Congratulations! You got hired for the job and finally earned your first paycheck. Now what?
After you deduct for health insurance, taxes, and retirement, you need to decide what to do with your take-home pay.
Money moves to make when you receive your first paycheck
These money moves can help you maximize your hard-earned cash.
1. Start tackling your debt
If you have debt, one of your priorities should be paying it off. You can use a payoff calculator to see how long it’ll take you to become debt free. Selecting a debt payoff method can help you get started. With the debt avalanche method, you’ll make minimum payments on all your balances but put extra money toward the one with the highest interest rate. Once that’s paid off, you’ll put extra money towards the balance with the next highest interest rate, and so on. The debt avalanche method helps you save money on interest payments. With the debt snowball method, you’ll make minimum payments on all your balances but put extra money toward the one with the smallest balance. Once that’s paid off, you’ll move towards the next smallest balance, etc. The debt snowball method is good for individuals who need some more motivation on their debt payoff journey.
2. Create a budget
Now that you’re finally managing your own money, it’s important to think about budgeting. Sticking to a budget can make every dollar count and help you avoid wasting money on nonessential purchases. To make a budget, you should compare your take-home pay against a list of your fixed and variable monthly expenses. Fixed expenses—like rent—stay the same every month, while variable expenses—like groceries—may fluctuate. Check your income against your expenses. If you’re spending more than you’re making, you may want to adjust your spending. For example, do you really need six different streaming services?
3. Begin an emergency fund
An emergency fund is a pool of money set aside to help you cover unexpected expenses. It should be approximately three to six months of living expenses, although a year is preferable. Stashing away a little from your paycheck each pay period is the easiest way to create a fund. With an emergency fund in place, you can avoid depleting your savings if you suddenly need to shell out a lot of money for something like a medical bill.
4. Save for retirement
Even though retirement might feel lightyears away, it’s a good idea to start saving now. Just a small amount can pay off big time due to compounding interest. Plus, your contribution might be matched by your employer, meaning you’ll earn extra money for contributing a small percentage of each paycheck.
5. Invest
You can also take a portion of your paycheck and put it in an investment portfolio. Low-cost, passive index funds, while not particularly sexy, offer an easy, low-risk way to access the market and get a return on your investment. The best part is that this type of investing is relatively passive, so you don’t need to do much besides invest and sit back.