After months spent scouring career boards and hours of networking, interviewing and submitting applications, landing your first job is a major reliefâand a big accomplishment. It also brings new responsibilities as you learn how to manage your first salary, budget for your lifestyle and develop the smart savings habits that will serve you your entire life.
As you prepare for your first day, itâs critical to start thinking about how much of your paycheck you should save.
To help you find the answer, financial experts provide tips on how to manage your first salary, offer strategies to help you save money at your first job and explain how to adjust your savings as your career flourishes.
Save money at your first job: The case for starting now
You may feel intimidated by the commitment to save money at your first job, especially if youâre carrying student debt or feeling like you arenât making quite enough. Joy Liu, head trainer at personal finance company Financial Gym, certainly felt that way.
âWhen I got my first job, I made $35,000 a year,â Liu says. âIt was easy to just throw my hands up and say, âI can’t save right now on this salary.ââ But she urges young savers to reconsider.
âLooking back, with the knowledge that I have now, I could have made it work if I knew that saving was something I needed to do,â she says.
In fact, saving money at your first job will put you in a better place when youâre a seasoned professional, Liu says. When you deposit some of your paycheck into a savings account, youâll earn interest on the balance. Your now larger balance will itself earn interest (youâve got compound interest to thank for that). The earlier in your career you start to save, the more time youâll have for your money to grow exponentially.
Saving money at your first job might also make sense because you likely arenât juggling the large financial commitments youâll face later in life.
âYou may have student loans, you may have some credit card debt, but you most likely donât have a mortgage, which is a huge lifelong commitment,â says Ashley Dixon, a CFPÂ® and lead planner at financial planning firm Gen Y Planning.
Determine how much of your paycheck you should save
You now know you need to sock away part of your earnings from your new job, but how much of your paycheck should you save?
While your specific savings rate will depend on your goals and circumstances, Dixon recommends saving 20 percent of your monthly take-home pay. If thatâs too challenging, start with 10 percent, Liu says.
If you donât think you have enough to save, review your essential expenses, like rent, student loan payments, utilities and groceries. Save from whatever cash is âleft overâ each month, and see how close you can get to that 10 to 20 percent goal.
When determining how much of your paycheck you should save, you might initially find that there isnât enough cash left over. If thatâs the case, create a budget to keep your spending and savings on track, or review your existing budget to see which unnecessary expenses you can cut.
âBeing mindful of where youâre spending your money and keeping track of spending in real time is the hardest part and is where people struggle the most,â Liu says. âBut knowing where your money is at any given point is how you stay on track, whether thatâs creating a spreadsheet or using a budgeting app.â
If youâre not able to hit these savings benchmarks right away, donât sweat it. The key is to save what you can, and you can gradually work to increase your savings over time.
Define your savings goals to gain momentum
To help you get in a groove saving money at your first job, define exactly what youâre saving for. Need some ideas?
When learning how to manage your first salary, Liu recommends prioritizing an emergency fund. A top reason you need an emergency fund is the stability and peace of mind that this stockpile can offer, Dixon says. Should you face an unexpected expense like a costly car repair or lose your job in the future, youâll then have a backup fund to dip into.
âIf youâre young and single, you should try to strive to save six months of living expenses in your emergency fund as a guideline, but that can be different for every individual depending on where they live and family situations,â Dixon says.
Consider your emergency fund one of multiple savings accounts, or buckets. âYou want to have all of these different buckets of money set aside for different goals, and move and prioritize how much money you save for each goal based on their priority level to you and what is realistic within your budget,â Liu says.
In addition to your emergency fund bucket for lifeâs surprises, you can also save money at your first job and contribute to other funds that align with your financial goals, like a car fund to help you buy new wheels or a vacation fund to save up for a getaway.
However you define your goals, the important thing is that theyâre clear to you and that youâre actively saving money at your first job. This positive momentum can guide smart savings habits even once your first day of work is a distant memory.
Use automation to make saving a habit
Even with the best savings goals and intentions, it can be easy to get tripped up. Enter automation. By automating your savings, you reduce your chances of overspending or skipping savings altogether.
There are a couple ways you can use automation to help manage your first salary. You could set up a weekly or a monthly automatic transfer from your checking account to your savings account, Liu suggests. Or, you could ask if your companyâs payroll department allows you to split your direct deposit, sending some of each paycheck into your checking account and some into savings.
Another consideration when learning how to manage your first salary is where youâll keep your hard-earned funds. Many people opt to open a savings account from the same bank where they have their checking account, but Dixon says thatâs not always the best approach.
âYou want to look for a high-yield savings account,â she says.
