(This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)
Question: I finished my marketing degree this March and I?m all set to start working at a bank this April. My parents have always told me to handle my money well once I start working. What advice can you give to a new graduate like me starting on her first job with regard to handling money? ? Annie
Answer: First off, congratulations, Annie, on your graduation and for bagging that job so soon!
There are so many things one can do with a first paycheck ? treating your parents to a nice lunch or dinner, or having coffee with your very close friends. But while spending time with those dear to you may be good, it?s even wiser to have a long-term outlook and spend your first paycheck accordingly.
Here are some ways you can spend your first few paychecks and lay the groundwork for your financial independence:
1. Start an emergency fund. This fund will help you tide over the hard times if something happens such as a job loss or illness. Use part of your first paycheck to open a savings account which should be separate from your payroll account (so you can make sure you won?t touch or spend this fund). Commit to deposit at least 10 percent of your take-home pay to this account every month. Then once you have built up this fund, transfer some of it to a higher-yielding account like a special time deposit or investment vehicles like mutual funds or unit investment trust funds.
2. Get health insurance. In case your employer does not offer a health insurance package as part of your benefits, make sure you get one yourself. You can?t tell when you will get sick and need hospitalization. Insurance will ensure you will be able to meet your hospital and health care needs. And if you get a policy at your age, the premiums will be lower.
3. Get life insurance, especially if you have dependents. This will protect your family from financial burden should you pass away. It?s not too early to think of that and prepare for it right now. As with health insurance, the younger you are when you get a policy, the lower the premiums will be. You don?t need top-of-the-line insurance products right now. Just get one that will cover you for a fixed term and offers affordable premiums.
4. Pay off debts. In case you have tuition-related loans or other forms of debt, use part of your first paychecks to keep yourself debt-free. Then when you get your first credit card, be prudent in making purchases. Every purchase you make with a credit card becomes a debt you have to pay.
5. Start a retirement fund. Retirement seems a very long way off when you haven?t even started your job yet. However, if you commit to set aside a specific amount each month for the rest of your working life, you will have enough to have the lifestyle you want at retirement. Your retirement fund can take the form of a pension plan, a provident fund at work, and mutual fund or unit investment trust fund purchase. If you start saving early for retirement, compound interest will build it up faster. Hold this investment for the long term. Resist using this fund for other purposes (if you want to buy a car, for instance, start a car fund separately).
These may all sound overwhelming, but with these first goals, you will be on the road to financial dependence in no time. Remember the ant which saves up food little by little over time. At the end, the ant has enough food for the rainy days.
With these goals, adopt these money habits too:
1. As soon as you receive your paycheck, pay yourself first. That means taking away the money for your retirement fund and emergency fund, and depositing it directly to your account. By deducting the said amounts even before you spend your income, you will ensure you will have enough money for the future.
2. Spend less than what you earn. This is what is called living within your means. Spending more than what you earn means you are living in debt and are living to pay off your debts.
3. Make a budget. ?A budget helps you organize your spending. It tells you how much money comes in, how much money goes out, and where the money goes,? says the booklet Use Credit Wisely published by Citibank. List down all your fixed obligations such as health insurance and life insurance premiums, rent, and the like. Then live on what is left. You can adjust your other spending (for food, transportation and entertainment, for example) based on how much money you have left.
Good money habits started early will benefit you in the long run.
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