Yahoo Finance 9 Things You Must Do With Your Money When You Get Your First Salaried Job
Having your first salaried job after only doing hourly work is a big shift. All of a sudden, you have this major chunk of cash you need to budget for. While it can seem a bit intimidating knowing how to allocate wisely, experts say it all comes down to creating new financial behaviors.
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“One of the biggest behavioral biases that humans succumb to is the bias toward immediate gratification over delayed gratification,” explained Robert R. Johnson, PhD, CFA and professor of finance at Creighton University’s Heider College of Business. “That is, our present selves tend to win over our future selves.”
“It is exceedingly difficult for many people to imagine their future self and give up that vacation or new car today in lieu of having money to retire on in the distant future,” he explained.
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Pay Yourself First
“Paying yourself first simply refers to the practice of setting aside some money for the long-run before you do any other spending,” said Johnson.
In essence, he explained that you are paying your future self.
“The most common mistake is that people let their spending increase commensurate with their new salary,” he warned. “For instance, people move into a bigger apartment or buy a more expensive car or home to reward themselves for receiving the raise.”
Instead, Johnson encourages people to continue to live the same lifestyle they led before receiving this new salary and invest the difference.
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Take Control of Your Budget
Experts recommend managing your finances properly as the key to financial stability.
“With a salaried job, you already know how much money you will be receiving each month,” said Matt Teifke, founder and CEO of Teifke Real Estate.
As such, he said it’s important to create a budget that takes into account all of your necessary expenses, such as rent/mortgage payments, utilities, groceries, transportation costs and any loan or credit card payments.
“Once you have accounted for these expenses, you can then determine how much money you have left over for non-necessary expenses, such as entertainment or dining out,” he added.
Build an Emergency Fund
An emergency fund is essential to have in case of unexpected financial situations, such as losing your job or unforeseen medical expenses.
With a salaried job, you have a consistent income, which makes it easier to set aside money each month for your emergency fund, Teifke said. He suggests aiming to save at least 3-6 months’ worth of expenses in this fund.
Pay Off Any High-Interest Debt
“If you have accumulated any high-interest debt from credit cards or loans, prioritize paying them off as soon as possible,” Teifke advised.
He explained that with a salaried job, you have a steady income, which can help you pay off debt faster. “This will not only save you money in interest payments but also improve your credit score.”
Consider Investing for Retirement
Experts say it’s never too early to start thinking about retirement savings. With a salaried job, you may have access to employer-sponsored retirement plans, such as a 401(k).
“Take advantage of these plans and contribute a portion of your salary towards retirement savings,” Teifke said. “If your employer offers a match, be sure to contribute enough to receive the maximum match.”
According to Johnson, one of the biggest misconceptions is the belief that “if I haven’t accumulated enough money by retirement age, I will just continue working.” But he said that once you get to retirement age and haven’t accumulated enough retirement savings, you only have two options left — continue working or accept a lower standard of living in retirement — and neither of them are good.
“I believe there is a misconception among many Americans that Social Security will provide for their retirement,” Johnson argued. “They are in denial about how the standard of living that relying on Social Security will provide them.”
He continued saying you need to budget for retirement savings, just like you budget for a car payment, house payment, medical expenses or food.
“People would be well advised to pay heed to Warren Buffett’s sage words: Do not save what is left after spending; instead spend what is left after saving.”
Review Your Tax Withholdings
According to Alec Kellzi, licensed CPA at File Smart Tax, once you transition from an hourly job, you should analyze your tax situation to ensure the appropriate amount is being withheld from each paycheck to cover what you’ll owe for the year.
“As a salaried employee, you may need to adjust your W-4 allowances claimed to avoid a major tax bill or penalties at year-end,” he advised. “Consult online withholding calculators to check if your current setup works given your new income.”
Leverage Workplace Benefits
Another point experts recommend is taking time to thoroughly understand all the benefits offered by your new employer, including things like healthcare, insurance, transit or wellness perks, stock options, or discounts.
“Sign up to maximize value from the full suite of benefits beyond just your direct pay,” said Kellzi. “Pay specific attention to any 401(k) matching or flexible spending accounts to optimize savings.”
Set Up Automatic Investments
Kellzi also recommended building passive income streams through automatic withdrawals each pay period into investment accounts, like a Roth IRA or brokerage fund, in addition to your 401(k).
“This creates diversified savings that can supplement your retirement income,” he added. “Even small, regular investments invested wisely over time can grow substantial wealth through compounding gains.”
Johnson agreed. “People should try and automate as many financial decisions as they can. One must make saving money a habit. And habits — good or bad — develop over time.”
For instance, he suggests having an amount taken out of each paycheck and put directly into an investment fund, like a low-cost stock index fund.
“This strategy means you will be putting money into the market whether stocks are rising, falling or treading water,” Johnson added. “You will practice dollar cost averaging and build significant wealth over the long run.”
Maintain Your Skill Set
Look for opportunities to continuously enhance your abilities, knowledge and value in the workplace through classes, conferences, certifications or training.
“Choose focused skills development that serve your long-term career ambitions,” Kellzi highlighted. “Remain curious and adaptable to add competencies that align with where your field is heading.”
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This article originally appeared on GOBankingRates.com: 9 Things You Must Do With Your Money When You Get Your First Salaried Job
