As best we can, we prepare our kids to be adults. One of the most crucial turning points for a kid becoming an adult is that first job out of college. In many ways they are on their own. As much as we prep them, train them, and give them opportunities to practice – this is when they leave the nest. As parents, we have to let them see if they can fly.
With most kids, even if they have good examples at home, leaving home and having to manage their paycheck is mind blowing. The inclination is to spend all of their paycheck – whatever the net amount. They are shocked at the taxes and think that they will worry about saving and putting away for retirement for later, when their paychecks are bigger. This way of thinking is a big (and common) mistake.
The Goal: Live on 50%
Help them imagine the paycheck as a pie. Some of that will go to living expenses, some to savings, some to charity and some for retirement. Here’s a way to slice it up that may seem “pie in the sky” but is actually do-able:- Any young adult on their first job, with their first paycheck in hand, should make a goal to set aside 10% to donate.
- 15% needs to go into a 401k or 403b, depending on what they are offered by their employer, or some type of IRA if they don’t have a retirement option at work.
- Then, 25% needs to go into savings for future big purchases such as a car, or down payment on a house.
- The hardest part is realizing that only 50% of take-home pay is left for living expenses.
