Congratulations! You’ve earned your first full-time job after graduating college, or maybe you got your first promotion. Either way, you should absolutely congratulate yourself for this achievement. You deserve to celebrate yourself – a night out with friends for some good food and drinks should do the trick! Or maybe you’ll take that day trip one weekend you’ve been dying to experience. Nonetheless, it’s exciting to feel like all of your hard work has paid off. But let me be the first one to warn you of the biggest mistake I made once I got paid: I blew my paycheck.
When I saw that money hit my account after two weeks of working full time, I thought, I’m rich. I took myself out to eat with friends, I bought new workout sets and got a gym membership (which was well worth it, btw). But after the dust settled, I quickly realized that I was, in fact, not rich. I didn’t know that there was a sign-on bonus included in my first paycheck, giving it a considerable boost in value that I would not receive in the weeks to come. I know: yikes.
After paying off a steep credit card bill, I realized my standard paycheck couldn’t afford multiple days of care-free spending while trying to budget for student loan payments and future spending. I learned that post-grad life may come with more money, but it also comes with more responsibility. I had to make sure I had food in the fridge and my bills were paid before I went out on the town for drinks.
Take it from me, and don’t let the same happen to you. Landing your first job is so rewarding, but it’s a slow and steady race to really achieve your savings goals and financial stability. It won’t do you much good to compare your lifestyle to that of others, or try to embody those you admire if you can’t afford to, but that doesn’t mean you absolutely can’t try out something new or fun – here are four things to do to stay conservative with your money while still allowing yourself the freedom to enjoy your free time.
1. Always Pay Yourself First
Paying yourself first involves putting your money towards your expenses and savings before spending on things that are not necessities. This is easy to implement and doesn’t require a financial advisor – although it never hurts to consult with one! A simple way to pay yourself first is to have portions of your paycheck automatically deposited into separate checking accounts that may be assigned to specific purposes (e.g. student loan, rent, car payments, etc.). Whatever remains can be spent on other areas of life.
I made this change immediately following my second paycheck at my full-time job. My pay now gets divided into different accounts, and I know exactly how much money I’m saving and how much I’m able to spend. Before doing this, check to see if your bank charges any fees for opening up separate accounts. Another method for this could be budgeting out how much spendable money you have left after paying your bills and taking that spendable money out as cash. Once you withdraw the cash, that’s all the money you can freely spend until the next paycheck.
When it comes to determining what you can spend, Logan Murray, a Certified Financial Planner (CFP) and Tax Preparer for Pocket Project, hopes for at least 20% of gross income to be saved. He suggests building an emergency fund for unexpected financial hardship and paying off any high interest debt you might have, such as your credit card. “Then, savings can be in the form of debt pay down, retirement accounts, or investment brokerage accounts,” he tells Her Campus.
2. Cut Back on Your Unnecessary Spending
Cutting back on unnecessary spending is one of the key methods to saving your money and building personal wealth. There are many financial opinions on what people deem “unnecessary goods,” but it’s important that you decide for yourself what you’re able to cut back on spending on and what you’re not. Some people are able to save some extra money by making coffee at home instead of buying their favorite drink at Starbucks every morning, or by purchasing a cheap gym membership rather than going to OrangeTheory every week. Others may just be starting to build their savings and pay their bills and are not able to cut back spending in many areas of their life. If this is the case, reduce your spending in whatever areas you can, and don’t worry about where other people tell you where to spend your money. “There are many factors that come into play here for new college grads, so it’s hard to put everybody into the same bucket,” Murray reminds us. Don’t compare yourself to where your friends are.
If you find yourself spending paycheck to paycheck to cover your bills, consider ways to reduce your current expenses and debt. If your student loan payments take up a considerable portion of your monthly expenses, reach out and see if you can adjust your monthly payment.
If you can set aside a small portion of money each month, consider opening a high-yield savings account that can earn you more money over a period of time. Even when you have a tight budget, you may be able to find ways around your expenses and monthly spending habits!
It can be easy to fall victim to lifestyle inflation when you receive your first real paycheck, which involves an increase in your spending that aligns with your increase in income. Essentially, the more money people make, the more they think they can afford. Would it be nice to have all of your workout clothes be from Lululemon and Alo Yoga? Sure, but on a list of your life’s priorities, where do these high-end brands rank? Stores like TJ Maxx, Marshalls, and Dick’s Sporting Goods sell similar clothes for far less expensive prices. Even if you’re able to afford Lululemon and Alo, it might be better for your bank account at this point in your career to shop conservatively and splurge only on occasion. I typically like to keep my eye on one or two things from nicer brands that I know I’ll be able to wear or use for a long time, and are well worth the investment. For everyday wear such as workout clothes, I try to shop smaller and stick with more affordable pieces.
3. Act As If You’ll Always Have Bills to Pay
Keep in mind that everyone’s financial journey varies. After college, some people may not be able to afford to pay more bills on top of their rent, utilities, student loan, car payment, etc. On the other hand, there are people who graduate, move home and have minimal expenses to worry about right off the bat. If this is the case for you, try asking yourself, “If I continued spending the way I am right now, would I be able to still afford X, Y, or Z?”
You might be shocked to realize that the lifestyle you’re living now will not be sustainable once you move out on your own. One way to become better at saving is to act as if you already have bills to pay. This goes back to paying yourself first and setting aside separate accounts designated for your savings goals.
“Knowing where your money goes is a great first step, but working savings alongside that spending is something really important and often neglected,” Murray says. If you start putting aside money now for rent or utilities in the future, you’re already setting yourself up for success down the road.
4. If you make a mistake, learn from it
Sometimes the best way to learn is by making a mistake, which was definitely the case for me. If you find yourself in a similar scenario down the road, don’t panic. If you continue to repeat your mistakes, it could lead to problems in the long run, but one money mistake isn’t going to break you.
Consider taking a pen to paper and writing down some of your financial goals you want to accomplish in the next twelve months. Start tracking your spending if you’re feeling stretched thin. Have conversations with people who’ve paid off their student loans, bought their first car, or accomplished one of the other financial goals you’ve for yourself to curate the best advice for your intentions.
Everyone has a different financial journey with different challenges. Be honest with yourself about where you are now, and know that with time you’ll be able to spend your paycheck more freely with more knowledge and savings!
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Logan Murray, CFP, RICP, EA