Do you know what to do with your first paycheck?
Did you blow it all away or did you save it for later? Did you blow away all of it later? What you do with your first paycheck marks what probably you will do with your later ones as well.
Here are some practical suggestions on what to do with first paycheck to streamline your financial planning.
1. Buy health insurance for your family
It’s a no brainier that health care costs are rising every year. It is practically impossible to pay out from your pocket for a hospitalization. Note that when you get your first paycheck, you are very young and any hospitalizing will mean you need monetary help from friends, family or help in the form of loans. If your employer has provided you with health insurance, you are lucky; if not be smarter. Buy health insurance for you and your family. At a young age, it will be cheap and affordable.
This probably should be the first thing you do with your first paycheck.
2. Clear off all loans
If you have many loans piled up at so young an age, be scared. If this was your first paycheck and you are heavily burden with loans, then this probably is the first thing you want to clear off.
If you possess loans like personal loans or credit card debts, you probably led life on a fast lane. Its time to change tracks. Clear off these loans.
Not all loans are bad. If you took an education loan to study, then you might want to check to see whether you can prepay part of it. Use part of your first paycheck to clear off bad loans.
3. Form an emergency fund
There are many reasons you want to save money for. Some save for their retirement, some for buying their favorite car and some for their kids. But the most important that stands out among these is an emergency corpus that everyone should have.
In case of a sudden job loss or loss of income due to any other reason, you need to have liquid money available so that your living expenses are taken care of. A 6 month of living expenses is a good figure for forming an emergency corpus. You need to use your first paycheck to contribute to forming an emergency corpus.
4. Protect your family – take life insurance
This is another important thing you can do with your first paycheck. You are probably married (too young for that) and might have parents as dependants. If you were to pass away, you need to leave behind money for your loved ones. At such a young age, the cost of insuring your life is very cheap. The premiums are not going to hurt at all.
Go ahead and take term insurance. The sum assured at this time will probably be a smaller amount than what it would be at a later age when you have more responsibilities and therefore require more cover.
5. Invest your first penny
Your first paycheck is never enough for you to do everything. However, if you have surplus money left after throwing a party for your friends, why not invest it ? It could be for your marriage or for your old age if you already know how much money do you need to retire. If you do this, you would belong to a very small herd of people who believe in long term investing and who have saved their first paychecks.
Where to invest?
The best bet would be an equity diversified mutual fund. In fact, this would only urge you to invest again in the subsequent months to take advantage of rupee cost averaging.
As long as you start “saving and investing” with your first paycheck either in equity or in debt, you have taken the right step forward.
Do you recall what you did with your first paycheck ?