You just got hired. Congratulations! Whether this is your first job in high school or your first career position out of college, the decisions you make now can set financial habits that follow you for decades.Learning how to prepare for your first paycheck is just as important as how you spend it.
I have watched my daughter’s friends navigate this moment, and I have spent 30 years in finance roles watching adults—friends, family, coworkers—struggling with their finances because of bad habits—or no habits at all—which often start with those first paychecks.
I learned the hard way that life will throw challenges at you. Financial stress on top of those challenges makes everything much harder.
I can’t protect you from everything life will throw at you—but I can help you avoid financial mistakes that turn hard times into disasters.
We do that by starting habits before that first paycheck even arrives.
BEFORE Your First Paycheck Arrives
Most people wait until their first paycheck before thinking about money. That is a mistake. There are decisions you can make before money hits your account that will set you up for success.
Step 1: Fill Out Your W-4
Any time you begin a job, you will be asked to fill out a W-4. This is an IRS form that determines how much to withhold from your paycheck to cover federal taxes. Don’t overthink the process. Stick with standard withholding by simply following the directions or use the IRS estimator to help.
Why this matters: If you withhold too little, you may owe taxes come April 15th. Withhold too much and you’ve given the federal government an interest-free loan for the year.
I’ll admit—I used this latter approach growing up. I purposely withheld too much as a way to save money and get a refund.
Step 2: Set Up Direct Deposit
Manual checks used to be a lot more prevalent, but these days 92–93% of employees use direct deposit. Some employers don’t even allow manual checks. Either way, you absolutely want to use direct deposit.
Why this matters:
- No trips to the bank
- Your money tends to arrive earlier
- Makes automation easier (see below)
When you are completing paperwork for your job, you will be asked for your banking information.
Step 3: Open a Savings Account (if you don’t already have one)
Do this before your first paycheck and, as I have suggested in Top Ways To Save Money, automate your savings.
The easiest way to do this is to make sure some of your paycheck is being routed directly to your savings account in Step 2 above. A direct deposit to savings is the easiest but, if you prefer, you can also set up an automatic transfer from your checking to your savings account.
See also: Things to Consider in a Savings Account.
Step 4: Understand Your Pay Schedule
Know when you are going to be paid:
- Weekly (I love this as an employee—but it’s painful as a CFO to process payroll every week)
- Bi-weekly (every two weeks)
- Semi-monthly (usually the 15th and last day of the month)
- Monthly (less common unless you also have a bonus component to your pay)
You may not think this is important, but it greatly affects your budget. If your rent is $2,000 per month, you either need to budget $500, $1,000, or $2,000 per paycheck.
If you are paid bi-weekly, there is a trick I use to help build reserves. Build your budget based on two paychecks per month (same as semi-monthly). In reality, a bi-weekly schedule provides 26 paychecks per year (vs. 24 for semi-monthly). That means two months out of the year you will receive an extra paycheck—set that aside as reserves.
Step 5: Understand Your Benefits
Where you are in life will dictate your decisions here (see One Size Doesn’t Fit All: High School vs Post-College below).
- Is there a 401(k)? Does your employer offer a company match?
- Are there medical benefits?
- Are there other benefits you are interested in (life insurance, dental, vision, pet insurance)?
- When are you eligible to participate in benefits?
If you are in high school saving for your first car, you may want to avoid the 401(k). That said, the power of saving early can really add up by the time you retire.
If your company offers a match, that is free money. For example, my employer matches 25% of every dollar an employee contributes—that’s a 25% return right out of the gate. Just remember that company matches often have vesting periods.
If you are still on your parents’ medical plan, you may be able to avoid the expense of enrolling in your employer’s medical/dental plan (dependents can remain on a plan until age 26).
Step 6: Prepare for the Shock of Net Pay
You can use a payroll calculator to estimate your net paycheck after federal and state taxes—or just wait for that first paycheck.
If this is truly your first paycheck, prepare yourself for the shock of ‘net’ pay. And maybe take a moment to thank your parents for everything they covered growing up.
If this is your first job in high school, you might realize it takes a week of work to pay for that sushi dinner you took for granted all those years.
Step 7: Make Your Savings Decision Now
You opened a savings account in step 3. Now it is time to make a commitment to save (this may not be applicable yet if you are applying all extra money to pay down debt).
Ultimately you want to work towards saving 10-20% of your paycheck — this does include any contribution to a 401(k) plan. At a minimum, put $25-50 into savings. Anything is better than nothing!
Step 8: Automate Your Savings
Hopefully you handled this when setting up your direct deposit with your employer. If not, it is not too late to make changes to your direct deposit information or set up an automatic transfer from your checking account to your savings account.
The Day Your First Paycheck Arrives
Your first paycheck has arrived — now what?
Verify the Amount
Make sure your paystub matches the amount you received and make sure all of your deductions look correct.
Prepare Your Budget
Now that you know what your net pay looks like, it is time to build that budget.
See also: Budgeting 101
One Size Doesn’t Fit All: High School vs. Post-College
Your priorities will be different if this is your first job in high school or if this is your first career job out of college.
If you are in high school, build a savings habit and work towards any short or long-term goals you may have.
If this is your first career job, prioritize your retirement savings, build an emergency fund and work towards allocating a portion of your paycheck to beginning to build wealth.
A Note for Parents (And Kids)
If you have covered most expenses for your child up to this point—gas, insurance, cell phone—do not expect their first paycheck to automatically shift their mindset.
They may assume 100% of their paycheck is ‘theirs’ while core expenses are still yours. That isn’t entitlement—it’s expectation built from experience.
The first paycheck is more than a financial milestone for your child. It is a responsibility milestone.
A good way to handle this milestone is to slowly transition some expenses to your child over time. Even if you can afford the expenses, a transition will prepare them for adulthood and teach them about budgeting.
Another approach, especially if you can afford it, is to set aside the money they give you toward bills in a savings account for them.
Your Future Self is Counting On You
When life gets hard — and it will — financial stress can be crippling and make things exponentially worse.
The savings habit you build with this first paycheck may be the difference between weathering life’s storm or drowning in them.
Your future self is rooting for you — and so am I. Take the right steps today, and cheers to a bright future.
