What to do with your first paycheck?
It’s not easy to deal with an unexpected boost in your monthly income. For most people an income increase means an impromptu shopping spree, a fancy night out in the city’s top high-end restaurants, or endless orders of coffee; marking, for most, the end of that month’s salary. This is what we call in the financial world, “emotional spending”, and to avoid doing such a thing, you need to develop your financial skills and learn the difference between essential and non-essential purchases, the true meaning of saving and spending, and why you need to seek expert advice.
The difference between essentials and extras
Essentials: are financial commitments and necessities you need. Such as rent, conveniences, gas, car, bills, etc.
Non-essentials (Extras): are things you want but do not need. Such as perfumes, flowers, etc.
Different ways to save and spend
Many people think of ways to spend their salary before getting the paycheck, daydreaming of all the non-essential expenses they’re going to purchase when it finally arrives. However, if you want to maintain your budget and ensure you’ve got the month’s expenses covered, you need to start dividing your income into three parts: expenses, commitments, and bonds. Expenses are your monthly spendings for food and clothing, commitments are monthly bills such as water and electricity, and bonds are equity you own that increase your income, such as stocks and real estate. Think of these as your financial investments. And so for you to become a better financial planner, follow these tips:
1. Know how much you spend by calculating your expenses and commitments
Get a pen and paper and list all your expenses and commitments, indicating how much you spend on each. This way you’ll be able to calculate your total expenses for the month, and eliminate any unnecessary spending.
2. Define your financial goals
Set a goal for your finances, and once you do so you’ll be able to figure out the exact amount you need to invest. This also allows you to save some money from your monthly income which can go towards creating an emergency fund.
3. Prepare a budget
After defining the amounts of your expenses, commitments, and financial investment goals, you can now move on to setting a monthly budget that aligns with your financial capacity to spend and save.
1. Save for a rainy day
This is a different kind of savings, as it is dedicated to unexpected emergencies only, and serves as a financial backup that maintains the balance of your monthly budget.
2. Credit cards
Many fall in the void of credit card debt, and drift along with the allure of effortless income that feeds our financial fantasies. Nonetheless, credit cards can come in handy, you just need to be diligent and pay the fees on time to avoid interest, and to maintain the balance of your monthly budget. You can also decrease your credit card limit to better control your spending.
A special occasion is a great reason to splurge; birthdays, mother’s day, anniversaries, especially when you have expensive taste. Consider choosing presents of sentimental value rather than financial value. That way you’re sure to give something more meaningful that aligns with your finances.
4. Pick the best price
Shops always have offers and display products of various prices. Take a moment to compare prices before making a purchase, and choose the best bang for your buck. This ensures that you stay within your spending range, and gives you a better understanding of market prices.
Finally, seek expert advice!
People are generally inclined to trust their gut feeling and personal theories to form their understanding of different experiences. However, it doesn’t hurt to ask someone else, learn from their experience, and avoid the mistakes they made. Perhaps a family member, or a friend, or a trusted financial advisor, or even a specialized financial guidebook. You can also use an application, such as Masareef, to help arrange your financial priorities and requirements