I’m a Financial Advisor: How I Used My First Paycheck To Set Up My Financial Success
Did you know that 78% of Americans are living paycheck to paycheck? According to a 2023 survey from Payroll.org, that’s a 6% increase from the previous year. With inflation bringing the prices of everything up, it’s more important than ever to ensure that you stretch your paychecks further. This is why you’ll want to set yourself up for success from the very beginning.
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GOBankingRates spoke with Gloria Garcia Cisneros, a certified financial planner in Los Angeles, to find out how she set herself up with her first paycheck — and get her insights on how you can do the same.
Allocating the First Paycheck
It’s critical to leave some money aside to boost your savings or emergency fund so that you have the resources available if you have to spend any money on moving or other expenses that could come with your first job.
“My first paycheck included a sign-on bonus that I used to pay off my moving expenses to a new city and the rest to build up my emergency funds,” Cisneros explained.
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Where the Funds Went
From the beginning, Cisneros had a plan for her finances with her partner to ensure they were on the same path. If you’re single, you’ll want to customize your plan to reflect your current situation.
“I have an account structure set up where my paycheck directly deposits to my 401(k), emergency fund, a joint account for bills and a personal account,” she said. “I send 15% to my 401(k), send money to the joint bills based on our budget divided by two — two paychecks a month — some spending fun money to my personal, and the rest goes to a joint saving for my husband and I.”
Using Automatic Transfers
One of the easiest ways to save money is to automate your withdrawals, so you don’t have to think about anything. You can set it and forget it by creating automatic withdrawals with your employer or bank. Once you configure this, you can be confident about where your money’s going.
“It’s automatic, and I never have to think about saving or investing,” Cisneros said.
What Did You Spend Money On?
GOBankingRates asked Cisneros what she spent that first paycheck on — and the rest that followed.
“I spent money on getting to know new areas in [Los Angeles] — restaurants, comedy shows — moving costs and furniture, bills and for my future self — retirement,” she said.
It’s important to remember that you’ll want to find that balance between treating yourself and planning for the future. This won’t always be easy to figure out as your paychecks roll in. In this case, Cisneros had to allocate some of her money towards getting set up in a new location.
How Much Did You Save?
“I saved $900 toward retirement and sent $350 to our savings/investing account,” Cisneros noted.
She knew she wanted to treat herself in the new location while trying to save for the future. This is why she set up the automated contributions towards retirements and savings — so that she wouldn’t feel guilty about spending some of the remaining funds on entertainment.
It’s critical to point out that the amount you decide to save will depend on your paycheck size and any financial obligations that you may have. For example, if you have student loans and credit card debt, you’ll want to focus on paying these down first, before you get too aggressive with the savings.
Advice for Those Getting Their First Paycheck
Here’s the advice Cisneros shared for anyone getting their first paycheck and looking to prepare themselves for financial success.
Have a Job for Every Dollar
According to Cisneros, you want to ensure that every dollar you earn has a job. This means that you’ll want to have a designed purpose for your money in the sense that you know where it will be going — savings, entertainment, retirement and so on.
How do you figure this out? This leads to the next tip.
Review Your New Budget
“Before setting up my first paycheck, I reviewed my budget to make sure it was current and reflected any changes — moving, in my case,” Cisneros shared. “I used a paycheck calculator to calculate total net income after taxes and used this as my starting point. Once the first paycheck went through, I refined some numbers back into my budget.”
It may take a few attempts, but eventually, you’ll be able to create a job for every dollar you earn from your new job.
Pay Yourself First
Once she knew how much she was spending and wanted to save, Cisneros set up her accounts to be on auto-transfer. By paying yourself first, you remove your easy access to the funds, and you’re forced to meet your savings goal.
Create an Emergency Fund
Cisneros brought up a unique situation that could impact your first paycheck:
“If benefits like 401(k) or medical don’t start until months into the job — eligibility wait times vary by employer — you’ll likely see a higher income for the first few months, since you don’t have those expenses offset. You could use this to buffer up your emergency fund, supplement unexpected expenses for the new job or invest, if you have the ability to. The key is to just be aware and plan around the fact that your net income will drop.”
Avoid Spending Excess Money
“I’ve made the mistake of getting used to that higher income instead of saving it,” shared Cisneros. “I would suggest that people become aware of the drop in income that could be coming down the line if they intend to sign up for employee-paid benefits or a retirement plan.”
You’ll want to get into the habit of building up your emergency savings so that you’re prepared for whatever life throws at you, and you don’t end up racking up credit card debt that could hurt you for years.
Closing Thoughts
Getting that first paycheck is exciting, because you’re finally making money after years of studying and trying to land that gig. You want to reward yourself by spending money on whatever you wish you could’ve purchased the last few years. However, you may quickly realize that your paycheck doesn’t go as far as you hoped. This is why it’s crucial that you learn how to manage your paychecks from the beginning to set yourself up for success.
If you want to build wealth, you must get into the habit of living below your means as soon as you start earning a paycheck. You want to have a clear picture of your income coming in and your expenses going out.
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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: How I Used My First Paycheck To Set Up My Financial Success
