Getting your first paycheck is a rite of passage. No matter how mature and grown-up you feel, getting paid at your first real job says “I’m an adult now.” If you’re just experiencing this, or soon will be, congratulations and welcome to adulthood. As a new adult, you could probably use some tips for how to get the most out of that first, and future, paycheck.
Net is not gross
To effectively manage your paycheck, you need to know how much money you really make (tip: it’s not the number you agreed to when you got the job offer). Your net, or take-home, pay is the amount after taxes and benefits are withheld. By the way, the gut punch of seeing the difference between the two is also a rite of passage. Look closely at your first paystub to see where it all goes, and to know how much you actually have left to spend.
There’s a budget for that
Once you know what you’re working with, it’s important to create a budget and stick to it. The 50/20/30 budget is perfect, especially for young adults just starting out, for helping you keep your spending in alignment with your savings goals. Get into the budgeting habit early and it will be a far simpler task throughout your life.
The 50/20/30 budget states you should set aside 50 percent of your net income for essentials, 20 percent for savings and 30 percent for personal expenses. Essentials are generally the same for everyone and include housing, food, transportation costs, utility bills and minimum payments on loans (such as student or car loans). Savings include savings plans, debt payments and rainy-day funds. The personal category is everything else, from totally discretionary expenses like vacations or concert tickets to cellphone and cable plans, which many consider a necessity but are personal expenses. The key is to pay for essentials first, then put money into savings before you get to personal expenses. We know it’s tough, but you can do it.
Saving is fun!
Okay, so we’re more into saving than the average person. But here’s something to get excited about: Get into the savings habit early and you’ll have far more fun later in life when expenses like college educations for your kids and your own retirement pop up. It’s hard to put money toward savings when so many other enjoyable options keep presenting themselves, but the good news is that your employer can often help you save more easily.
Look carefully at your benefits package when you start. If your company offers a 401(k), open an account. A 401(k) is a retirement savings plan that lets workers save and invest a portion of their salary before taxes are taken out. Some employers even offer 401(k) matching, which is like free money. If you contribute a certain amount, the company may match a percentage of the funds. Start contributing to your 401(k) early and get used to having money deducted.
Having a real adult income is exciting (even if you think it’s not enough). If you establish good habits managing your money early, you’ll ensure you get the most out of every paycheck earned.