How to Manage Your First Salary: Tips for Recent College Graduates
After years of hard work — and entirely too many late-night study sessions — you finally have graduated from college and have gotten your first job. Congratulations! That’s a huge achievement.
According to the National Association of Colleges and Employers (NACE), the average starting salary was $55,260 for the class of 2020. Whether you’re making more or less than that amount, you may be worried about how to manage your first salary. But by developing a plan before your first paycheck arrives, you can effectively manage your money and save for the future.
Saving Money At Your First Job: 5 Tips
Now that you’ve graduated from college and earned your own paycheck, you’re responsible for managing that money yourself. That can be a powerful feeling, but it also means you need to be careful about how you spend your hard-earned cash.
To make the most of your paycheck, use these five tips to manage your money:
1. Review Your Paycheck
Whether paid by check or direct deposit, you likely aren’t spending enough time reviewing your paycheck. Most people just look at their account balances to ensure they get paid; they don’t take the time to review the deductions from their pay. Reviewing your pay stub can help prevent surprise tax bills later on and ensures you’re getting every dollar owed to you.
Your pay stub will show you what you paid in federal income taxes, state and local taxes, and Federal Insurance Contributions Act (FICA) taxes. Your employer may also deduct money from your paycheck for health insurance or retirement contributions.
Not sure if you’re withholding enough for taxes? Use the IRS Tax Withholding Estimator to see how your withholding amount affects your tax bill or tax refund.
2. Create a Budget
The key to saving money at your first job is creating — and maintaining — a budget. However, many people don’t have one. In an AIG survey of college students, just 38% of respondents said they used a budget to manage their personal finances. If you don't have one yet, you can create one with a pen and paper or with tools like Mint, or You Need a Budget.
When thinking about your expenses, be sure to include both fixed and variable expenses. Common expense categories include:
- Student Loan Payments
- Retirement Savings
3. Pay Yourself First
One of the best pieces of advice for how to manage your first salary is to pay yourself first. That means, before you do anything else with your paycheck, you should automatically transfer a set amount of money into retirement and savings. Doing this ensures you’re saving regularly, even when other expenses pop up.
How much of your paycheck should you save? In general, experts recommend saving 20% of your income. Of that, about 10% to 15% should go toward retirement, and the remaining 5% should be set aside in your general savings. The earlier you start saving and investing, the better. You’ll have more time to take advantage of compound interest and build a larger nest egg for retirement.
If there’s no breathing room in your budget right now and you can’t save 20%, don’t panic. Focus on saving what you can and stay consistent. Saving even $10 or $20 per month now, while you’re young, can pay off over the long run.
4. Take Advantage of Employer Matches
Many employers offer matching contributions, meaning they’ll match the amount of money you put toward certain expenses. If your employer will match your contributions, aim to save enough to qualify for the full match — it’s free money you’ll otherwise lose.
Common employer matches include:
- Health Expenses: Some employers offer flexible spending accounts (FSA)s, which allow you to set aside some of your pre-tax dollars for health expenses. Your employer may contribute to the account or match your own contributions. You can use the money in the account to cover your deductible, copays, or other healthcare expenses.
- Retirement Contributions: Approximately 67% of private industry workers have access to employer-sponsored retirement accounts. If your employer has a 401(k) or 403(b) retirement plan for its workers and offers matching contributions, they will match your Fcontributions up to a certain percentage of your salary.
- Student Loan Repayment Assistance: As of 2020, 8% of all employers offer student loan repayment assistance benefits, but that number is growing. If your employer offers student loan repayment assistance, they will match your contributions up to a monthly or lifetime maximum.
5. Maximize Your Savings
Once you have a budget in place and have decided how much money to set aside every pay period, the next step to maximize your money is to open a savings account with a higher-than-average annual percentage yield (APY)*. By opening a new account with a higher APY you can help your money grow faster.
SouthEast Bank has several options for savings accounts. For example, its Bonus Rate Savings account1 allows you to earn up to 2.01% APY balances up to $10,000. To qualify for that APY, you must enroll in eStatements and post and settle at least 15 round-up debit card transactions from a personal Southeast Bank checking account. The Bonus Rate Savings account has a $50 minimum to open, and there’s no monthly service charge.
Now that you know how to manage your first salary, you can make your money work harder for you by opening a new savings account online or by visiting a Southeast Bank branch in person.
*APY=Annual Percentage Yield
1Each statement cycle, the account must be enrolled into eStatements and post and settle at least 15 round up debit card transactions from a personal SouthEast Bank checking account with the Round Up feature to earn the bonus rate of 2.01% APY for balances up to $10,000 (.20% APY on balances over $10,000). Otherwise, the account will earn .05% APY. Unlimited withdrawals at teller window or ATM. 6 pre-authorized withdrawals per month, includes checks, ACH debits and online banking transfers are allowed: $3 fee for each thereafter. Fees may reduce earnings. Limit one Bonus Rate Savings account per primary owner tax ID. Rates are accurate as of 4-4-2022 . Rates are variable and subject to change after account opening.