If you recently started your first full-time job, congrats! Now that you’re looking at a regular paycheck, you might have questions about how to save money – what are you saving for? How much will you need? While it can be tempting to spend most of what you earn, you don’t want to neglect your longer-term financial needs, such as buying a house and saving for retirement.
The good news is, saving doesn’t need to be complicated. It’s about taking small, simple steps that don’t make you feel overwhelmed. Here are some tips that can set you on a path towards financial success!
- Make a budget.
The first step is making a simple plan, or budget, for how you are spending your money. Once you give each dollar a purpose and ensure you’re meeting essential needs, you can spend on things you value and feel confident that you can afford them. A great rule to live by is the 50/30/20 rule, meaning you should spend 50% on essentials (like housing, food, utilities, and debt), 30% on saving (retirement, general savings, emergency fund, etc.), and 20% on non-essentials (all the fun stuff). Then, by comparing your real spending habits to your budget, you can adjust your spending where necessary. - Understand your debt.
Do you have debt from student loans, credit cards, or a car? Make a plan to pay it off, starting with the highest-interest debt first (typically credit cards). Understand the terms of the loan to ensure you’re paying on time or even early. The easy way to do this is to “set it and forget it” with automatic online payments. Make sure to include debt payments in your budget, and if you have extra to spend, consider paying off more than just the minimum amount each month. - Procrastinate to save money.
You may have the extra cash to buy a new car or fancier clothes, and you might want to, but take a second to think about what you’re spending your money on – is it a need or a want? To curb impulse shopping, financial planners recommend waiting at least a day or two before making a big purchase. By making yourself pause, you'll have more time to think about whether the item is really worth the cost. You might also find a better price while you wait! - Save for retirement.
If your company has a 401(k), 403(b), or similar plan, be sure to take advantage of it. These plans give you an easy, tax-advantaged way to invest for the biggest expense you’ll ever have – retirement! The money automatically comes out of your paycheck before you even see it, so you won’t miss it, and has the potential to grow exponentially over time due to compound interest. For example, every $1,000 invested at age 22 can become nearly $20,000 when you are 72, assuming a 6% rate of return.* If your employer offers a matching contribution, do your best to contribute enough to get the full match – it’s free money! - Build an emergency fund.
Having savings can get you out of a tight spot when big expenses pop up, from car repairs to medical bills or loss of income. If you're just starting out, try to set aside an amount that would cover an important bill, say $500. But keep working your way up. A good rule of thumb is to have enough to cover three to six months’ worth of living expenses. Ideally, you’d put your emergency fund into a savings account with a high interest rate and easy access, so you can get to your money quickly when you need it. It should be separate from the bank account you use daily, so you’re not tempted to dip into your reserves.
In general, start thinking about your goals for the future, and how your financial planning can help you achieve them. There is no perfect plan for everyone, but if you start saving and investing early on, you’ll be surprised how much money you can accumulate over time!
*This hypothetical example is for educational purposes only. Dollar amounts or savings will vary depending on income, state and city tax rules, and other factors. Please consult a tax, legal, or financial advisor about your own personal situation. Before investing, carefully consider the funds’ or investment options’ objectives, risks, charges, and expenses. Investing involves risk, including the risk of loss.
Source(s):
“Congrats on your first job! Here’s what to do with your money.” Washington Post (washingtonpost.com), August 17, 2022
“Emergency Fund: What It Is and Why It Matters,” NerdWallet (nerdwallet.com), February 17, 2023
“9 Money Tips for New College Grads,” NerdWallet (nerdwallet.com), May 10, 2019
“11 Essential Money Tips for New College Grads,” Forbes (forbes.com)
