Congratulations! You have worked hard to get to this point. You have studied many hours, pulled a few all-nighters and taken countless exams. You walked across a stage, shook a hand and received your diploma. You took a few part-time jobs just to pay the bills, and now you finally landed what you call your first real job.
The road was not easy, but you endured. Now, you are prepping to receive your first real paycheck. And you don’t want to mess up the opportunity that’s before you.
What should you do with your first real paycheck?
Generosity is the foundation upon which biblical financial health is founded. Woven throughout Scripture are generosity-first teachings and examples. Proverbs 3:9 tells us to “Honor the Lord with your possessions and with the first produce of your entire harvest.”
God designed us, not to be hoarders, but conduits through which His generosity flows. When we give, we experience satisfaction and contentment that purchases of stuff struggle to deliver. While we frequently regret past purchases, we rarely regret past generosity. So make giving a priority in your finances.
Second, save a little.
Make sure you have enough cash to help in case your car tire goes flat or your washing machine decides to quit. Personally, I recommend having at least $1,500 set aside for these types of minor emergencies. You don’t want a flat tire to create more debt in your life.
Third, get your match.
Some companies offer employer matches. This means that they will contribute money to your retirement account based on your contribution. For example, if your employer offers a dollar-for-dollar match up to three percent, meaning if you contribute 3 percent of your gross (before taxes) income, they will throw in another 3 percent.
Why is this important? Well, it is probably the best return you will get on your money. In the above example, you received a 100 percent return on your money. That’s tough to beat. And remember, this is part of your company benefits. So don’t leave money on the table. Get your match.
Fourth, pay off your debt.
Knock out those credit cards, car loans and student loans. They are crushing your ability to be generous. One of the more well-known methods of paying off debt is called The Snowball Method. Here’s how it works: Target your debts from smallest balance to largest balance. Once you knock out one debt, you will have more money to put toward the next smallest debt. Keep this process going until you are debt-free, minus the mortgage.
Fifth, save a lot.
Here’s the reality: You will face an unforeseen financial emergency. You may get hit with costly medical expenses. You may lose a job. I don’t know what the emergency will look like, but it’s coming. Encouraging, right?
Once you have paid off your debt, set aside three to six months’ worth of living expenses. If you are single, lean more toward the three-month side of the range. If you have kids, plan on saving closer to six months. Protect yourself and those counting on you by having adequate funds in your emergency savings.
Sixth, prepare for retirement.
I know. Retirement seems miles away. But that is why now is the perfect time so save for retirement. Unfortunately, most studies show that young adults are not saving nearly enough for their retirement years. And the longer you wait, the more you will have to save.
If you have an employer match, you are already taking advantage of it. The next step is trying to have 15 percent of your gross income going into retirement. For many, that number seems like a lot. But once you get started, 15 percent will seem more doable than you realize.
Automate, automate, automate
Of course, you won’t be able to reach some of these milestones with your first paycheck unless you have a ridiculously high-paying job. But that’s not me, and it is probably not you. So you must chip away at these milestones little by little.
Don’t leave it up to your memory to remind you to do these things. Automate your finances as much as possible. Every one of these milestones can be automated. Giving, saving and paying debts can be automated through your checking accounts. Retirement savings can be taken directly from your paycheck. So take full advantage of technology.
Again, congratulations on your new job. Manage your new paycheck, and every one thereafter, well. Give generously. Save wisely. Live appropriately.
Art Rainer is the author of The Marriage Challenge, The Money Challenge and the forthcoming kids series The Secret Slide Money Club. He also hosts a growing podcast called The Money Challenge.