The excitement of getting your first paying job will stay with you for the rest of your life. So before preparing for your first day at your job, take a day to celebrate your achievements. It is very well deserved!
Now, take some time to plan your finances (not so fun but so crucial) to ensure that you don’t start your life as a hand-in-mouth kind of person. We have prepared a quick checklist to help you take your first step into your financial journey.
- Open a Bank Account (If You Don’t Already Have One)
This is a no-brainer. Open a bank account with no charges for monthly maintenance.
- Set Up Recurring Savings Contributions
Device a savings plan from the time you receive your first pay check. You can start with saving 10% of your take-home salary. You can ensure consistent savings by automating the savings process. Below are some ways of doing that:
- Recurring Bank Transfer. Automate savings by scheduling a recurring deposit to a savings account from your checking account on the same day each month.
- Use an automated savings app. Some applications allow you to schedule the withdrawal of funds from your checking account and deposit them into your savings account.
- Differentiate Between Discretionary & Non-Discretionary Expenses
It is hard to maintain financial discipline when you don’t understand the basic concept of discretionary and non-discretionary expenses. Discretionary expenses or wants are those expenses that you make because you can and not because you need to. These are the first to go in case of a financial crunch.
Non-discretionary expenses or needs are those costs that you have limited control over. Therefore, paying close attention to your spending habits and especially your discretionary expenses can help you a lot in maintaining achievable savings targets.
- Develop a Plan to Address Any High-Interest Debt
Prioritize paying off debts with a high-interest rate over saving up. The interest earned from any savings held in deposit accounts or stocks and funds won’t come near to the interest you’d end up paying on these debts.
- Build an Emergency Fund
The top savings priority of any newly employed individual should be building an emergency fund. A good emergency fund can help you sail through at least three months with your current spending habits without any cash flow.
A successful one should provide you with a cushion for at least six months. Of course, this won’t be built overnight or with a few paychecks, so don’t make unrealistic targets.
- Apply for a Credit Card
Credit cards help you avail several deals and cashback offers and enable you to create your credit score. However, to ensure that this doesn’t turn into bad debt, ideally, keep your balances below 30% of the spending limit and pay them off in full at the end of each credit cycle.
- Start Contributing to Retirement Plans
If you don’t want to work for the rest of your life, start contributing to retirement plans as soon as you start earning. If your employer doesn’t sponsor a tax-advantaged deferred compensation plan, open an individual retirement account (IRA) or Employee Provident Fund (EPF).
- Reward Yourself for Reaching Financial Goals
It is essential to reward yourself for meeting or exceeding the expectations you set for yourself not to lose your motivation. However, don’t end up spending more than you saved in the name of celebration.
Suppose you don’t succumb to lifestyle inflation and stay fiscally responsible since the beginning. In that case, you can be one of those responsible adults who have got their lives on track.