Smart About Money: Your Child’s First Paycheck

Smart About Money: Your Child’s First Paycheck

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.

As those paychecks grow, sticking to those percentages will result in bigger savings for the future and put them on track for a financially sound retirement.

To help plan and manage a budget, our tech savvy kids will find that there are numerous apps out there like Mint or You Need A Budget . Whatever the app, it needs to fit your lifestyle, it needs to fit your spending patterns, and you need to use it. Knowing where your money goes means you have control over it. You are mindfully and intentionally choosing how you’re spending it for the goals that you have today, tomorrow and in the future.

Any opinions are those of Traci Richmond and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.