How new income earners can make the most of every paycheck

  • July 19, 2020

Landing your first job is a big deal. Whether you’re a teenager or a recent college graduate, having a steady source of income opens the doors to a new level of independence.

Less reliance on parents for money means more freedom to buy what you want, when you want it. But, with greater freedom comes greater responsibility. Spending your paycheck on impulse buys can be fun. It can also cause lasting financial damage.

Take these steps to make the most of each paycheck while still enjoying the amazing experience of earning your own money.

Set financial goals

Unless your money has a purpose, it will be easy to say yes to unnecessary spending. Establish financial goals so you can take charge of your future. This might include setting savings goals for a new car or spring break trip.

Start by opening a designated savings account. Transfer a percentage of your paycheck into your account each payday. As you watch the money in your savings account grow, it becomes easier to say no to unplanned purchases.

Stick to a budget

Budgets are the easiest way to help you spend less than you earn. A 50/20/30 budget is a simple way to keep track of your spending without having to track every single dollar. It provides a way to have some fun and be financially responsible all at the same time. Here’s how it works:

  • Approximately 50% of your take-home earnings should pay for living expenses, aka necessities. Expenses in this category might include student loan payments, rent, and groceries.
  • Set aside up to 30% of your paycheck for your lifestyle expenses. These might include eating out, sporting events, or concerts. Items in this category are considered your “wants.”
  • Put the remaining 20% in savings toward your financial goals.

Other budgeting techniques exist to help you take charge of your finances. Search online for more options. Remember that the best budget is the one that helps you avoid overspending.

Pay bills on time

Late fees aren’t the only thing you have to worry about if you miss your payment due date. Your credit could also take a hit. Contrary to popular belief, you don’t have to take out a loan or open a credit card account to impact your credit. Each time you pay your bills, you could affect your future finances.

Credit scores are a three-digit summary of the information in credit history reports. Scores are just as influenced by loan repayments as they are by other credit activity. Skipping rent or cell phone payments could lead to trouble. The creditor can report delinquent payments to the major credit reporting bureaus.

For example, if you break an apartment lease or stop paying your cell phone bill, it could haunt you. Negative information can stay on your credit history reports for up to seven years. This can interfere with your ability to get an auto loan, rent another apartment, or secure your dream job.

Continue your financial education

How you manage your finances will change over the years. If you get married, have children, or earn more money, update your saving and spending habits to match your new lifestyle. Use resources such as the Financial Wellness Center to learn more personal finance basics. Gain the confidence needed to make wise financial decisions wherever you are on life’s journey.

Establishing good financial habits early in life can help you avoid money pitfalls. It’s possible to create the financial future of your dreams when you have a solid plan.

Live Well, Bank Well