that you can pay your electric bill. Another example – you can walk instead of drive, so that you not only save on gas, but you can still pay your rent.
When it comes to spending for fun, everyone has different priorities; the important thing to remember is not to compare yours to others. However you decide to save, or wherever you decide to spend your money, should be a very personal decision.
4 – Get Ready To Pay Back Loans
You’re going to have to pay off your student loans at some point; getting started, or increasing your payments if possible with your new paycheck is a great way to start reducing the burden. If you have student loans, you’re going to have to pay them back some time. Although there’s normally a “grace period” of six months after graduation, once that period is over, then it’s time to pay up.
The good news? There are more options today than ever before to help you manage and pay back your student loans. Here are some of the ways to do that:
- You can refinance and consolidate your loans into one monthly payment with a new servicer, so that you get a lower interest, or adjust your loan term to save money over the life of the loan.
- Ask your HR department if they offer a refinancing program through partnerships with lenders. Many employers now provide loan payback programs as a benefit just like health insurance, 401Ks, or paid time off.
5 – Have An Emergency Fund
Let’s face it: Life is tough; anything can happen and you just have to handle it. Here are just a few of many examples of this fact:
- Car repairs
- Medical emergencies
- Home repairs
The list goes on.
Having an emergency fund to help offset these costs is a great way to prevent yourself from accumulating debt. In fact, a recent survey has suggested that nearly two-thirds of millennials (61%) have less than $500 in an emergency fund. However, a proper emergency fund should have up to 3-6 months of expenses (mine has 10 months’ worth).
Definitely make this a priority!
6 – Mind Your Spending
A key factor in how to manage finances is to know where your money is going. You always need to keep in mind how much you’re spending, and where.
Although, it can be tempting to buy something that’s “on-sale”, quality of the product and also its necessity in your life can truly determine if it’s a purchase that is worth it.
So, if you’re planning minor purchases, then make sure that they’re worth buying to begin with. And, if you’re looking to make a major durable goods purchase (i.e. a new washing machine, refrigerator, etc.), then prioritize quality over cost. If the cost is too high, then keep saving.
But more importantly, do your research before you buy. Resources like Consumer Reports are great for checking out everything for consumers, whether it’s a car, a household appliance, etc. Also, resources like the Consumer Financial Protection Bureau are great for researching financial products, and checking for potential scams before you buy.
In short, make sure that the things that you buy are not only your money’s worth, but also reputable.
7 – Start Investing
Just like I mention starting early on retirement even if it means only saving a little, the same rule applies to investments. Find some mutual funds or ETFs (exchange-traded funds) to get started. They are a safe and easy way to dip your toes into the market and the hang of understanding how it all works. As you make more, or come to learn more you can diversify and take more risks.
Again, the earlier you start, the better able you are to take advantage or compound interest and give yourself an exponentially higher amount of savings in the future.
General Advice on Managing Finances
8 – Don’t Hire A Financial Planner
It takes a few minutes a day, or a dedicated few hours per month (if even that) to understand and figure out what to do with your finances. Financial advisors and planners often don’t have their interests aligned with yours. As a result, they may give advice that helps in the future but hurts you today and that doesn’t need to happen.
Instead, look for finance blogs, talk to representatives at companies like Vanguard who will be more than happy to walk you through their process and tell you what services are available for you. Speak to people you know regarding how and where to invest. There’s a ton of information out there and some of the best advice will come from those who aren’t financial advisors.
As you enjoy making a living with your first job, it’s still important to save, and do everything you can to make your income sustainable. As you save and grow your income, you’ll be creating a safety net for any of life’s happenings without sacrificing your savings.
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