Your first real paycheck, what do you do?

Congratulations you lasted your first month at you first real job, how does it feel? All that study and work must be paying off now!!

So what do you do with your first decent chunk of change? Blow it all at the bar like you did at University? Or are you feeling like you should act responsibly now you are in the “real world”.

Well I don’t recommend either, just somewhere in between.

First Step: Budge it

So this is not very exciting. Sorry. Suck it up. You need to have a reasonable idea how much you are going to spend versus how much you are going to earn.

Instead of budgeting lets begin to think of you personal money flow, money comes in with your regular salary payments, money goes out with expenses and hopefully some money stays in a savings account.

First step in your money flow is to work out what your goals are for the next 12 months. Goals you say? BORING! Not those goals fool, exciting goals like where are you going to go on holiday, how much is it going to cost, need a new car? Work out how much you want to spend on one, need a new computer? iPhone? TV? you get my drift. Now work out how much you need to save to be able to buy al these things.

Next in you money flow you need to list all your expenses, your rent is probably the biggest if you live away from home, followed buy power, water, Internet, mobile phone make sure you allow for these in you budget. If you want a good template for a budget I have one and you can get it here for free.

My favourite Finance book is The Richest Man in Babylon (if you haven’t realised already!) It is the story of the road to wealth as told by George S. Clason.

“George Clason is best known for writing a series of informational pamphlets about being thrifty and how to achieve financial success. He started writing the pamphlets in 1926, using parables that were set in ancient Babylon. Clason started two companies, the Clason Map Company of Denver Colorado and the Clason Publishing Company. The Clason Map Company was the first to publish a road atlas of the United States and Canada”

The best piece of advice that Clason offers in his book is passed down from the wealthy merchant Algamish to the young scribe Arkad;

A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. it can be as much more as you can afford. Pay yourself first. Do not buy from the clothes-maker and the sandal-maker more than you can pay out of the rest and still have enough for food and charity and penance to the gods”

As this is your first pay check I would advise being a little more heavy on the amount you save. My rule of thumb would be to split your after tax income into;

  • 30% Savings.
  • 30% Rent.
  • 30% Expenses and spending money.
  • The final 10% should be saved for emergencies.

As your priorities change so will the allocation of each of these four areas, make sure that your savings does not drop below 10% ever and you will find that it will grow amazingly over time.

Step 2: Automate

Luckily you probably receive your pay regularly. Automation allows you to set and forget splitting your income into the percentages above. You bank will allow you to set up these transfers and automatically sweep the right amount to the nominated accounts. Automation removes the temptation to “forget” to transfer an amount so that you can spend it right away. If you start doing this you will find that your savings will become non-existent and you ability to buy big ticket items will rely more on consumer debt rather than cash.

For more on automating your savings you can check out my post on it here, or check out another great post by Ramit Sethi Author of  ”I Will Teach You To Be Rich” on Tim Ferris’s 4-Hour-Work-Week blog.

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2 Responses so far.

  1. Mike says:

    Thirty percent savings is a bit though but doable. If one is able to do such then congratulations he or she can look towards a comfortable retirement in the future.

  2. This is a quite interesting post, I came across it looking through MSN. I think most readers will agree with your point. At last – a person with common sense!
    PS I really like the template you are using – where did you get it from?

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