No matter your age, getting your first paycheck from a new job is always exciting. Once you have it in hand though, the question becomes, what to do with it.
Depending on your age and current financial situation there are many routes you could take. Young or old, having the proper budget in place will save you from a lifetime of debt and worry. Here is some information to help point you in the right direction.
Setting the Groundwork
Before you go and spend all of your money on the next high-tech gadget, it’s important to understand where your money is going. To set the proper foundation, you need to determine how much money should go toward your many expenses. Many believe the 50/20/30 rule is a great jumping off point for positive lifelong spending habits. Simply put, each paycheck should be broken down into one of three main categories.
#1 50% should go toward living expenses.
This includes rent, utilities, food, and gas. Anything you need in your day-to-day life. Sadly, this does not include the money for your daily cappuccino (that comes later). Think of this category as the bare essentials for survival.
#2 20% should go toward your financial future.
This includes savings, paying off debt, and other financial investments. For the younger crowd, it’s especially important to start paying off debt as soon as you can.
According to a recent FICO survey, 37% of those aged 25 to 34 are concerned with their level of debt. In the early to mid-20s, most millennials have amassed a decent amount of debt through school loans, credit cards, car loans, and other financial liabilities. Putting this off could lead to issues with your credit score, which in turn, could hurt your chances for future loans.
While it’s the smallest percentage of the 50/20/30 rule, it is definitely an important one. Think of it as investing in your future self.
#3 The final 30% is flexible.
This is the category where you can buy things you want that aren’t a necessity (like the aforementioned cappuccino). The best part about the 50/20/30 rule is that it is not set in stone. It is extremely flexible.
If you happen to spend more on your living expenses (such as higher utility bills in the winter), you can just shift a portion from one of the other categories to help you find the proper balance.
Never Too Early to Look toward Retirement
As you’re thinking of all the ways you need to spend your money, it’s also just as important to think about the many ways you need to save it. According to a survey from GoBankingRates, 1 in 3 Americans have no money saved for retirement. While that is definitely grim, it’s also worth noting that 56% of those that do save for retirement only have $10,000 or less saved.
This is a place you don’t want to find yourself years down the road. The sooner you begin saving, the easier it will be in the future.
Mercer Savings Bank Can Help
As a mutual bank, Mercer Savings Bank strives to meet the needs of the communities it serves. We’ve been your trusted community bank for more than 125 years. Stop by or contact one of our convenient locations today. We’re here to help.