Entering the workforce is exciting. No more Ramen noodles and living on a student budget. You are finally earning a real paycheck and starting to take on adult responsibilities. Having a full time income can make you feel wealthy, until you start to calculate all the bills that go along with the new found adult responsibilities.
This is the perfect time to establish strong spending and saving habits that will lead to a successful financial future. Receiving a much higher paycheck than you are used to receiving can lead to the temptation to overspend. To resist the pulls towards consumerism, implement the following strategies:
Establish a basic budget. Consider both your wants and needs and compare that to your take home pay. Adjust as necessary. Keeping essentials to 50% of your income will enable you to live comfortably while still being able to save for future needs. There are many budget apps available that can help you set a budget and track your expenses.
Keep costs down. A new job creates new found independence and the temptation to get all those things you have wanted. Hold off on the new car and new house and consider living with roommates to start off. Adding a number of long term expenses right away can lead to over committing and an inability to keep up with payments. See how your budget holds up for a few months and then add expenses slowly. You don’t want your costs to rise faster than your income.
Pay down debt. There are few times in your life when your monthly expenses will be so low. Getting married and having a family only increases financial demands. Aggressively paying down debt as soon as you begin work will put you in a much better financial situation a few years down the road. Too many people these days are paying student loan debt well into their 40’s. This can impact your purchasing power for decades.
Start saving right away. Much of financial success is about putting the right habits into place. Unexpected expenses happen frequently to everyone. Whether it is an unexpected medical bill, or the car that needs repairs, setting aside money in an emergency fund will help you pay for these expenses as they arise and reduce the accumulation of debt.
Understand your employment benefits and use them. This might include a 401K match, life or health insurance or other benefits like medical or child care expense funds. Consider your needs and fulfill them with available benefits. Insure things that matter to you. This includes life, health and disability. Many benefits are provided with pre-tax dollars which can save additional money and reduce tax liability.
Evaluate tax withholdings. Getting a refund each year feels like a windfall, but it is really giving the government an interest free loan. Set your withholdings accurately so if you get a refund it is small. This will offer more working capital in your monthly budget and might be the difference in being able to save or living paycheck to paycheck.
Starting early is essential when it comes to building positive financial habits. Now is the time to learn to live within your means, however meager that may seem. Then as your income increases you will be able to build a strong financial future with money management skills in place to weather the financial storms that are sure to come.