Tips for Spending the First Paycheck From a New Job

Whether it’s your first job or just a new job, the first paycheck is critical. There’s often a lag between the day you start and the day you get your first check, so you may be anxious by the time the check comes. But, make sure you have a sound plan for how you’re going to spend that check and every check that comes after it.

Don’t start spending before you actually get the first paycheck. When you first start working, your first paycheck may be several weeks away, depending on how your first day falls into the company’s pay periods. If you have some money saved up, from an emergency fund or perhaps from your last job, you can use that to cover your essential expenses. But, don’t dip into the fund too much since you have to replace that money. And don’t run up big credit card balances trying to maintain a certain lifestyle. In fact, wait until you’ve received a few paychecks before you do any major spending.

Another good reason to wait before you start spending is that you probably don’t know precisely what your pay will be. You can calculate your gross income if you know your hourly wage or annual salary. However, your real paycheck will be less than your gross income after taxes, benefits, and retirement contributions are taken out. A conservative estimate is that you’ll only bring home about 40% to 50% of your paycheck. Since you won’t know until you actually get the money, it’s best to wait.

Don’t try to do too much with your first check. Keep in mind that the money has to last you another week, two weeks, or perhaps even a month, depending on your employer’s pay periods. Take out a pen and pad and create a budget for your paycheck. Write out all the expenses you have, add them up, and compare them to the amount of your pay. If the expenses are more than your paycheck, a few things will have to wait until you have more money. Pay the necessities first: rent or mortgage, electricity and water bills, car loan, credit card minimums. Set aside some money for groceries and avoid eating out if you’re strapped for cash.

Save a portion of your pay. Even if this is not your first job and you’ve never saved money before, you can start saving money now. Divert part of your income into a savings account. Ten to twenty percent is a good amount, but if you can’t afford to save that much, then save what you can. There will certainly be rainy days and having money in your savings account can be a financial umbrella to keep you from getting drenched. Save up while things are good and you’ll have a crutch to lean on when times are bad.

You may have become delinquent on some payments while you were waiting for your check to arrive. Prioritize these payments first, especially if they’re creditor payments that appear on your credit report. Not every past due account can be salvaged. For example, if an account has already been charged-off or placed with a collection agency, the damage has been done. Focus on your other accounts and pay the seriously delinquent ones when you can.

A lot of people will have the tendency to splurge with the first paycheck, especially if it’s your first real job or the first job after a period of unemployment. It’s ok to celebrate a little, if you can afford it. Make sure your important expenses are covered and then set aside a small portion of your income to enjoy. After all, you earned it.