First Paycheck? Make it go further on a budget

Ah, there’s nothing like the thrill of getting that first paycheck from your first “real” job after college. You’ve probably spent it a million different ways in your head already, but before you use up the real thing, take a look at our tips for creating a budget. Get started on the right foot by allocating funds to savings, retirement, and more. And don’t worry: We’ll leave some room for the fun stuff, too!

  1. Start with your monthly salary. Once you have that first paycheck in hand, you can see exactly what you’re left to work with after taxes. Armed with this information, you can start to establish your monthly budget. Download our free budget worksheet to get started. The next step is to calculate your expenses.
  2. Figure out your fixed expenses. From student loans and credit cards to rent and cell phone bills, these are the costs that tend to stay at or around the same amount each month. Add them to your budget first.
  3. Estimate your variable expenses. Because expenses like groceries and gas tend to vary, you’ll need to estimate them. But that also means that with a little discipline, they can often be cut and adjusted as needed.
  4. 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 good ways to start are with a savings account and an individual retirement account, such as a Roth IRA. (Learn more about IRAs in our recent blog.)

You’ll also want to establish an emergency fund. If you set up an account to cover surprise expenses (and contribute to if faithfully), you’ll have a safety net that will support you if, for instance, you need expensive car repairs or even lose your job.

  1. Treat your savings accounts like a bill. To ensure you’re 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 amounts you’re able to contribute. For example, if you don’t 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 your 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’s 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. The money will be available sooner, and you’ll save on money, gas, and time not running to the ATM.

If your employer can’t 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.

  1. Set your discretionary budget. Now comes the part you’ve 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’s 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 included them in your overall budget. When you set parameters for yourself, you’ll be less likely to splurge or whip out that credit card.

Now that you’ve got a framework set, you’re ready to manage your first paycheck, but don’t let the budgeting stop here. 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’s coming in and what’s going out. Establishing and checking your budget will set you up for success.

If you need some guidance figuring out your budget or choosing the right retirement account, Cobalt CU’s financial advisors can help you get (and stay) on the right path. Set up a Wealth Management Consultation today.