Paychecks merit excitement, especially your first one from your first job out of college. Chances are your first job out of college provides you with the most money you’ve ever been earning to that point in your life.
As a result, it can be tricky to manage this new source of income, even if it’s just chump change to an NFL star. To you, it’s the accomplishment of years of laboring in classrooms, libraries and coffee shops. So instead of blowing it, make it count. Use these tips to ensure your first “big kid” job also marks your first step on a healthy financial path.
Graduating college is a major accomplishment. Give yourself a pat on the back, but do it wisely. Spending money on experiences has been proven to satisfy people more than buying stuff. So treat yourself to a day at the spa or a weekend camping trip. Get some friends to join you to maximize the experience.
Lay Out Your Expenses
Now that you know what you’ll be earning, figure out your expenses. The obvious ones include housing, utilities, transportation and food. Make sure you also factor in any debts you have to pay off, which leads nicely into the next tip.
Pay Down Debt
If you took out loans to pay for your college education, now’s the time to start paying them off. When you figure out all of your expenses, determine how much you can afford to pay toward each debt. Get as aggressive as you can now so that you’re paying less in interest in the long run. Paying off debts is one of the best ways to build credit, which will help you finance bigger purchases later in life.
Resist the New Car Attraction
A fellow blogger who’s a Certified Financial Planner broke down why new cars often ruin people’s finances. He told me people see the monthly payment and know they can pay for it. But they forget about taxes, insurance, gas and maintenance costs. Quickly, those low monthly payments balloon to an unaffordable figure.
It’s understandable to want a nicer car, especially because cars are status symbols and you’re doing better than you were in college, right? Plus it’s nice to have extended warranties and the new car smell. Why not look at used cars? Or if you already have one, what’s wrong with it? Are the issues repairable?
Resist the Fancy Housing
You don’t need a grandeur, new loft in the hippest part of town even if you can afford it. Why not look for places with great locations that won’t cost you a plurality of your income? What’s wrong with having a roommate?
I get it, you want to be on your own. But maybe you’re still not quite ready to live in an oversized space by yourself. Living below your means right now means you can live up to them later. Most of all, it means you won’t find yourself stressing about your living expenses.
Start Retirement Savings
Get in on your employer’s 401(k). If you’re lucky, they’ll match your contributions up to a certain dollar amount. Take advantage of that, because it’s free money. Don’t rule out Roth Individual Retirement Accounts either, especially if you don’t like your employer’s 401(k) options.
It’s hard to get started on these savings as it feels like you’re leaving your fun college life behind. The day I did the paperwork to set aside money in my 401(k), I put myself in a bad mood. I thought, Why am I saving for retirement when I’m 23? As my balance has increased, I’ve grown proud of it instead of envious of what I could spend that money on.
Contribute to Your Emergency Fund
You better get an emergency fund started if you haven’t already. We’re not talking about a 10-page-paper-is-due-tomorrow type of emergency anymore either. It could be a medical misfortune, a natural disaster or — worse yet — a notice that you’re losing your job. Be prepared for the worst by saving until you have about six months of expenses covered.
It’s likely that your employer will offer health insurance, but you may be on your own for dental coverage. Also, do you have renters insurance for all the stuff in your apartment? If you’re already financing a home, you’ll definitely want homeowners insurance. With the latter, shop around so you get insurance that will help you with natural disasters.
Remember, it’s good to get a thrill on your first payday out of college. Just keep in mind that a paycheck isn’t an invitation to live large. Be smart with you money now, and payday excitement won’t fade.
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