If you just started your first job after graduation, you may be dreaming of all the ways you could spend your first paycheck. But before you go on a shopping spree, it’s a good idea to think carefully about how to make the most of this influx of cash.
While it’s fine to splurge a little and reward yourself for your hard work, it’s also wise to put some of your first paycheck towards savings, retirement, and debt repayment (if you have debt). These tips for how to use your first paycheck — and all the others after that — can help set you up for future success.
Key Points
• Establish a checking and savings account to manage finances and build security.
• Create a budget using the 50/30/20 rule to track and allocate expenses.
• Start an emergency fund by setting aside a portion of each paycheck.
• Make a plan to pay off high-interest debt to save on interest.
• Begin investing in a retirement account to benefit from compound growth.
6 Smart Money Moves to Make After Your First Paycheck
Developing smart money habits early in your career can pave the way for long-term financial stability and independence. These six steps can put you in the right direction.
1. Set Up a Checking and Savings Account
Opening a checking and savings account is an essential first move in managing your finances. If you already have accounts, take a moment to evaluate whether they still meet your needs. With a checking account, you ideally want to find one with no monthly fees and minimal other fees, plus access to a wide network of free ATMs. When it comes to savings accounts, it’s a good idea to compare annual percentage yields (APYs) to find one that pays well over the average interest rate for savings accounts (0.41% APY as of December 16, 2024).
In addition to the major national banks, also consider online banks and credit unions, which often offer better interest rates and lower fees than traditional brick-and-mortar institutions.
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2. Create a Budget
Before you decide what to buy with your first paycheck, it’s a good idea to rough out a basic budget. This can be as simple as listing your fixed monthly expenses (e.g., rent, transportation, groceries, utilities, and debt payments), adding them up, and subtracting the total from your monthly take-home pay. The number you end up with is what you have for nonessential (aka, “fun”) spending and getting ahead on any debt.
One general budgeting rule of thumb is the 50/30/20 formula. This approach divides your after-tax income into three categories: 50% for necessary expenses (“needs”), 30% for discretionary spending (“wants”), and 20% for savings and debt repayment beyond the minimum (“goals”).
Depending on your income and expenses, you may need to adjust these percentages. That’s okay. The idea is to put some parameters on your spending and make sure part of every paycheck goes towards your goals.
3. Start an Emergency Fund
An essential first step when earning a regular salary is to start an emergency fund. Financial experts generally recommend having at least three to six months’ worth of living expenses tucked away in a savings account for emergencies. You might even want to open a separate high-yield savings account earmarked for emergencies so you don’t inadvertently spend this money on something else.
While saving for a rainy day might seem like a boring way to use your first paycheck, skipping this step could end up being a costly mistake. Without a back-up fund, any bump in the road — like a major car repair, trip to the ER, or loss of income — could force you to run up credit card debt that could take months, even years, to get out from under.
You don’t have to build your emergency fund overnight. Setting aside even $25 to $50 per paycheck builds a foundation. Consider setting up a recurring transfer from checking to savings for a set amount on the same day each month. Once your emergency savings is funded, you put that money towards other savings goals.
Recommended: Emergency Fund Calculator
4. Pay Off Debt
If you have high-interest debt, like credit card balances, it’s a good idea to use some of your paycheck to make extra payments beyond the minimum due. This can help you save a significant amount of money on interest over time. Moving forward, you might also use extra income — like a tax refund or work bonus — to make lump-sum payments towards high-interest debt.
If you have student loans, now is a good time to start paying them back. You generally have a six-month grace period after graduation before you’re required to start repayment. But the sooner you get started, the faster you can pay them off, and the less interest you’ll end up owing.
5. Start Investing
Retirement may feel like it’s eons away, but a great use of your fist paycheck is putting a small amount into your 401(lk). Even setting aside 5% or 10% percent of that first paycheck into a retirement savings account could reduce the amount of years you need to work and improve your quality of life after retirement. This is thanks to the magic of compound returns — when the returns you earn on your investments also earn returns. The earlier you start investing, the more you benefit from compound growth.
Many companies will also match your contributions up to a set amount. If yours offers this benefit, try to contribute up to the full match, since this is essentially free money. If your employer doesn’t offer 401(k) contributions, you can also look into opening an Individual Retirement Account (IRA) on your own.
6. Treat Yourself Responsibly
Making a plan for what to do with your first paycheck doesn’t mean you can’t have any fun with your first substantial payday. In fact, if you’re using the 50/30/20 (or a similar) budgeting formula, you’ll know exactly how much of your first paycheck you can fritter away without jeopardizing your financial health. And you’ll be able to splurge without feeling guilty, since it’s factored into the plan. So enjoy yourself — you earned it!
The Takeaway
Your first paycheck is a major milestone and a stepping stone toward financial independence. Smart moves — like creating a budget, starting an emergency fund, investing, and paying off debt — can help you make the most of your first paycheck. And don’t forget to leave some room in your paycheck to treat yourself too. Making wise money choices now will help you achieve stability and wealth in the future.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
How much of my first paycheck should I save?
A general guideline is to save at least 20% of your paycheck. This includes emergency savings, saving for short-term goals, and retirement contributions. If you have debt, however, you’ll want to prioritize repaying high-interest obligations, while still setting aside some savings.
Whatever percentage of your paycheck you decide to save, it’s a good idea to automate savings to ensure consistency and make it easier to build financial security over time.
How do I cash my first paycheck?
Most banks will cash a paycheck as long as you have an account with them. If you don’t have a bank account yet, you may be able to cash the check at the issuing bank, which is printed on the check. You’ll likely need a show photo ID, and may have to pay a fee.
Ideally, you want to open a checking account and set up direct deposit with your employer, so you won’t have to bother cashing your paycheck. Depositing your check, rather than cashing it immediately, also allows for better money management and financial security.
How do I set up direct deposit?
Setting up direct deposit is usually handled by your employer’s HR or payroll department. You may be able to complete the process through an online portal, or you might have to fill out a direct deposit authorization form. Either way, you’ll need to provide your bank’s name, address, and routing number; your account number: the type of account: and (in some cases) a voided check. Keep in mind that it can take a few weeks for direct deposit to go into effect.
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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
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