Getting your first paycheck is always an exciting moment — it’s your first step towards financial freedom. While it is a cause for celebration and it can be tempting to splurge and reward yourself, hold your horses. Learning how to make the best of your first paycheck can pave the way for a lifetime of successful money management.
Here are 5 tips to maximise your first salary.
1. Clear or reduce debt
Adulting is never easy — you may have student loans to repay, and the bills you have to pay every month will only keep increasing.
Not all debts are created equal. From mortgages to credit cards to student loans, there are good debts and bad ones. Good debt allows you to improve your life, while bad debt can create a never ending spiral.
During your first job, chances are that you have your student loan to pay off, and this may take a few years to do so. If you’ve just gotten your first credit card, remember to make timely repayments in full, instead of just paying the minimum monthly payment which would still incur interest. Avoid these bad habits with your credit card.
Work out your monthly repayment sum and put this amount aside to ensure you have enough money to pay off your debts every month and not be penalised with additional interest charges.
2. Start budgeting
Ever heard of the 50-30-20 rule? If you are not sure where to start with budgeting, this is an easy way of budgeting that can help you to manage your money effectively. In a nutshell, divide your salary into three categories; 50% for your needs, 30% for your wants, and 20% for savings or debt repayment. This is not a prescriptive percentage and may not suit everyone but is a good place to start.
Track your budget with Planner Bee to help you measure progress, set goals and become more efficient at saving money. As you gradually climb the corporate ladder, you can consider putting aside 50% of your monthly salary instead to put yourself closer to $100,000 in savings by the time you are 30.
3. Get started on buying insurance
Life is full of unpredictability, which is why it is crucial to get started on buying insurance. Insurance plays an important part in every stage of life, as it protects you and your family from life’s unexpected moments.
Consider your needs at your current life stage, such as buying life and health insurance policies with coverage that is sufficient for your current lifestyle. If you think you are young and healthy and don’t need life insurance, think again. Although you might be young and in the pink of health at the moment, there’s just no telling when something unpredictable may occur. If you wait until you get diagnosed with a medical condition, you will likely have to deal with additional premiums, or not be able to purchase an insurance plan at all. We debunk some common misconceptions about life insurance, so you can make a more well-informed decision.
Since you are just getting started, some other common insurance policies to keep in mind include critical illness coverage, private integrated shield plan and disability income coverage.
4. Start investing
Investing is the best way to protect your money against inflation. Starting on your investment journey early can be beneficial, since your investments will have more time to navigate the volatile financial markets.
Additionally, investing early allows compound interest to work its magic. While the initial amount may seem insignificant when you first start investing, such regular investments can sum up to a huge amount over a 20-year timeframe, putting you ahead of your peers and allowing you greater financial freedom at a later stage in life. Reduce your investment risk by diversifying your portfolios and dividing your investments into asset classes that are not correlated.
5. Build emergency funds
Always remember to save up for rainy days, because you never know when life will throw you a curveball.
We recommend saving at least three to six months of living expenses in the event of an unexpected financial emergency, such as the loss of a job or sudden illness. To begin funding your emergency funds, you can start by stashing small amounts of money away every month — maybe $50 or $100, and you can gradually increase this amount when you can afford to do so.
When you know you have savings to fall back on in times of crises, you can save yourself from unnecessary stress or having to go into debt should you need a loan.
Safeguard your own future
Stepping into adulthood can be an exciting yet stressful life stage. After getting their first salary, many people are unsure of what to do about their new financial freedom and may even end up in debt.
However, cultivating healthy money habits can help you in the long run and set you up for financial success. We hope these tips will help you, and all the best in your adulting journey!