A Fresh Graduate’s Guide to his First Paycheck
One of the things that they don’t teach in school, whether as a high school or a college student, is how to handle the shock of getting regular paychecks. Unlike your weekly allowance when you were still a student, a paycheck allows you to pay for your own things, and even get to enjoy a taste of adult life. The problem with this transition, however, is that you have to deal with the urge to not overspend beyond your means. At times, it is common that we see fresh graduates, who are already on their first gig end up becoming a financial wreck.
Rule of thumb, always remember the reality that most fresh graduate gigs are actually cheap labor in the adult world. That simply means that the money you think is worth a million is probably just a poor man’s salary. Here are some tips that could use up your approach on the paycheck.
Wants vs. Needs
By now, you may have learned from your economics class about the infinite wants that you can spend your money on. For every fresh graduate, it is important to know how to classify their expenses. Is it a want or a need? Necessities may be physiologic in nature, but comfort foods are definitely wanting. This way, you are aware that your trip to that posh coffee shop is unnecessary. What if there is a cheaper alternative, such as going to the nearest convenience store for your dose of caffeine? Or what if sleeping an extra hour early could help you save P120 everyday worth of coffee?
It is a problem not only for the neophyte professionals but also for those who are already working for a very long time to have an emergency fund. Reading a number of books about practical financial guides, they typically define emergency funds to be worth as much as 10 months of your income. It is typically used for things that you do not expect.
How do you come up with this amount of money? For starters, you need to make sure that you save as much as 20% of your income to your bank account. Bit by bit, you will be able to save months worth of savings which will then be enough to be your emergency fund.
Think about investments
A lot of fresh graduates fail to realize that you should be starting younger. Starting young and preparing for your future is the best thing that you can do in order to have smooth sailing finances for the next years to come. Investments shouldn’t be huge investments that could jeopardize your next years. Of course, you don’t want to invest all eggs in one basket.
You need to also invest in things that you are really sure of. To be sure of something, you need to do your necessary research. What are the pros and cons of a specific venture? If it is a small startup that you are going to have with some of your friends, you need to make sure that you know exactly what you are getting into. Try to assess every angle and conduct feasibility testing. What are the risks involved? What are the opportunities involved? Are there any competition? Or is the market saturated?
Investment is all about diversification of income. You may choose to invest in stocks, or even choose to invest in real estate. The point is, you need to make sure that you end up with multiple sources of income in the next years to come.
For someone with a relatively small paycheck, is this possible? What most people don’t know about investments is that they could be small risks with high potential. Take a look at the Lululemon stocks, for instance. This Vancouver based yoga pants company started selling their stocks for $2 in 2007. Right now, it has now gone up to $75 and is earning billions annually.
Taking health as a priority
By now, you must’ve heard about the adage that health is wealth. In fact, this is true. Could you imagine paying P50,000 for a 3 day confinement in a hospital? What most young people take for granted is the fact their health is their biggest asset. When you spend hours on graveyard shift, keep in mind that this is not something normal, and therefore you are at risk of different diseases. It is important that you invest on a health card. You are lucky if you have a company that provides you your own health card. But of course, let’s be realistic. Not every company is willing to provide HMO coverage. Though you can try to access public health clinics and hospitals, we all know how it is a struggle.
Aside from the health cards, it is also important to take preventive measures. Instead of purchasing booze, why not go for vitamins and health drinks? This way, you get to take care of yourself. Try to remove habits that will compromise your health. Also, your P2,000 monthly gym fee might just prevent you from paying for hospital bills.
Use a credit card with precaution
You may have of hearing bad stories about people who maxed out their credit card. Some fresh graduates would think that having a credit card is not practical. In fact, if you know how to control your urge in spending, a credit card may come in handy. It builds a credit score for future loans and investments. What you don’t want to do is to use your credit card for things that are unnecessary.
It is imperative that you learn how to limit the expenses made on a day to day basis. This way, you don’t end up accumulating more expenses that you should. If you can keep a small notebook where you could account all your expenses from the MRT ticket that you purchased to the last meal that you paid for, this will give you an idea how much you are spending and not be surprised if you already drained your paychecks.
According to the latest statistic, only 2 out of 10 Filipinos have a bank deposit account. Also, less than 1% of the population purchased stocks, mutual funds and bonds. What do these numbers tell us? This shows us how many of us are not really wise in terms of finances. Though it is rampant in the Philippine economic setting, it is always a good thing to learn these financial tips early in life.
Becoming practical with your paycheck is an important lesson that you need to learn in life. Considering inflation, job security issues and many other challenges that may mean spending, a fresh graduate who entered the labor force should be well equipped with all the knowledge how to accumulate assets.