How Should You Spend Your First Paycheck as a Fresh Graduate
Updated: Sep 16, 2022
There’s nothing more exciting in the life of a young adult than getting that first job after graduating from university. Finally, you have the freedom of having your own money without depending on your parents, but as with most things, it comes with a cost.
Adulthood is almost synonymous with never-ending responsibilities and bills. Sometimes it will feel like your paycheck disappears as soon as it hits your bank account.
Now that you’re part of the workplace, one of the biggest challenges you’ll face is managing personal finances, savings and investments.
If you’re clueless about how to move forward with this, we’ll help you out with some financial advice for new graduates!
1. Create a budget
While you might think that your first paycheck is an endless supply of cash, it’ll be gone faster than you think, especially if you don’t know how to manage it.
After figuring out how much your monthly paycheck will be after taxes, sit down and make a list of your expenses by surveying your living situation. Take note of how much you need to pay for rent, utilities and groceries, and how much can go straight to your savings account.
As a fresh graduate, every time you receive a paycheck, you may be tempted to treat yourself by spending on unnecessary things. Tracking your cash flow can prevent you from blowing off 2 weeks’ worth of pay in less than a week and finding yourself struggling to survive for the rest of the month.
Excel sheets and budgeting apps such as Personal Capital and Mint are extremely helpful in monitoring your daily expenses.
Finally, you must establish a budget as soon as possible so that you don’t find yourself in financial trouble later.
2. Automate your savings plan
The best financial planning tip you could hear as a fresh graduate is to create an automatic savings plan as soon as you’re able to. By doing this, you won’t forget to set aside something from your paycheck every 2 weeks.
Once the money is saved automatically, you won’t even notice that it’s deducted from your paycheck, but it will be there if you need it.
A huge part of adulthood is being prepared for the unexpected and the expenses that come with them, so building a savings plan for emergencies can help you stay afloat financially.
There are various types of savings accounts out there, including certification of deposit (CD) and high-yield savings accounts. When comparing options, though, always check the interest rates, fees, and the minimum deposit required.
Another consideration is the accessibility of the savings account, in case you need the money right away. Typical savings accounts usually have a maximum number of withdrawals per month, while a CD account would need to mature first before you’re able to withdraw.
3. Sign up for your first insurance
As much as we hope there is, there isn’t a one size fits all approach to getting sufficient insurance coverage for yourself.
Insurance is always complicated, which is why it’s important to identify your current needs and how much you’re willing to spend before signing up for an insurance policy.
Here are the different types of insurance you can consider getting as a fresh graduate:
Health insurance - covers hospitalisation and surgical bills as well as other medical treatments.
Life insurance - pays a lump sum of money in case of accidents or death.
Critical illness insurance - provides additional financial support for when you’re diagnosed with a critical illness like cancer or heart attack.
4. Tackle your debt
There’s no better time to get serious about settling your debt than as soon as you receive the first rounds of your paycheck.
If you’re using credit cards, you’ve may have gotten used to paying only the minimum due each month, but it’s time to break off this habit. Making minimum payments will only drag on your debt for months and make it harder to pay due to the monthly interest rates
Our suggestion is to make it a priority to settle a huge portion of your credit card debt, or any type of debt for that matter, every paycheck day.
5. Don’t forget to pay yourself first
It’s worth reminding yourself that you’re just getting started. Someday you’ll be getting a promotion, salary raise, bonuses, or all of the above.
While it pays to learn to manage your finances as early as now, it doesn’t hurt to reward yourself every once in a while. You’ve worked hard to finish school and land a great job right after graduation, so you’ve definitely earned your pay.
Rewarding yourself for working hard feels great, but nothing beats rewarding yourself for being diligent with your budget and saving money. Budgeting money is wise, but resentment can soon grow if you’re putting all of your money toward bills and savings and leaving nothing for yourself.
If you want, you can add a “slush fund” to your budget, which is the amount set aside each month for spending on non-essential activities.
Receiving your first paycheck as a fresh graduate is probably one of the best feelings in the world. Let’s be honest, though: how you choose to spend your first hard-earned money can more or less determine your financial standing in the future.
Your finances aren’t going to manage themselves, so you have to know how important it is to budget your money and build your savings and investments as early as now.
If you need more money advice as a fresh graduate, or simply want financial planning tips, send us a message! We can connect you with experienced financial advisors who can help you reach your financial goals.