That very first check is an exciting milestone. After all the studying, practicums, or entry-level work, that first real salary is a nice reward. With it, though, comes an equally important decision: what to do with first salary.
Stop and consider before you go out and spend money on the latest gadgetry or go out to dine with buddies. Your money decisions today can form habits for tomorrow.
Here are 10 expert-recommended tips to help you manage your first salary like a professional.
1. Start with a Budget
CNBC’s report has shown that 63% of Americans have been living paycheck to paycheck in 2022, with 30% earning $250,000 or more annually. However, you can steer clear of that fate if you know how to spend your first salary.
Tiffany Aliche, or “The Budgetnista,” emphasizes the power of conscious spending.
“Having a budget gives your money direction.”
Split your income according to the 50/30/20 rule:
- 50% towards needs (groceries, rent, utilities)
- 30% discretionary wants (dining out, entertainment)
- 20% for debt repayment and savings
Budgeting can appear restrictive, but it is truly about freedom. Budgeting keeps you in check and enables you to save for things you can do in the future. A good budget also takes the pressure off money in the long term, as you know exactly where your money is headed.
It’s simpler to make choices with confidence when you have a plan for your money.
2. Establish an Emergency Fund
Surprises are part of life. A medical bill, a flat tire, or an unforeseen loss of a job can derail your finances. That is where an emergency fund comes in.
They recommend that you save three to six months’ living expenses. Start with an attainable goal, even $500 is a good starting point. Bankrate estimates that only 44% of Americans can afford to cover an unexpected bill of $1,000.
Make regular automatic deposits into a high-yield savings account to build your fund over time. This routine ensures you’re automatically saving for an emergency fund even when you don’t consciously make time to think about it each month.
Having an emergency fund makes you feel secure because you wouldn’t have to resort to high-interest personal loans or credit cards when the world throws you a curveball.
3. Pay Off High-Interest Debt
The credit card debt needs to be paid first. Credit card interest can reach astronomical heights, commonly in excess of 20%.
Suze Orman, a personal finance advisor, suggests:
“The greatest investment you ever make is debt elimination. You can’t make 18% risk-free in the markets, but that’s the amount you’re saving when you eliminate debt.”
Even if you cannot pay it off in full, paying more than the minimum extra payments can have a significant impact. Paying your debt early on stops it from becoming a snowball effect that you cannot control.
Decreasing the amount of debt you have also raises your credit score, which is important for the bigger picture of renting an apartment, purchasing a car, or getting a mortgage in the future.
4. Contribute to Retirement Early
It would seem strange to retire in your 20s, but your best friend is compound interest.
If your company offers a 401(k) match, take advantage of it. That’s free money. If they do not, consider opening up a Roth IRA.
Saving only $100 each month in your 20s can translate into hundreds of thousands at retirement with the effect of compounding.
Fidelity states that young workers saving since age 25 would have over $1 million when they reach retirement, even with modest contributions.
By investing today, you’re giving your money the longest possible time to increase in value. Retirement may be far away, but the earlier you begin, the less you’ll have to invest in the future to achieve your goals.
Small contributions really build up when they’re given decades to compound.
5. Treat Yourself Responsibly
Yes, go ahead and celebrate. But not too much. Invest just a portion, 15% or fewer, of your starting salary in splurges. A weekend trip, clothes, or an evening out at an upscale restaurant are all examples of your splurge. This is an achievement.
To quote personal finance writer Ramit Sethi:
“Spend lavishly on the things you care about, and cut mercilessly on the things you do not.”
Treat yourself responsibly to help verify the joy of earning as well as to bolster discipline. When you know your treat is part of an agreement, there is no guilt, but only happiness and rejoicing at work accomplished.
6. Back a Cause You Support
It does not always take writing a large check to donate. Consistent, small donations to an organization or charity that you support can make an impact.
Giving USA indicates that Americans donated more than $557.16 billion in 2023, and millennials provided an increasing share of donations.
Giving is also an excellent means of expressing gratitude and finding purpose in your income. Plus, charitable contributions are tax-deductible.
Donating to causes that are meaningful to you keeps you connected to your community and makes you remember that money is meant to do good.
7. Invest in Yourself
Invest part of your earnings into personal development. This can be an online course, or even membership in an association of professionals, or the purchase of professional books in your niche.
LinkedIn says that 94% of workers would remain at a company longer if the company invested in them for their career development. That’s right, your business may even finance part of your schooling.
Upskilling leads to promotions and possibilities. The more you know, the more valuable you are to employers, clients, and business partners. Self-investment is one of the few areas where the potential for long-term returns is almost certain.
8. Learn the principles of investing
If you have your basics, such as a budget, an emergency fund, and debt under control, move into the investing phase. Use the Robinhood or Fidelity apps, which make it simpler than ever to get started investing with little money.
There is no need to know everything. Low-cost index funds or ETFs can be your starting point. Don’t ever put money into trends, though, without first researching them.
Forming an early investment habit, even at small levels, builds confidence and acclimatizes you to the marketplace. Over time, you realize that you are able to manage risk, spread assets, and build wealth through wise and patient decision-making.
9. Set Short- and Long-Term Financial Objectives
What would you wish your money to do for you? Save for an automobile? Travel overseas? Buy a home? Establishing short-term and long-term goals keeps you motivated. Divide large goals into manageable monthly saving targets.
Having goals gives purpose to your money. Rather than wondering where your paycheck disappeared to, you will see your dreams unfolding, step by step. It’s about making your income into reality.
10. Talk to a Financial Advisor
If you’re not certain where to start, you may consider consulting with a certified financial planner (CFP). Many have reasonably priced consultation sessions and can help develop a plan tailored to your own situation.
CFPs have a fiduciary duty to act in your best interest, which is unlike other advisors who receive payment to sell you specific products. You can search for an accredited advisor at the CFP Board or NAPFA.
Everything, from investment planning to taxation, can be explained to you by a professional, which can ease your mind. Although there may be a bill for the initial interview, the custom advice you are provided with can save or make you much money down the line.
Getting expert advice earlier places you on a clearer, more confident path.
What to do with the first salary to secure the future
The first salary is an important milestone towards maturity and economic independence. Despite your urge to spend all of it, careful planning can take you towards long-term prosperity.
Whether you save and budget, make investments, or donate, each decision you make today is a building block towards your future. So we have come to the conclusion on what to do with the first salary.
Perfection is not the goal; intentionality is. The answer to the question of how to spend the first salary is just: spend it to build the kind of life you always want.
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