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 CFP® 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.
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