How you use your first paycheck will set a tone for your relationship with money for future paychecks.
Shift your perspective on your personal finances to run them like a business. These kinds of mindset shifts can help us reach financial wellness by changing our relationship with money so that we rise out of debt, stay on track for our goals, and create positive money habits.
Understanding Your Paycheck
The number you expected to see on your paycheck? That’s gross pay. What actually hits your account after taxes and deductions is net pay. The difference can surprise you at first.
By learning these common paycheck terms, you can better understand where the difference went:
- Federal and State Income Taxes: Required by law and based on how much you earn and the information you provide on your tax forms.
- FICA (Social Security and Medicare): A combined 7.65% of your paycheck that helps fund retirement and health care for older Americans. Benefit later by paying in now.
- Benefits Deductions: If you have health insurance, retirement contributions, or other employer-provided benefits, these will come directly out of each paycheck.
- Other Deductions: These might include union dues, disability insurance, or contributions to flexible spending accounts.
Stay ahead and avoid surprises with these financial dos and don’ts.
Do: Use your net pay, the real money you take home, to build your budget around.
Don’t: Neglect the difference between gross and net. You’ll come up short.
Factor In Taxes
Income taxes, Social Security, Medicare. These slice off a chunk of every paycheck. The more you earn, the more that gets withheld.
Do: Check your pay stub so you know exactly what’s being taken out. Adjust your tax withholding if you’re consistently getting huge refunds (that’s money you could have used sooner).
Don’t: Ignore your taxes until April. Plan year-round so you’re not blindsided.
The Cost of Benefits
When your job offers benefits, they usually cover part of the cost and you cover the rest. That shared cost is what shows up as a deduction on your paycheck.
So, even though you’re paying something, your employer is also contributing.
For full-time employees: health insurance premiums, retirement contributions, and sometimes union dues or disability insurance reduce your take-home pay, but usually at a discounted rate compared to buying them on your own.
For gig or contract workers: you will likely need to set aside money yourself for insurance and retirement, as it will not be deducted from your paycheck automatically.
Do: Take full advantage of employer matches on 401(k) contributions. That is free money your job is putting in alongside you.
Don’t: Skip benefits just to boost your take-home. The shared cost makes them far more valuable in the long run.
Save and Invest Smart
Even if your first paycheck feels small, start saving and investing as early as you can. Time and compound growth are your best friends to help you grow wealth.
Do: Automate savings. Aim for reaching a dedicated goal of 20% from your paycheck toward savings and investments if possible. Even $50 every two weeks adds up.
Don’t: Wait until you “make more” to start saving. Building habits matters more than how much you make, especially early on.
Address Your Debt
Debt reduces how much of your paycheck you get to keep in the future. High-interest balances, especially on credit cards, can quickly turn into a cycle where tomorrow’s income is already spoken for. The earlier you take control, the more of your money stays yours.
Do: Build a debt pay-off plan in Money Management and tackle high-interest debt first. It’s Essential!
Don’t: Settle for making minimum payments long term. That is how balances skyrocket and financial stress lingers.
Your first paycheck is exciting, but it is also your chance to set the tone for a lifetime of financial wellness. Treat it as a tool, not just spending money.
Budget with your net pay, factor in taxes, respect your benefits, save and invest early, and get a handle on any outstanding debt. Stay ready, stay in charge.
