You’re Making Money — Now What?

by Daniel Wesley

There’s no better feeling than receiving your first real paycheck. You worked hard in school, pounded the pavement, and landed a job that pays pretty well — for someone who only recently gave up eating Ramen for dinner. You’re not Warren Buffett, but that little piece of paper is worth more than you quite know what to do with.

If you’re right out of college, odds are you don’t have too many expenses, such as providing for a family or paying a mortgage. Splurging on pricey concert tickets or a new gadget might be tempting, but if you save your check (or at least part of it) and allocate your funds appropriately, you can safeguard a good financial future.

Make Saving Habitual

Smart spending can keep you out of troublesome financial situations. Whether you have a lot of income or just a little, it’s important to stay in check with your expenditures and savings so you don’t have to make major sacrifices down the road.

Your first priority should be to put a portion of your paycheck into a savings account. Allocating 10% of each paycheck would be ideal, but even 5% on a consistent basis will add up over time. This account could be earmarked for emergencies or retirement, but either way, it needs to exist. The amount of money you set away for these accounts depends on your typical expenses and how you want your money to work for you.

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Take Care of Everyday Expenses

Saving for the future is crucial, but you also need to budget for your everyday expenses. This includes housing, utilities, transportation expenses, and food. You should plan to spend 50% to 70% on these expenses, so remember to leave a buffer.

It’s important to honestly track and evaluate where your money goes on a monthly basis. Tools such as Mint.com can help you manage and monitor what you spend in these categories and make it easy to see where you should cut back. Anticipating these expenses will make financial planning much easier.

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Paying What You Owe

After your savings and living expenditures are accounted for, your next priority should be paying off your debt. The longer you wait to pay off student loans and credit cards, the more stress you create for yourself later in life.

It can be incredibly easy to let payments slip by, but defaulting on them can have terrible financial consequences in the long run. Interest rates add up quickly, and the loans will haunt you until you pay them. Lightening your debt load will give you more peace of mind and improve your credit rating.

Always Have a Backup Plan

Emergencies happen. You’re doing well for yourself if you’ve budgeted for your everyday expenses, set aside a sum for savings, and put money toward paying off your debts, but having a backup plan always pays off.

When I was a teenager, I worked odd jobs and delivered pizzas to save up for the things I wanted and needed. When I finally had some spending money, I immediately splurged and bought a TV. Being able to buy a big-ticket item with my own money was great — until a few days later, when my car broke down.

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As it turned out, I had to return the TV and take additional shifts just so I could afford to fix my car. I learned my lesson: having a backup plan is important. If I had saved more money before making my big TV purchase, I might have been able to both keep the TV and fix my car. Knowing where you can pull emergency money from can save you in a sticky situation and is beneficial for your overall financial health.

When the money hits your bank account after payday, it can be tempting to treat yourself instead of setting up a savings account. But even setting aside small amounts of that check can help you build an emergency fund, plan for retirement or a vacation, and pay off debt faster. Learning smart saving and spending habits today will give you greater peace of mind (and a bigger account balance) tomorrow.

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