Congratulations on landing your first career job! This is a major achievement and should definitely be celebrated. But once the confetti settles, it’s time to get serious about your financial future.
Starting a "real" job, especially straight from school or vocational training, could mean you’re not earning a lot right off the bat. However, compared to the part-time or seasonal jobs you may have had, this paycheck will probably be the biggest you’ve ever received. And it’s likely to grow over time, unless you decide to pursue a passion that might pay less – but with good planning, this doesn’t have to be a financial disaster.
So, how can you make the most out of your new income? How can you boost your financial know-how, navigate towards financial success, avoid money pitfalls, and stay on track to reach your short- and long-term goals? Here are some useful tips:
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Open a Bank Account – If you don’t already have an FDIC-insured checking and savings account, make this your first step. Go for free checking accounts that don’t charge monthly fees or waive them when you set up direct deposits or maintain a minimum balance. Online-only banks like CIT Bank may offer better savings rates and loan rates than traditional banks.
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Set Up Direct Deposit – If your employer provides free direct deposit, then set it up before your official start date. It’s convenient and a great way to avoid monthly fees on entry-level bank accounts.
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Automate Your Savings – Start saving from your first paycheck. Automate this process either through direct deposit, scheduling a recurring transfer from your checking to savings account, or using an app like Acorns or Digit. Aim to save at least 10% of your take-home pay.
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Understand Your Expenses – Distinguish between discretionary and non-discretionary expenses. Discretionary expenses are optional, and you could cut these out if you’re in a financial pinch. Non-discretionary expenses are essential, and you have limited control over them.
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Address High-Interest Debt – Many young workers are burdened with debts like student loans or high-interest credit card debt. Instead of growing your savings, prioritize paying off these debts. Use the Debt Avalanche, Debt Snowball, or Debt Snowflake methods to manage your repayments.
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Start an Emergency Fund – This should be your top savings priority. Aim to save at least three to six months’ worth of expenses.
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Contribute to Your Employer-Sponsored Retirement Plan – If your employer offers a tax-advantaged plan like a 401(k) or 457(b), start contributing as soon as you can.
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Open an IRA – Regardless of whether your employer offers a retirement plan, consider opening an individual retirement account (IRA) on a platform like Betterment.
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Apply for a Credit Card – This can help you build or rebuild your credit, but remember to keep your balances low and pay them off fully and promptly each month.
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Create Goal-Based Savings Buckets – Once you’re in the habit of saving, differentiate between specific medium- and long-term goals.
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Evaluate Your Housing Needs – As you start to earn more, think about upgrading your living situation.
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Research Major Purchases – Don’t automatically go for the cheaper option. Research your purchases thoroughly before committing.
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Hire a Financial Planner – Once you’ve established your spending and saving patterns, consider hiring a professional to help you make sense of your financial situation and identify long-term plans.
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Reward Yourself for Reaching Financial Goals – Maintaining fiscal discipline doesn’t mean you can’t treat yourself every now and then.
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Avoid Lifestyle Inflation – As your income rises, resist the temptation to increase your spending proportionately.
Remember, these tips are here to guide you, but there’s no one-size-fits-all approach to personal finance. Use your judgment, do your research, and seek advice from reputable professionals to tailor these tips to your unique financial situation. Good luck on your financial journey!