You earned it. Now earn more withÂ it.
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By keeping your money in a high-yield savings account, it will earn a higher-than-average interest rate. Remember compound interest? The higher your interest rate, the more your money will be able to grow over time.
As you do your research to find the right savings account for saving money at your first job, Dixon recommends comparing interest rates from different banks.
âTypically, online banks offer higher interest rates than traditional brick-and-mortar banks,â Dixon says. âMost online banks donât have an actual storefront for you to visit so theyâre saving overhead costs and are able to pass that interest down to the customer.â
In addition to contributing to your savings account, enroll in your employer-sponsored 401(k) plan and take advantage of employer matches if theyâre offered.
In addition to interest rates, pay attention to fees and required minimum balances, says Liu. Fees can eat away at interest earnings, and you may not want to worry about keeping a minimum balance when youâve just landed your first job and are gradually ramping up your savings.
Lastly, consider your access to your funds. âBecause your savings account is separate from your checking account, consider how long it may take to get your funds,â Dixon says.
If youâre looking for a high-yield savings account, the Discover Online Savings Account has no minimum balance requirement and no fees1, so you can turn your savings from your first job into something meaningfulâwithout any hassle or stress.
Keep retirement in mind
As you manage your first salary, saving for emergencies and other short- and medium-term goals is essential. But you also want to start saving for retirement, even if that seems like ages away. Thanks again to compound interest, time is on your side, Dixon says.
âWhen youâre in your 20s, you donât see the large effect compound interest will have because you are just starting your savings; all you see is the money sitting there,â she says. âBut when you get to your 60s, that accountâs going to glow because itâs been growing over time.â
In addition to contributing to your savings account, enroll in your employer-sponsored 401(k) plan and take advantage of employer matches if theyâre offered, Liu says. Your 401(k) contributions automatically come out of your paycheck, so you wonât even have time to miss the funds.
How much you save for retirement depends on your goals and age, but when it comes to benchmarks for 401(k) contributions, many personal finance experts recommend saving 10 to 15 percent of your income, according to the Financial Gym. That said, be careful to not overfill your retirement âbucketâ and run the risk of locking away money you may need in the short term for your emergency fund or other priorities.
Adjust your savings strategy as your career flourishes
As you advance in your career, youâll likely see an uptick in your take-home pay. After a bonus, promotion or new job, your first inclination may be to spend more because youâre earning more.
âYou donât want to create a lifestyle that you canât keep up or maintain,â Dixon says.
While you deserve to celebrate your career wins, determine how you can maintain (or even accelerate) your savings progress as you increase your earning potential.
If youâre earning more and youâre maintaining a manageable cost of living, Dixon recommends putting extra income toward your 401(k) or another savings goalâlike going from renter to homeownerârather than spending.
If you keep these tips on how to save money at your first jobâand beyondâin mind, youâll gain financial security and be prepared to hit all or your financial goals.
Now that you know how to manage your first salary, learn how to negotiate your next one. Here are four tips to successfully negotiate your salary as your career grows.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
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The post How to Manage Your First Salary and Grow Your Savings appeared first on Discover Bank – Banking Topics Blog.
What would you do if you were laid off from your job today? This question isn’t meant to make you want to hide under your desk, but to encourage you to evaluate your circumstances. What would happen to your financial situation if you suddenly didn’t have an income to rely on?
While it’s not exactly fun to plan ahead for life’s hardshipsâsay, your car breaking down or losing a jobâdoing so can help you stay afloat financially and avoid taking on debt to remedy an already tense situation.
What can you do to prepare your budget for a layoff? These four steps will help you prepare your budget for a layoff and survive a layoff financially:
1. Put some of your paycheck into savings
In order to prepare your budget for a layoff, one of the best things you can do is learn to live on less when you have your typical paychecks coming in. Living paycheck to paycheck is a reality for many, and a habit many promise to break once they earn more. If you can afford it, consider trying to live off only a portion of your paycheck. That way, you can always depend on having extra money to fall back on in the event of a hardship, like a layoff.
Jill Caponera, a consumer savings expert at coupon platform Promocodes.com, suggests paying yourself firstâputting some of each paycheck into savings before you spend any of itâin order to save for an unexpected job loss.
“Put money directly into your savings account the moment you get paid so that you’re never in a position where you’re strapped during a true financial emergency,” Caponera says. Try scheduling an automatic recurring transfer from checking to savings that hits after each payday, or create a direct deposit to savings from each paycheck through your employer.
