How to Manage Your First Salary and Grow Your Savings

After months spent scouring career boards and hours of networking, interviewing and submitting applications, landing your first job is a major relief—and a big accomplishment. It also brings new responsibilities as you learn how to manage your first salary, budget for your lifestyle and develop the smart savings habits that will serve you your entire life.

As you prepare for your first day, it’s critical to start thinking about how much of your paycheck you should save.

To help you find the answer, financial experts provide tips on how to manage your first salary, offer strategies to help you save money at your first job and explain how to adjust your savings as your career flourishes.

Save money at your first job: The case for starting now

You may feel intimidated by the commitment to save money at your first job, especially if you’re carrying student debt or feeling like you aren’t making quite enough. Joy Liu, head trainer at personal finance company Financial Gym, certainly felt that way.

“When I got my first job, I made $35,000 a year,” Liu says. “It was easy to just throw my hands up and say, ‘I can’t save right now on this salary.’” But she urges young savers to reconsider.

“Looking back, with the knowledge that I have now, I could have made it work if I knew that saving was something I needed to do,” she says.

In fact, saving money at your first job will put you in a better place when you’re a seasoned professional, Liu says. When you deposit some of your paycheck into a savings account, you’ll earn interest on the balance. Your now larger balance will itself earn interest (you’ve got compound interest to thank for that). The earlier in your career you start to save, the more time you’ll have for your money to grow exponentially.

Saving money at your first job might also make sense because you likely aren’t juggling the large financial commitments you’ll face later in life.

“You may have student loans, you may have some credit card debt, but you most likely don’t have a mortgage, which is a huge lifelong commitment,” says Ashley Dixon, a CFP^® and lead planner at financial planning firm Gen Y Planning.

Determine how much of your paycheck you should save

You now know you need to sock away part of your earnings from your new job, but how much of your paycheck should you save?

While your specific savings rate will depend on your goals and circumstances, Dixon recommends saving 20 percent of your monthly take-home pay. If that’s too challenging, start with 10 percent, Liu says.

If you don’t think you have enough to save, review your essential expenses, like rent, student loan payments, utilities and groceries. Save from whatever cash is “left over” each month, and see how close you can get to that 10 to 20 percent goal.

When determining how much of your paycheck you should save, you might initially find that there isn’t enough cash left over. If that’s the case, create a budget to keep your spending and savings on track, or review your existing budget to see which unnecessary expenses you can cut.

“Being mindful of where you’re spending your money and keeping track of spending in real time is the hardest part and is where people struggle the most,” Liu says. “But knowing where your money is at any given point is how you stay on track, whether that’s creating a spreadsheet or using a budgeting app.”

If you’re not able to hit these savings benchmarks right away, don’t sweat it. The key is to save what you can, and you can gradually work to increase your savings over time.

Define your savings goals to gain momentum

To help you get in a groove saving money at your first job, define exactly what you’re saving for. Need some ideas?

When learning how to manage your first salary, Liu recommends prioritizing an emergency fund. A top reason you need an emergency fund is the stability and peace of mind that this stockpile can offer, Dixon says. Should you face an unexpected expense like a costly car repair or lose your job in the future, you’ll then have a backup fund to dip into.

“If you’re young and single, you should try to strive to save six months of living expenses in your emergency fund as a guideline, but that can be different for every individual depending on where they live and family situations,” Dixon says.

Consider your emergency fund one of multiple savings accounts, or buckets. “You want to have all of these different buckets of money set aside for different goals, and move and prioritize how much money you save for each goal based on their priority level to you and what is realistic within your budget,” Liu says.

In addition to your emergency fund bucket for life’s surprises, you can also save money at your first job and contribute to other funds that align with your financial goals, like a car fund to help you buy new wheels or a vacation fund to save up for a getaway.

However you define your goals, the important thing is that they’re clear to you and that you’re actively saving money at your first job. This positive momentum can guide smart savings habits even once your first day of work is a distant memory.

Use automation to make saving a habit

Even with the best savings goals and intentions, it can be easy to get tripped up. Enter automation. By automating your savings, you reduce your chances of overspending or skipping savings altogether.

There are a couple ways you can use automation to help manage your first salary. You could set up a weekly or a monthly automatic transfer from your checking account to your savings account, Liu suggests. Or, you could ask if your company’s payroll department allows you to split your direct deposit, sending some of each paycheck into your checking account and some into savings.