Your first paycheck can be quite exciting. However, knowing how to maximize your income and get the most from your money is key.
Your First Paycheck
That first paycheck represents real changes in your life. Whether this is your first job in high school or your first job as an “adult” after graduating from college, it is essential to make your money matter as much as possible by starting responsible spending and saving habits from the very beginning.
Understanding Your Deductions and Taxes
While most people expect to see taxes taken from their checks, many are surprised by the amount of withholdings from their checks for tax purposes. Initial tax withholdings include:
- Federal Income Tax
- Social Security Tax
- Medicare Tax
Some cities and states also have taxes for withholdings. Do not forget to notice other withholdings from your paycheck such as 401K contributions, medical insurance fees, HSA (health savings account) deposits, and the like.
Once you understand how much of your check is left over after tax withholdings, you can build a budget that takes your take-home income into account, allowing you to pay your bills each month and set aside some of your income for savings.
Budgeting is one of the most important things you can do once you are out on your own and earning money. Learning to effectively budget allows you to live within your means. It also helps you understand your spending habits and where you can make changes to save an adequate amount of money each month.
The key to effective budgeting is to do all the following:
- Acknowledge and understand the elements of your paycheck.
- Pay all your monthly bills.
- Set aside money for savings.
- Allow room for fun along the way.
When you create a budget that includes these it is easier to stick with your budget and achieve your financial goals faster.
Automated Savings and Transfers
The more streamlined you make your efforts to save money, the better your efforts to do so will be. One of the best tools at your disposal is “automation.” That includes automated bill payments, as well as automated savings or transfers into your savings.
When you automate the process, you do not have to remember to do it each month. More importantly, if you have the money set to leave your account as quickly as it enters, you also do not have an opportunity to spend it on something else before you “pay” your savings account each month.
Putting Everything Together for Easier Money Management
While receiving your first paycheck is exciting, and you want to enjoy your earnings, the following advice can help that first paycheck keep on paying you long after the initial deposit has been made:
- Create an accurate budget for your income and lifestyle.
- Live within your budget.
- Think of items you are considering to purchase as a "want" or a "need".
- Automate savings and bill payments when possible.
- Create transfers that move money from your account, so you are not tempted to spend it.
These simple steps will help you build wealth even when you are first starting out.