If living on less isn’t feasible for you right now, start small and focus on taking baby steps to prepare your budget for a layoff. You could start with a money savings challenge and a more attainable goal, like living off of 97 percent of your paycheck and saving the remaining 3 percent. This means that if your take-home pay is $4,000 a month, your goal is to put 3 percent, or $120, into savings monthly and then limit your bills and spending to $3,880. As you get accustomed to that amount, gradually increase the percentage of your paycheck you save each period. Some budgeting experts suggest saving at least 20 percent of your income and living off of the other 80 percent.
If you devote even a small percentage of your paycheck to savings before the bills and discretionary expenses roll in, saving will eventually become habit. You’ll get used to budgeting only with your post-savings take-home pay, and you won’t miss the savings portion of your paycheck.
âPut money directly into your savings account the moment you get paid so that you’re never in a position where you’re strapped during a true financial emergency.”
2. Save 3 to 6 months of expenses in an emergency fund
Once you’ve gotten used to regularly saving a portion of your income, you can save for an unexpected job loss by building up a solid emergency fund over timeâespecially if you are using an online savings account with a high interest rate. An emergency fund is a dedicated savings account that you only touch in the event of financial hardship, such as a medical emergency or job loss.
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Christian Stewart, founder of financial coaching site Do Better Financial, recommends having an emergency fund of three to six months of expenses to help you survive a layoff financially.
“The goal is to make sure all your bases are covered, meaning you can pay the bills and proceed with a relatively normal life until you find another job,” Stewart says. She notes the actual amount of money you need to save for an unexpected job loss will vary based on your lifestyle, employment industry and willingness to relocate, since this can dictate how long it could take to find another job.
To build an emergency fund and save for an unexpected job loss, Stewart recommends starting a zero-based budget. This form of budgeting gives every dollar you earn a job, such as paying a bill, funding your emergency account or financing fun and discretionary expenses. In addition to making your emergency fund a priority, this budgeting strategy helps you identify exactly how much you spend within each budget category each month. You can then find areas of careless spendingâperhaps an unused subscription serviceâwhere you could stand to cut back. You could redistribute those dollars to your emergency fund.
“In the event of a layoff, you will have a clear line of sight to regular areas of your spending that can be cut if it takes longer to find a new job,” Stewart says.
After you’re comfortable with the size of your emergency fund and feel like you can survive a layoff financially, you can use any extra savings for a different financial goal, such as saving for retirement or a down payment on a car or home.
3. Find income from a side hustle
Another way to survive a layoff financially is to have a side gig in place. Contrary to what some believe, side hustles do not have to take up an onerous amount of your time. There are actually many side hustles you can do while working full time, such as freelancing in your current field, driving for a rideshare app or tutoring.
Not only do side jobs create extra cash flow to devote toward savings or debt repayment when you have a full-time job, they also give you an added layer of security to help you save for an unexpected job loss. You might not be able to replace your full-time earnings with your music lesson business, but it can provide you with some predictable cash flow while you interview for a new position.
You could even turn your side hustle into a full-time job if you have a passion project you’ve been wanting to turn into a career. Alternatively, your side hustle turned full-time gig could help maintain your income stream if you plan to take additional time off after a layoffâif you decide to go back to school or make a move to a new industry, for example.
4. Know where to turn for assistance
Being laid off can be a traumatic experience, and if it does happen, it is important to know where to turn and how to make decisions that aren’t rooted in fear or emotion.
“Sit down with a level-headed friend, spouse and/or counselor to process your new financial reality,” Stewart of Do Better Financial says. “If you’re receiving a compensation package, do yourself a favor and work out beforehand where the money will be spent and how long you need it to last.”
Speaking of work benefits, make sure you utilize all of the benefits possible before your layoff goes into full effect, such as getting an annual physical through your health insurance plan.
âSit down with a level-headed friend, spouse and/or counselor to process your new financial reality. If you’re receiving a compensation package, do yourself a favor and work out beforehand where the money will be spent and how long you need it to last.”
“If you’ve been laid off, or are expecting an upcoming layoff, you should immediately contact your state’s unemployment office to set up your account and start receiving your compensation,” consumer savings expert Caponera says. “While these benefits won’t pay as much as your full-time salary, these funds will certainly help to cover your monthly bills and living expenses while you continue to look for work.”
Each state has different benefits and paperwork requirements, so make sure you’re using your state’s government website to learn more and to survive a layoff financially.
Prepare your budget for a layoff
Facing a layoff can be emotionally and financially draining, especially if you don’t see it coming. The most important thing is to start planning ahead, and prepare your budget for a layoff before it happens.
The post A Step-by-Step Guide to Prepare Your Budget for a Layoff appeared first on Discover Bank – Banking Topics Blog.
