Inspired by a Facebook post of someone I know whose daughter just got their first paycheck, I thought it would be a great opportunity to write about what I would tell my daughter or son (when I have children) what to do with their first paycheck.
It’s a great feeling getting your first paycheck. I still remember the day I got mine. I held it in my hands and said to myself, “Is this what it means to have money?”
Although I had already made money mowing grass, raking leaves, and shoveling snow, this was a paycheck. I felt like an adult.
The paycheck in my hand wasn’t cash just yet. It was a piece of paper with numbers printed on them. But that check represented my hopes and dreams of all the things I could buy.
I look back now and wish I knew exactly what I should have done with that paycheck. I didn’t feel like I could turn to anyone because no one around me talked openly about money.
Instead, I ran to the nearest bank around the corner and opened up a checking account to get a debit card. Because using a debit card is what adults do. And it always seemed cool to see people buy things with a swipe.
Having received many paychecks since I’ve wondered how my financial life would have been drastically different if I had a bit more financial understanding.
So, today, I want to share with you what I wished I knew when I got my first paycheck. I hope it helps you make wiser decisions with the money you make.
How to CARPE DIEM your first paycheck
Carpe Diem means to seize the day. And what a better way to seize the day than to learn what we can do with our first paycheck. But before you go spending all that cash I want you to consider these things to help you master money.
First and foremost, you want to know the information found in your paycheck and paystub:
- Total gross pay: The money you earned based on your salary per hour and how much you’ve worked.
- Total net pay: The amount of money you earned after your taxes and deductions. Basically what will actually go to your checking account.
- Hours worked: You’re either an hourly employee or a salaried employee. It will either say how many hours worked or your set pay period salary.
- Deductions and Contributions: Money is taken out of your paychecks for taxes, insurance, retirement plans, and more.
So, CARPE DIEM away…
C: Contribute to your company’s 401-k plan.
You might think retirement is a long time from today. But starting as early as possible can mean your money has more time to earn interest on interest. This is called compound growth. Imagine that? You’re making money without exchanging any more of your time at a job. You’re making money with money.
Pro-tip: Take advantage of your employer’s 401-k match. If you don’t contribute at least the amount that your company matches, then you’re leaving cash on the table. Would you leave $20 laying on the ground that clearly has your name on it?
A: Automate your finances
Streamline your finances by automating. In addition to having your paycheck direct deposited, set up auto transfers from your checking account into your savings accounts. Have bills? Set up online bill payments. Set up alerts and notifications for all your financial accounts. Stay on top of what’s going in and out of your checking and savings accounts.
R: Review your paystub
Always review your paycheck for accuracy of the time worked, the hourly wage, holiday pay, sick pay, and look for questionable deductions.
Get to know the taxes you pay such as the income tax, medicare tax, and social security tax. And any other taxes levied based on where you live.
Pro-tip: You can potentially lower your tax liability by contributing to an employer-sponsored retirement plan like a 401-k.
P: Pay yourself first
Yes, you just got paid and that money is yours. Unfortunately, what tends to happen is we end up spending our hard-earned cash before we save for our real goals. Identify your goals. Are you saving for a car? Planning to move out of the house? Want to go on vacation?
Setting aside money each payday for your goals is a good habit. It can ensure you’re financially ahead of your peers.
Pro-tip: Open savings accounts with your financial institution and title them with each goal. Use automatic transfers each payday to have a specific dollar amount transferred to each goal.
E: Emergency Fund
Each payday set aside at least 10% into an account you’re going to title emergency fund. Emergencies happen. It’s not a matter of it, but a matter of when.
A good starting point early in your working life is to save at least the amount needed to cover the deductible of your car insurance. For instance, if you have a $500 deductible, then prioritize saving up to $500 with automatic transfers. If you don’t have a car, start at $500 anyway.
Pro-tip: Going out to dinner with friends doesn’t count as an emergency. It’s meant to cover your necessary living expenses for a period of time in the event you lose your job or you have your hours cut. Eventually, you’ll want to start a rainy day fund, increase your emergency fund, and start a freedom fund.
D: Direct Deposit Your Paycheck
Choose paycheck direct deposit into your checking account so you have the cash on payday. This saves you a trip to the branch, ATM or the need to scan the check for mobile deposit.
Just remember to review the paystub each time for accuracy.
Pro-tip: Don’t pay to cash your paycheck or do any type of payday advances. You’ll end up paying way more to get your paycheck early. It’s a vicious cycle.
I: Invest Early
You’re already contributing to your company’s 401-k plan and getting the match. Now, consider investing a few more dollars. Investing is similar to saving but the use of this money is for longer-term goals. When you save you’re basically hoarding money for near-term purchases. When you’re investing you’re focused on growing that money.
Pro-tip: Don’t wait until you’re paid more to invest. There are apps that let you do this at $5. It’s a good time to invest by buying fractions of shares so you’re not shocked by the stock price of some of your favorite brands.
E: Enjoy your life
It’s important to treat yourself. You work to make money. In fact, you exchange your time to earn a paycheck. The goal of earning money is to afford the things you want and need. So, I’m here to tell you it’s okay to spend it. However, be mindful of how you spend your hard-earned cash. If you spend your money carelessly, you’re just wasting your time.
Pro-tip: Enjoy your life by contributing to your retirement early, cover your expenses, save for an emergency, cover your expenses, and treat yourself.
M: Manage Your Money
Budgeting doesn’t sound fun, but it’s going to be your best financial tool. Budgeting is allocating your money to what’s important to you. If you tell your money where to go, then you’ll never wonder where it went.
The sooner you’re aware of how much money is coming in and how much money is going out the better prepared you are to live your best life without the financial stress.
Pro-tip: Managing your money or cash flow will help ensure you live below your means. It will also help you from taking on unnecessary debt.
Books I Recommend Reading to Master Money Early
You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life – okay this is the book I wrote but it’s going to make you rethink how you spend your time and think of money. Get the book | Listen to the audiobook
Broke Millennial: Stop Scraping By and Get Your Financial Life Together – a great book that provides more details about personal finance written in a fun interesting way. Get the book | Listen to the audiobook
I Will Teach You to Be Rich – this book doesn’t mince words and it gets right to the point. It’s going to remove the jargon and dispell typical personal finance myths. Get the book | Listen to the audiobook
The best financial tools to help you manage your first paycheck
Check out some of my favorite apps to help you master your money and achieve your goals:
Acorns – a micro-savings app that rounds up your purchases then invest the spare change into exchange-traded funds. Learn more by clicking here.
SoFi Money – an online cash management account that earns a high interest with no fees and unlimited ATM fee reimbursements. Learn more by clicking here.
Robinhood – invest in stocks directly with this free stock trading app. Learn more by clicking here.
Qapital – lets you create savings goals and savings rules that are triggered based on your preferences. Learn more by clicking here.
Personal Capital – track all your accounts and get a financial overview with this free personal finance management tool. Learn more by clicking here.
CapitalOne 360 Savings – open as many savings accounts and title them as you wish with no minimum or monthly fees. Learn more by clicking here.
Credit Karma – access a free credit report and credit score. Monitor your credit health. Learn more by clicking here.
Self Lender – a service that helps those with no credit history establish credit. Learn more by clicking here.
Want to find the right financial tools for your situation? Need help with student loans? Want to chat with a financially empowered AI? Check out the financial marketplace and discover the right app and tool for you.