Landing your first job is a big deal. So is getting your first paycheck. You have income and it’s time to make a plan so you can meet your financial goals and have some fun, too. Your future self will thank you!
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.
Set financial goals
Unless your money has a purpose, it will be easy to say yes to unnecessary spending. Set financial goals now so you can take charge of your future. Whether you’re saving for a new car or a spring break trip, it starts with setting the goal and then making a plan to get there.
Start by opening a designated savings account. Transfer a percentage of your paycheck into your account each payday. Even better, if you have direct deposit, set up an automatic transfer from checking to savings each time you get paid. As you watch the money in your savings account grow, it becomes easier to say no to unplanned purchases.
Stick to a budget
You may be wondering if there’s a way to save for long term goals and have some immediate fun with your money. Yes! Welcome to budgeting.
Budgets are the easiest way to help you spend less than you earn. And, to make sure your money is serving your purposes and goals.
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. Think eating out, sporting events, or concerts. Items in this category are considered your “wants.”
- Put the remaining 20% in savings toward your financial goals.
This is one of many budgeting options. Remember that the best budget is the one that helps you avoid overspending.
Pay bills on time
Along with that new paycheck, you may be ready to take on new expenses too, including bills. Even if you don’t have a loan, you may make regular payments for other services like rent, streaming platforms or your cell phone.
It’s vital that you pay your bills on time. Late fees aren’t the only thing you have to worry about if you miss a payment due date. Your credit score could also take a hit. Contrary to popular belief, it’s not just loans or credit cards that can impact your credit. When you make payments on time, or miss payments, it could affect your future finances.
Your credit score is a three-digit summary of the information in your credit report. 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.
Negative information can stay on your credit report for up to seven years. This can interfere with your ability to get an auto loan, rent another apartment, or secure your dream job.
Beyond budgeting for bills, set up a system to ensure payments are on time. Automate when possible through autopay or recurring bank app payments, and use reminders for anything manual.
And, if you ever realize you aren’t going to be able to make a payment on time, reach out to the creditor immediately, preferably before the due date. Good communication is key, and you may be able to come to a solution that avoids a negative event landing on your credit report.
Never stop learning
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 available resources to gain the confidence needed to make wise financial decisions wherever you are on life’s journey. You’ll find lots of helpful articles on our blog and our team is always a phone call away.
Remember set financial goals, stick to a budget and pay bills on time for success. Establishing good financial habits as soon as you start getting paid can help avoid future money problems. It’s possible to create the financial future you want when you have a solid plan.