Before the coronavirus reached the U.S., unemployment was low and few could have anticipated a global pandemic. However, as the pandemic and ensuing recession took hold, a record-breaking number of people filed for unemployment benefits to stay financially afloat.
âCOVID-19 led to an incredible number of American workers being without work,â says Julia Simon-Mishel, an unemployment compensation attorney. âAnd itâs caused a huge need for individuals to file for unemployment insurance.â
Unemployment insurance, or unemployment benefits, can offer an essential lifeline. But if youâve never accessed these benefits before, you may have questions about how they work. You might also be asking: What do I do when my unemployment benefits run out and Iâm still unemployed?
This article1 offers tips about what you need to know about filing an unemployment claim. It also addresses the following questions:
How do you prepare for the end of unemployment benefits?
Can your unemployment benefits be extended?
What can you do when unemployment runs out?
Can you refile for unemployment after it runs out?
If youâre just getting ready to file or need a refresher on the basics of unemployment benefits, read on to have your questions answered.
If youâre already collecting benefits and want to know what happens once you reach the end of the benefit period, skip ahead to âSteps to take before your unemployment benefits run out.â
Common questions about unemployment benefits
Experiencing a job loss is challenging no matter what. Keep in mind that youâre not alone, and remember that unemployment benefits were created to help you.
While theyâre designed to provide financial relief, unemployment benefits are not always easy to navigate. Hereâs what you need to know to understand how unemployment benefits work:
What are unemployment benefits?
Unemployment insurance provides people who have lost their job with temporary income while they search for and land another job. The amount provided and time period the benefits last may vary by state. Generally, most states offer up to half of a personâs previous wages in unemployment benefits for 26 weeks or until you land another full-time job, whichever comes first. Requirements and eligibility may vary, so be sure to check your stateâs unemployment agency for guidance.
How do you apply for unemployment benefits?
Depending on where you live, claims may be filed in person, by phone or online. Check your state governmentâs website for details.
Who can file an unemployment claim?
This also may vary from state to state, but eligibility typically requires that you lost your job or were furloughed through no fault of your own, in addition to meeting work and wage requirements. During the coronavirus pandemic, the government loosened restrictions, extending unemployment benefits to gig workers and the self-employed.
When should you apply for unemployment benefits?
Short answer: As soon as possible after you lose your job. âIf you are someone who has had steady W2 work, itâs important that you file for unemployment the moment you lose work,â Simon-Mishel says. The longer you wait to file, the longer youâre likely to wait to get paid.
When do you receive unemployment benefits?
Generally, if you are eligible, you can expect to receive your first benefit check two to three weeks after you file your claim. Of course, this may differ based on your state or if thereâs a surge of people filing claims.
2020 enhancements to unemployment benefits for freelance and contract workers
In early 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. In addition to other benefits, the CARES Act created a new program called Pandemic Unemployment Assistance. This program provides unemployment benefits to independent contractors and other workers who were typically ineligible. That means that if you donât have steady W2 incomeâfor instance, freelance and contract workers, those who file 1099s, farmers and the self-employedâyou still may qualify for unemployment benefits.
âThat program is a retroactive payout,â Simon-Mishel says. âIf youâre just finding out about that program several months after losing your job, you should be able to file and get benefits going back to when you lost work.â
Because legislation affecting unemployment benefits continues to evolve, itâs important that you keep an eye out for any additional stimulus programs that can extend unemployment benefits. Be sure to regularly check your stateâs unemployment insurance program page for updates.
“Itâs really important to keep on top of all the information out there right now and be aware of what benefits are available to you.”
Steps to take before your unemployment benefits run out
In a perfect world, your job leads would become offers long before you reached the end of your unemployment benefits. But in reality, thatâs not always the case.
If youâre still unemployed but havenât yet exhausted your benefits and extensions, you may want to prepare for the end of your unemployment benefits as early as possible so you donât become financially overwhelmed. Here are four tips to help you get through this time:
Talk to service providers
Reaching out to your utility service providers like your gas, electric or water company is one of the first steps John Schmoll, creator of personal finance blog Frugal Rules, suggests taking if youâre preparing for the end of unemployment benefits.
âA lot of times, either out of shame or just not knowing, people donât contact service providers and let them know what their situation is,â Schmoll says. â[Contact them to] see what programs they have in place to help you reduce your spending, and basically save as much of that as possible to help stretch your budget even further.â
To help prepare for the end of your unemployment benefits, a few months before your benefits end, Schmoll suggests cutting back spending as much as possible, focusing only on necessities.
