You finished up college. You’re now a college graduate (congrats!). You applied to about 75 thousand jobs, had 2,000 interviews, 1,999 rejection letters, and now you finally landed that job. You went to payroll and setup your direct deposit with your bank to receive your very first paycheck. You’re finally going to be making good money for the first time in your life. What should you do? Don’t worry that’s what this blog is all about. Everything is going to work out.
Let’s look at a rough framework for all college graduate that will be earning their first paycheck soon:
What are your expenses?
You need to figure out your monthly fixed costs/expenses. This is the amount that you’ll be spending every single month. Both fixed and variable expenses should be considered. You first should take a look at your receipts to figure out what your fixed costs are (cell phone, gym, car insurance, etc.). Next you need to realistically plan your variable expenses (going out, new clothes, etc.).
The only thing that I really want to stress here is that you need to be realistic. If you enjoy going out 3 times a week, you definitely can’t expect to spend only $50 a month on entertainment.
What are your goals?
Where do you want to be in 6 months? Where do you plan on being in a few years? How long do you want to stay at this specific job? Do you want to start your own business? Getting your first colossal paycheck can be super exciting, but you still need to slowly start planning ahead. Once you figure out what your goals (career and life) are you can determine how you will spend your paycheck.
Now we can move on to the next step.
Pay yourself first.
I tried the whole strategy where I spend money from my paycheck first, and then attempt to save whatever is left over. This never works. You end up spending all of the money and you then have no money left over for your savings. You need to set aside money for your savings (or whatever your money goals are) first. Then you can cover your expenses. Then you can have fun with your money. You worked hard to land this job, so you deserve to have a little fun.
Build a savings buffer.
Some want to call this an, “emergency fund,” while others just call it savings. Call it what you want to call it but you need to save some money for a rainy day. This is the money that you can use when, “shit hits the fan,” and believe me it will. An emergency fund is like insurance for your personal finances. You won’t appreciate it until the day comes where you need money ASAP and your emergency fund is there waiting for you.
I’m a huge fan of sub-accounts. There’s something about the visual that just does it for me. I love to see my vacation account hit a $1,000 because I know that it’s time for a trip (I try to put anywhere from $20-40 a week aside for this). I also suggest that you create sub-accounts for your different goals that you may have (general savings, vacation, retirement, etc.).
Increase your income.
This stage is where things start to get interesting, because there are so many ways to increase your income. Once you have our savings under control and you’ve started to beef up your emergency fund, you’re ready for this next step. Below are just a few ways you could increase your income:
- You can work your butt off and get promoted within your company to a higher paying position.
- You can deliver high quality results consistently and ask for a raise.
- You can start to earn some more money on the side.
Any young professionals willing to share some money management advice for new college graduates entering the work field?
Important note: You don’t have to stress about getting all this done with your first paycheck. I don’t want to overwhelm you guys. This is just a rough framework for what should go through your mind as you enter your career and start making decent coin for the first time in your life. I just want you guys to be prepared.
Image source: dougtone