This is How You Should Spend Your First Paycheque

Date posted: Aug. 12, 2016

Photo Credit: Anna Dziubinska

You’ve just started your first adult job, and you’re now holding your first paycheque in your hand – congratulations! All of the time and money you’ve put into learning new skills has finally paid off.

But before you spend that paycheque on a celebratory night out with friends, remember that your newfound earning power comes with a responsibility to spend that money wisely.

Instead of blowing your paycheque, consider your financial priorities, and spend that money in ways that will better your financial future. Here are four smart ways to spend your first paycheque:

Pay Off Debt

If your first adult job required a university degree or college diploma to attain, odds are you took on debt to pay for it. Now that you’re earning money, it’s time to pay that debt off. If you have high-interest credit card debt, you should prioritize that and pay it off first. Your second priority should be loans from your parents or family members because owing money to family can be awkward. Finally, once those two debts are paid off, you should focus on your student loans.

Remember, the sooner you pay your debt off, the sooner you’ll be able to keep all of your paycheque, instead of sending part of it to lenders ever month.

Save for Emergencies

Now that you have a job and are earning a steady paycheque, it’s time to start preparing for the leaner months ahead. I know it’s difficult to imagine right now, but you could experience job loss in the future, or you may experience other emergencies like car repairs or a death in the family.

In those cases, it’s always better to have a nest egg of cash to draw from so that you don’t have to turn to credit cards or short-term loans.

To start saving for emergencies, try putting 10% of your paycheque into a savings account. Before you know it, you’ll have a few thousand dollars to insulate yourself from life’s curveballs.

Save for Retirement

You’ve just entered the workforce, so the idea of retirement probably seems like a distant priority, but the sooner you start saving for your golden years, the better.

Saving for retirement earlier is better because of compound interest, which will allow your money to grow over time. Let’s look at an example:

If you start saving $100 per month at age 22, and you invest that money at 6% interest, you’ll have $225,009.09 by age 65.

In contrast, if you wait until age 35 to start saving, and you invest $100 per month at 6% interest, you’ll only have $94,869.82 by age 65. That is a huge difference!

Since you are young, you don’t need to worry about saving a lot for retirement yet, especially if you have debt. But setting aside just $50 or $100 per month is a great way to get in the habit of saving. You can always increase your contributions later.

Invest In Yourself

If you’ve starting paying off your debt, and saving for emergencies and retirement, and you’ve got money left over, you should invest in yourself. Spending money on furthering your education will almost always yield a positive return on your investment.

Whether you focus on attending one-day workshops, building a better office wardrobe, enrolling in online courses or even upgrading your formal education, spending money on yourself is a great way to ensure those paycheques keep on coming.

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