Financial Tips for Your First PaycheckSubmitted by Robert McEachern & Scott McEachern on July 26th, 2018
The moment that your first professional paycheck enters your bank account can be a euphoric experience. Finally you can trade in those frozen pizzas and microwavable popcorn for some real food! However, this new cash flow can also be overwhelming - post-university life comes with a host of additional financial and social responsibilities.
Although your freshly funded bank account may be displaying numbers you didn’t think existed a few years ago, don’t be fooled into treating it as pocket money. New bills will arise, trust me. Young professionals are at a distinct advantage than others to set themselves up down the road, so take advantage! Even if your income is only modest at the moment, here are a few habits that will steer you down a happy and wealthy path.
Debt is the newest and largest obstacle young professionals have to adapt to. If faced immediately, debt is nothing to worry about! You won’t be able to pay off everything at once, but developing a plan to chip away at larger auto and student loans will give you peace of mind.
Debt is scarily easy to put off, we have all had a moment where we second guessed glancing at our credit card balance before, however in this case ignorance is not bliss. The longer you put off debts, the quicker its uglier side emerges as interest rates accumulate while your credit score simultaneously tumbles.
Plan a Budget
Sketching a rough budget outline or set of financial rules to follow goes a long way in preventing the aforementioned debt issue. Understanding your cash flow and ensuring that your expenses aren’t outstripping your earnings is not only a stress reliever, but it also gives you an idea of how much you can afford to save monthly.
Knowing your budget comes in handy once new bills enter the fray. “It’s good to understand where you spend, and if you find that you’re spending more than you make figure out where you can cut back,”1 explains Carolyn McClanahan, founder and financial planner at Life Planning Partners.
Set Short-term & Long-term Financial Goals
We all have our bucket list of things to do and places to see - setting clear financial goals is the surest way to achieve them. Having a one, five, and ten year plan keeps you on track when you are penny-pinching for your trip to Europe, saving for a new car, or even purchasing your first home.
With a budget in place, saving for your financial goals becomes infinitely easier. There are numerous savings options and The Globe and Mail expand on these choices here. In addition to the goals, stash a small amount of your paycheck away for an emergency fund. The Balance notes that possessing this fund “will help you out in a jam so that you don’t have to rely on high-interest credit cards or face a financial crisis” .2
Begin your Retirement Savings
If you don’t have pressing loans to pay off, then get ahead of the game by contributing to your retirement savings immediately. Retirement accounts benefit from compound interest so, simply put, the earlier you save, the more your money will make. Retirement may seem like an afterthought, and it may not be a priority now, but even small contributions early will pay off fifty years down the road.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2017 Advisor Websites.