You just landed your first real job and suddenly you’re rich! Your paycheck seems huge and you throw the numbers into a spreadsheet to calculate all of the money you will soon be rolling in.
You imagine yourself cruising around in the kind of car that strippers name themselves after. (e.g. – Lexus, Mercedes and Porsche) But even if the stripper’s name is Honda, the wealth effect has kicked in and you need to stop and do this one really important thing immediately.
But, My Friends?
A lot of your friends might be getting their first big job right now too. And for some of them, the wealth effect, or just bad math and overoptimism, will mutate their awesome new paycheck into a situation where they’ll be counting the days until the next payday.
This formula quickly leads to credit card debt, a shabby abode and a lack of financial flexibility that will allow them the opportunity to take the kind of financial risks that could propel their future. You may recognize this friend if he looks a little like the guy in the picture at the top of this article, but is always asking you to spot him.
This doesn’t have to be you, this shouldn’t be you and it won’t be you if you keep reading.
If You’re Going To Dream, At Least Do So Accurately
As you know, you can’t just take your salary and divide by 24 to arrive at how much money you’ll be direct depositing into your account every two weeks. There is health insurance, taxes, social security, retirement savings… you’ll be lucky if your take-home pay is 75% of your gross pay.
Before you dream any further, it’s time to start a budget! Even before that first beautiful paycheck plumps your checking account, right now is the time to put together a plan that realizes your wants and your needs. If you take my advice, you will not have to touch a spreadsheet, print a bank statement or log your expenses anywhere.
Forget Everything You Think You Know About Budgeting
Budgeting these days is really easy to do, will cost you nothing and you can have everything you truly want. You can even download a free app for your phone, which I highly recommend, so that your budget is with you, in real-time, everywhere you go.
One of the things that makes me different from other personal finance experts out there is that I do not believe that a budget should be used to tell people what they cannot or should not buy. A budget is just a reflection of the things that you value the most in the world and a tool to plan.
Check out my article How To Budget to get started now. And if you know someone who is about to start a new job with a big paycheck, do them and me a favor by forwarding this article to them.
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Photo Credit: ShutterStock