You’ve landed your first job and your first ever paycheck has just come in. It’s an amazing feeling of accomplishment, self-sustenance and independence, all mixed into one. Before you start your shopping spree to celebrate, hold on to your money a little longer and start planning on how to spend it wisely – make that amazing feeling last!
Depending on your own financial goals and obligations, you should have a financial plan as soon as you receive your first paycheck. It’s all right to reward yourself for your hard work but being smart with your spending can give you a jump-start to long-lasting financial independence and wealth. Here’s what you should do to maximise your first paycheck.
Creating a budget: Follow the 50/30/20 rule
Creating a budget is an excellent way to set a healthy financial habit moving forward with your professional career. Establishing a spending and savings budget allows you to see and account for where every dollar is going. The best way to start is to follow the 50/30/20 rule: 50% of your salary allocated to your bills and monthly expenses, 30% set aside for savings and emergencies, and 20% specifically for investments. As you progress in your career and you gain a better understanding of your lifestyle needs, adjusts those numbers to propel you towards your financial goals.
Spend 50% on monthly expenses: The lower, the better
If having a steady income is something new, you may need to adjust your attitude towards money. Suddenly being flushed with cash takes getting used to, especially when exerting self-control. Ensure that you do not spend more than 50% of your paycheck on your monthly expenses. First, pay off any outstanding bills and loans, then look at your other expenses. If your variable expenses such as food, transport and social activities are pushing you beyond this 50% budget, you need to reassess your financial decisions. Occasional splurges – such as birthday gifts, a hearty meal or weekend staycations – or the daily spending – such as coffee or Grab rides – all add up and could affect your financial health. Keep track of all your expenses and minimise where you can, ensuring that you do not spend more than 50% of your salary – or the lower, the better.
Allocate 30% for savings: Have a solid savings plan
After prioritising your monthly bills and expenses, it’s important to set aside a fixed amount for savings. Establish how much you can afford to save and lock in that number – at minimum 30%. If possible, set up an automatic transfer into a dedicated savings account. This savings account should be left untouched and set aside for your retirement and emergencies. Try to aim for a savings sum that can cover three to six months of living expenses for times of emergencies (imagine that you have no income in that time).
Setting financial goals will also encourage you to stick to a realistic budget and savings plan.
You should set your short-term goals (less than six months), intermediate goals (up to three years), as well as long-term goals. Plan ahead for big-ticket items such as a long vacation, wedding or home renovation, saving from your very first paycheck is the way to go. With these goals in mind, you can increase your savings and readjust your expenses. Having a solid, tangible plan and an attainable goal will help you make wiser decisions and get the best out of your paycheck.
Invest 20%: Making your money work
You’ve worked hard for your money, so it’s time for your money to work for you. It’s never too early to start investing, and you do not need a large sum to start. Some banks allow you to invest in bonds or mutual funds from just $100. Know your options and find the best way to grow your money while you sleep. Although you won’t be able to count this as an alternative source of income, it’s an excellent way to build your wealth for the long-run.
Having a plan to manage your money right from your first paycheck will cultivate a healthy attitude towards money.
Achieving long-term financial independence and reaching your goals will not be a struggle if you start planning right from the get-go. Similarly, getting an in-depth understanding of how money works early on in the game can make you a wise saver and investor, so it would be worth sitting down with a financial advisor to learn more. Make appropriate adjustments according to your lifestyle and goals, and develop a financial plan that is most achievable, realistic and right for you. You’ll be off to a great start in your career.