Congratulations! You finished college and got yourself a shiny new job. Yay! All those years of hard work have paid off and you're now employed and getting a bigger paycheck than you've ever had before. (We hope!). But, what to do with all that newfound money? Well, option one is to send it to me, but that probably won't happen, so here's what you should be doing.
Check the paycheck for accuracy.
You'd be surprised, but HR people and Payroll people are actually human and make mistakes from time to time. Make sure the rate you are paid is the same rate as in your offer letter. If it's not, bring it to their attention the very same day-even if it's for more. Why? Because if it's for more than your offer letter says, they can require you to pay it back. If it's for less, you're being (accidentally) cheated. It's very easy to fix a paycheck error on one paycheck. It's not so easy when you don't notice until you get your tax documents next year, or even late. Yes, people sometimes don't notice errors for years and it's a huge mess by then.
Check your deductions for accuracy.
The most important deduction? For your 401k or other retirement savings plan. If you don't have a deduction for that, head back to HR and fill out the paperwork-especially if your company offers a matching plan. A matching plan is free money. Don't you like free money? Don't tell me you can't afford to contribute to a 401k because of you have student loans. You will have student loans for eternity and you still need to retire someday. Put at least enough into the 401k to get the match, more if you possibly can.
Put 10 percent or more in savings.
I know, I know, you've been wanting cool things and now you have money and you want to have the freedom to go out and spend and stuff. Excellent. Put 10 percent in a savings account right now. If you do this from your first paycheck on, it won't be painful at all. It's best if you can set it up so it automatically transfers every pay day.
This is especially important if you have lots of student loans or other debts. This money keeps you from becoming totally destitute should you lose your job. Having a savings account gives you power. When you have financial freedom, you can be confident in your salary negotiations, job hunting, and even personal relationships. You don't have to be stuck living with a bad boyfriend or lousy roommates because you can't afford to move out if you have that magical savings account.
Pay your bills.
If you have a lot of debt, I strongly recommend following a strict budget and snowballing your debt. This means you pay the minimum due on everything but one bill and pay the maximum you can on that one. When you pay that one off, take the money you used on that bill and apply it to the next one. The effect is like a snowball that builds over time and you can pay your debts rapidly. Most importantly, don't go into any more debt during this time. Not even for a new car that you feel you've earned. If you have debt, you haven't earned it yet.
Live within your means.
When you have a new paycheck, it's tempting to just spend and spend because there is another paycheck coming in two weeks. Don't do this. Budget carefully and plan for your future. You still can't afford to compete with those people whose parents are subsidising them. And if your parents are subsidising you, tell them to go ahead and stop. Why? Because you're an adult and you need to cut the apron strings. Remember, whoever holds the purse has the power. If your parents are paying your bills, they decide things for you. Don't be that person who is 35 and dependent on mom, who threatens to cut you off when she doesn't like your boyfriend. This is bad. Cut those apron strings today. It may be painful, but it will be a lot more painful later on.
Congratulations on the new job and the first paycheck. Make it work for you and enjoy life as a real adult.