âIf you can try and save something out of the benefits that youâre receiving while youâre receiving themâit doesnât matter if itâs $10 or $20âthatâs going to help provide some cushion,â Schmoll says. Keep those funds in a separate account if you can, so youâre not tempted to spend them. That way youâre more prepared in case of an emergency.
If you hunkered down during your period of unemployment and were able to save, try to resist the urge to splurge on things that arenât necessary.
âThere might be temptation to overspend, but curtail that and focus on true necessities,â Schmoll says. âThat way when [or if] you receive an extension on your benefits, you now have that extra money saved.â
If you find that your savings and benefits arenât covering your expenses, and youâre reaching a point where you no longer qualify for benefits, look into other new benefit programs or features designed to help during times of crisis.
For example, there are programs across the country to assist people with rent or mortgages, Simon-Mishel says. Those programs are generally designed to keep those facing financial hardship from losing their home or apartment. You may need to show that you are within the programsâ income limits to qualify, or demonstrate that your rent is more than 30 percent of your income. These programs vary widely at the state and even city level, so check your local government website to see what might be available to you.
As you prepare for the end of your unemployment benefits, explore which government benefits or government agency may be best suited for your needs.
Keep up with the news
During economic downturns, government programs and funds often change to keep up with evolving demand.
âItâs really important to keep on top of all the information out there right now and be aware of what benefits are available to you,â says Simon-Mishel. âYou should closely pay attention to the social media of your state unemployment agency and local news about other extension programs that might be added and that you might be eligible for.â
Options for extending your unemployment benefits
If youâre currently receiving benefits, but theyâll be ending soon, youâre likely wondering what to do when your unemployment runs out and asking if your unemployment benefits can be extended. Start by confirming when you first filed your claim because that will determine your benefit end date.
If youâre wondering, âCan you refile for unemployment after it runs out?â the answer is yes, but youâll have to wait until your current âbenefit yearâ expires. Note that a benefit year is 12 months from when you file a claim. If you filed at the beginning of June, for example, you generally can’t file again until the beginning of the following June.
You may get 26 weeks of unemployment benefits, depending on your stateâs rules at the time. Most states extended the payout period to 39 weeks in the wake of the COVID-19 crisis. Check your stateâs website for the particulars on what to do when your unemployment runs out.
If your claim is still active but youâll be in need of additional financial relief after your unemployment benefits run out, here are your options:
File for an unemployment extension
During extraordinary economic times, such as the coronavirus pandemic, the federal government may use legislation like the CARES Act to offer people more benefits for a longer period of time, helping many people concerned about whether unemployment benefits can be extended.
For example, in 2020, for most workers who exhaust, or receive all of, their unemployment benefits, a 13-week extension should automatically kick in, Simon-Mishel says. This would bring you up to 39 weeks total. However, if more than a year has passed since you originally filed and you need the extension, you will likely need to file a short application provided by the government. Details vary by state.
As youâre determining what to do when your unemployment runs out, reach out to your unemployment office. Itâs important to do this before your benefits expire so you can avoid a missed payment. You can also confirm youâre eligible and that you can refile for unemployment after it runs out.
Ask about the Extended Benefits program in your state
Can unemployment benefits be extended beyond that? In periods of high unemployment, you may qualify for a second extension, depending on your state.
âAfter those [first] 13 weeks, many states have added a new program called Extended Benefits that can provide another 13 to 20 weeks of unemployment when a state is experiencing high unemployment,â Simon-Mishel adds. This means you may be able to receive a total of up to 59 weeks of unemployment benefits, including extensions. The total number of weeks of unemployment you may receive varies based on your state and the economic climate.
Itâs hard enough keeping up with everything as you prepare for the end of unemployment benefits, so donât worry if you donât have your stateâs benefits program memorized. Visit your stateâs unemployment insurance program page to learn more about what benefits are available to you.
Beyond unemployment benefits
While life and your finances may seem rocky now, know that youâre not alone. Remember that there are resources available to help support you, and try to take things one day at a time, Schmoll says.
âRealize that at some point your current situation will improve.â
If you find that your benefits arenât covering all of your expenses, now may be the time to dip into your cash reserve. Explore these tips to determine when itâs time to use your emergency fund.
1 This article is not legal advice and should not be construed as such. Eligibility for unemployment benefits may be impacted by variations in state programs, changes in programs, and your circumstances. If you have questions, you should consider consulting with your legal counsel, at your expense, or seek free assistance from your local legal aid organization.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
The post How to Prepare for the End of Your Unemployment Benefits appeared first on Discover Bank – Banking Topics Blog.