Fresh graduates: What to do with your first paycheck?

Getting your first paycheck and seeing the digits in your bank account increasing may send your heart thumping for joy. After all, your first paycheck can be a huge milestone in your life. Not only is it a rite of passage into adulthood, it also signals that you have achieved a new-found freedom that you’ve never experienced before.

After those feelings of exhilaration fizzle out, you may feel a little afraid or intimidated because you’ve been paid but… now what?

For all you graduates who are at a loss on what you should do with your first paycheck, fret not! Here’s a short but comprehensive guide on what you should do with your first paycheck.

1. Spend 50% on Daily Expenses: The Lower, The Better

50% of your salary may sound like a lot, but in reality it is not. Be reminded that you would have fixed expenses to pay for – such as your school loans, your insurance orallowances for your parents. And, this is on top of your daily variable expenses that would consist of food, social activities and transport.

Occasionally, you may have to splurge on your friends’ birthday presents, or that classmate’s wedding dinner that you can’t miss – and all that adds up.

How then should you try to minimize your daily expenses?

For a start, you may want to track your expenses to see which are unnecessary spendings that you can cut off. It may be that daily coffee fix from Starbucks or that cab ride you take everyday to work because you’re too lazy to get up early.

Here’s a tip: Use budgeting/personal finance mobile applications to help you track your expenses, they are probably going to be your next best friend! It may be surprisingly motivational to some people as you get a better idea of where your money flows out to and identify any serious spending issues you have ASAP. Tracking your expenses may also make you feel guilty about making several purchases that were unnecessary and motivate you to save more in the future.

One app that you can consider using would be Seedly. Seedly provides an intuitive and colourful interface where you can categorize your transactions, and visualize your spendings easily.

2. Save 30% of your Paycheck: The More, The Merrier

 As they always say, it’s always better to save up for a rainy day. Life is filled with unpredictable surprises and events, and you never know when you may need some emergency savings to tide you through a difficult period.

Besides, you could use this fund for that next holiday you’ve been dreaming about. – but of course, be cautious about how much you spend.

Also, for graduates who are attached, you may need these savings to help you pay for your big-ticket items. Whether it is a dream wedding, your HDB purchase or your housing renovations, big-ticket items like these require quite a large sum of money (think in terms of five-digit or six-digit figures)! It is best to start saving now so you would not be riddled with loans when the time comes.


3. Invest The Remaining 20%: Let It Grow

Besides working to earn money, get your money to work for you. For those who are starting out in their investment journey and do not have a lot of capital on hand, don’t worry. You don’t need a huge sum of money just to start investing. To get an Exchange Traded Fund (ETFs) Regular Savings Plan, you would just need a minimum of $100. ETFs are an affordable and low-risk option for investors out there, so you may want to consider it.

If you are clueless about investing, here is a great beginners’ guide on investments by Dollars And Sense to get your investing journey started.

It’s never too early to start investing. The earlier you get your money to work for you, the faster you can pay off your loans, build your nest and achieve financial freedom.

With all this said, do take note that these are just general guidelines. We all face a different set of circumstances which may affect how much you spend or how much you can save. Develop a plan that suits your financial situation. Your budget is not there to make you feel miserable, but to make you feel happy at the end of the day. Don’t forget to treat yourself to some fun occasionally too!

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