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The following is a guest post from Lauren Keen of Adulting Is Easy.
Congratulations on taking your first big step into adulthood by getting your first job. You did your
research, you nailed the interviews, and you got the job. Now, what are you going to do with your
1. Set Up Direct Deposit
Direct deposit is beneficial for a few reasons. First, it’s more convenient. You don’t want to have
to make the trek into work to pick up a check. Even with mobile deposit, that’s not convenient.
Second, you may be eligible for perks from your bank for using direct deposit. At the very least,
they’ll probably offer you a checking account with more perks or lower fees. When I signed up
for a checking account with direct deposit from Chase, they deposited $300 in my account.
Third, most workplaces will let you split your paycheck into two different accounts, which will
make it easier to save.
2. Understand Your Pay Stub
Read through your paystub and learn the difference between what you’re paid (your gross
income) and your take-home pay. Your gross income will be the number of hours worked
multiplied by your hourly rate or 1/26th of your salary. Next would be a 401(k) (discussed later
in this article) and your health insurance premiums, if applicable. Then there will be taxes taken
out. Lastly, you’re left with your take-home pay.
3. Create a Budget
Multiply your take-home pay by 80% and start with that. Next, subtract your expenses, such as
rent, student loans, utilities, car payment, car insurance, cell phone, gas, and food. The rest is
your discretionary spending! The 20% we lopped of the top is for savings. If you follow the
advice in this post, you’ll be saving 20%, spending approximately 50% on necessities, and have
30% leftover for discretionary spending. By the way, this is aptly called the 50/30/20 budgeting
4. Start Building Up A Savings Cushion
Saving is a habit and you might as well start right away. Decide which percent you want to save
(I suggest 20%) and have that much deposited right into a savings account. Ideally, this would
be an online savings account because 1) it will have a higher interest rate than one from a
physical bank and 2) it’s not as easy to spend if it is separate from your primary bank. Most
sources suggest you save at least 3 months’ expenses for emergencies.
5. Treat Yourself
This may be controversial advice, but I’m going to give it to you anyway. Buy yourself
something you’ve had your eye on. Getting your first job is a great accomplishment and you
should mark it with a gift for yourself, which in my case would be a purse or a nice meal.
6. Save for Retirement
Once you’ve built up your savings cushion, you should save for retirement. Start putting 10%
into a retirement account and continue putting 10% into your online savings account. Even if
you’re working part-time, your employer may offer a 401(k) plan or something similar. Note
that if you do contribute to a 401(k), you’ll see a line item on your pay stub between your gross
pay and your taxes because this contribution is not taxed until you use it in retirement.
Even if your employer doesn’t offer an employer-sponsored retirement account, you should
open an individual retirement account (IRA). A Roth IRA is a great choice because these are
funded with after-tax dollars and your tax bracket is low while you’re young. Then, when you
retire you won’t have to pay taxes on the earnings.
You could even contribute to both a 401(k) and a Roth IRA. The main reason you should start
saving for retirement right away is because of compound interest. This means that the money
you contribute is going to earn more money (interest), then your original contribution and the
money you’ve made from interest will earn money, on and on and on. Because you’re so young,
you have a lot of time for your money to grow. Saving $200 per month will grow to be tens of
thousands, if not hundreds of thousands, of dollars upon retirement.
7. Give Back
There is no formula to calculate how much of your earnings you should give to others. Much
like saving is a habit, so is giving. Set aside some money each month to give to a charity or
online fundraiser of your choice. Even if you’re giving $10 or $20 at a time, you can make a big
difference. It will feel great too.
8. Additional Investments
Remember, we’re assuming you’re saving 20%, spending 50% on necessities, and spending 30%
on discretionary items and experiences. The 20% you’re saving is split half and half between
retirement and your online savings account. After a while, you’ll have much more than your 3-
month emergency fund in that account. You could use it for a car or a vacation, sure. You could
also invest some of it. It could be a down payment on a primary residence. It could go towards
an investment rental property. Or you could invest outside of your retirement accounts in
stocks, bonds, or REITs. Eventually, if you want to generate wealth you will need additional
investments. And they’re not a bad thing to have even if your goals are more modest.
Transitioning into a fully functioning, financially independent adult is not easy. Learning how to manage
your personal finances can be overwhelming. Just take it step by step. It sounds cliché, but life really is a
marathon. Luckily, by getting your first job and reading this article, you’re already on your way.