Receiving your very first paycheck is an exciting time. As a recent graduate or otherwise newly employed young person starting the first chapter in your career, there’s nothing quite like getting that initial influx of cash after a job hunt.
That first paycheck is a great reward for that initial effort you put into your first few weeks of work. But it can also disappear in a flash. For the sake of kicking off your career with smart financial goals, it’s important to manage your first few paychecks intelligently.
Note that, if you have family supporting you or feel otherwise comfortable with the risk, it's sometimes okay to apply all of these rules to your second paycheck, and use your first to splurge on fun things for yourself. You're an adult now -- figure out what's best for you!
With that in mind, here are a few things to splurge on with the money, and a few smart ways to start managing your finances.
After a long period of hard work, education, tests, grades, diplomas, and job searching, it’s important to treat yourself. Life should have its rewards, and your first paycheck will be your first real chance to spend on yourself. While it’s important to save money and be responsible with your finances, that attitude can only go so far at giving you job satisfaction.
So go ahead and spend a portion of your paycheck on something you’ve wanted in a really long time. Go to a concert, buy yourself a new TV, or go on a fun skydiving adventure. Spend reasonably and don’t blow the entire sum all at once, but do spend if there’s something you really want to have or do. Because your salary isn’t just for rent, bills, and cost of living. And it’s not just for saving up for future you. It’s for the experiences and possessions that will make your job worth going to every day.
Treat your those who supported you
As a young professional, there are people in your life who gave you the guidance, feedback, and education that got you to where you are today. Your family, friends, and mentors probably played a crucial part of you landing this first job, whether recently or over time. And now that you’ve landed your first job and gotten your first paycheck, you have the opportunity to show them where you’ve gotten with their help.
Use a bit of your first paycheck to show them your gratitude for their moral, emotional, and professional support. It doesn’t have to be a huge expense. Even minor gifts as a token of your appreciation will get the message across. Better yet, treat it as an opportunity to celebrate by taking them out for dinner and enjoying some time together.
Invest in this form of appreciation for the sake of the people you’ve leaned on. And it’s a symbolic gesture that you’ve now entered the working world, are becoming self-sufficient, and can be depended on for when the ones who helped you need help in return.
Set some aside
While most of your first paycheck will disappear to bills and splurges, it’s also good to start putting money aside as soon as possible. It doesn’t have to be a big sum. Instead, focus on building a long-term, sustainable saving habit.
By doing so, you’ll be kickstarting a healthy financial situation at the very beginning of your career. A healthy career needs healthy finances, so that you’re not working paycheck to paycheck or struggling to pay your bills. You'll see others around you struggling in the middle of their career because they didn't take this as seriously.
Setting money aside allows you to begin saving for accidents, contingencies, and unexpected job loss. These things may or may not happen, but rather than being caught unprepared, you’ll be ready to tackle and overcome challenges without having to worry about the cost. And it all comes from creating a habit of saving even a small portion of your paycheck each pay period. That habit is easy to start if you do it on day one.
Create a plan of action
When you get your first paycheck, take the time to start thinking about all the different financial aspects involved in life, debt, and retirement. Create a plan to quickly have your savings reach the point of being a useful, reasonable emergency fund.
An emergency fund is designed to take your monthly expenses into account so that you save up enough to pay for at least 6 and ideally 12 months of unemployment. Create a plan for how much you need to save, how you’ll reach that goal, and how long it will take. Put the plan into action as soon as possible. Don’t hesitate to dip into your savings when there’s a shortage of cash or when you want to buy something cool, but commit to growing your emergency fund responsibly.
When it comes to debt, the one source you should worry about first and foremost is your college loan debt. As a recent graduate, it’s likely the largest chunk of debt you have. It can also be the most toxic, if you don’t commit to regular repayment.
College debt, when properly managed, can be paid off in a reasonable amount of time. If not, it can balloon to insane proportions, hurt your credit score, and put you in a really tight spot financially. Plan out your payments, make sure you budget enough money each month to cover the bill, and set up things like automatic debiting from your bank account. And note that some organizations even give the extra benefit of lower interest rates if you set up automatic debiting.
And finally, learn about your retirement options. Sure, it’s early in your career, but it’s worth an hour or two of your time to find out about company’s retirement contributions, what a 401(k) retirement fund is, the benefits of a Roth IRA retirement plan, and the various ways you can invest your money to financially secure your future.