Ah, there is nothing like the thrill of getting that first paycheck from your first “real” job after college. You have probably spent it a million different ways in your head already, but before you start spending, we have some helpful ideas on how to budget your first paycheck. Get started on the right foot by allocating funds to savings, retirement, and more. And do not worry: You can leave some room for the fun stuff, too!
- Start with your monthly salary
- Figure out your fixed expenses
- Estimate your variable expenses
- Determine your savings and retirement contributions
- Establish an emergency fund
- Set your discretionary budget
Start with your monthly salary
Once you have that first paycheck in hand, you can see exactly what you are left to work with after taxes. Armed with this information, you can start to establish your monthly budget. Download our free monthly budget worksheet to get started.
Figure out your fixed expenses
From student loans and credit cards, to rent and cell phone bills, these costs tend to stay at, or around, the same amount each month. Add them to your budget first.
Estimate your variable expenses
Because expenses like groceries and gas tend to vary, you will need to estimate them. While this can be challenging, it also means that with a little discipline, these expenses can often be cut and adjusted as needed.
Determine your savings and retirement contributions
Saving for everything from vacations to your retirement helps you stay in control of your money – and out of debt – while also planning for the future. Two ways to start are with a savings account and an individual retirement account, such as a Roth IRA.
To ensure you are paying yourself first, be sure to include your savings goals in your fixed expenses calculations. So, how much should you be contributing? Your total expenses will likely determine the amount you can contribute. For example, if you do not have credit card debt, you may be able to contribute a greater percentage of your income to savings and retirement right away.
If you look at your budget and find you are coming up a little short on savings contributions, though, take a closer look at your expenses. Are there fixed or variable expenses you could cut back on? Can you shop around for a cheaper phone plan? Can you carpool to work to save money on gas? Here is where the real budget work comes in. Making these decisions and sticking to your commitments is how you establish control of your finances.
Tip: To make allocating funds easier, set up direct deposit with your employer to have your paycheck automatically deposited into your checking, savings, and retirement accounts. If your employer cannot deposit into multiple accounts, take some time to set up automatic transfers out of your checking account. Automating transfers from checking to your savings will make sticking to your budget that much easier.
Also, look at using your debit card that is associated with your checking account for most of your purchases to reduce the chance of overspending. If you have a Cobalt CU checking account, you can also sign up for our free Round-Up program. This automatically rounds up purchases on your debit card and moves the difference to your savings account.
Establish an emergency fund
If you set up an account to cover surprise expenses (and contribute to if faithfully), you will have a safety net that will support you if, for instance, you need expensive car repairs or even lose your job. A general rule of thumb is to be able to cover 3 to 6 months of expenses.
Set your discretionary budget
Now comes the part you have been waiting for: the fun money. Subtract your necessary variable expenses and fixed expenses from your take-home pay and you have your discretionary budget. That is how much you have left to spend on things like eating at restaurants, extra clothes, going to movies, etc.
To help keep your discretionary spending in check, set a limit for these items and include them in your overall budget. When you set parameters for yourself, you will be less likely to splurge or whip out that credit card.
Now that you know how to budget your first paycheck, you are ready to manage your finances. Revisit your income and expenses each month to see areas where you may have more or less funds than you expected and make changes to your budget accordingly. The key to managing your finances well is to be aware of what is coming in and what is going out. Establishing and checking your budget will set you up for success.