Young woman shopping for business clothes
03 Jun 2019

Best things to do with your first paycheck

It’s the end of your first month at work, and you’ve received your maiden paycheck. Ah, the first sure step towards financial independence! But before you run off to celebrate your shopping prowess, here are some ideas of what you could do with your first salary.

Building your stash: The 50/30/20 Rule

How much should you spend, and how much should you save? A good guide is to follow the 50/30/20 rule. First, divide your take-home salary into the following portions:

  • 50% - expenses on basic necessities
  • 30% - miscellaneous spending
  • 20% - savings and investments

Now we’ll look at what goes into each.

Budgeting: Master the big 50%

Fashionable work clothes on a rack

It’s perfectly fine to reward yourself for your hard work. However, prudence is key – without careful planning, your budget will quickly diminish. Besides the obvious essentials—food, transport, groceries, telco bills, rent (if you’re on your own), or allowance for the parents, prioritise things that make you happy and help in your growth.

For example, with your first paycheck, you could pay for a weekend class to keep learning new skills. Or you could invest in a good suit to add to your workplace wardrobe, that could aid your career growth.

The next 30%: reward yourself

The next 30 per cent can be used on “discretionary” spending or, simply put, what you allow yourself to splurge on. Brunch with the squad… after-work drinks… weekend getaways with the pals.

There is nothing wrong with rewarding yourself for all the hard work you put in – just make sure you spend within limits.

The final 20: savings and investments

Woman checking her savings account with POSB digibank

Starting your rainy-day fund

You need about three to six months’ savings to be termed ‘financially stable’. This means clear liquid money with zero debts to cover, saved up for emergency purposes. Life is full of surprises and you’ll never know when you’ll need the money. Your investments may form a part of this fund if they can be converted to cash quickly as and when needed.

If it helps, consider having two bank accounts: one for salary crediting and daily expenses, and the other to build your emergency fund.

Picking your money-making tools

Once you’ve settled the basics, look into growing your money. Learn how to make your money work harder, or speak to savvy friends or financial advisors on how your different spending and savings accounts should be set up.

You don’t need a lot of money to start investing. From just $100 a month, POSB Invest Saver lets you invest in Singapore bonds or blue chip companies. Attend investment classes and seminars to improve your knowledge. Learn risk management, and what kind of risk-taker you are.
Be inspired, numerous individuals such as Singapore serial entrepreneur Adam Khoo made his first million by age 26 through a combination of hard work, frugality, and shrewd investments.

You can also look into getting a basic insurance or investment-linked plan at this age, as premiums tend to be lower the earlier you start. Plus, having adequate coverage during emergencies allows you to remove one item from things to worry about.

Whatever your choice of investments, remember one magic word: Diversify. Spread your resources around. You could also use a part of your first paycheck to invest in others. While you can’t buy friends, you can buy that nice colleague who helped you out a good lunch, allowing you to build relationships and your professional network.

Stay debt-free

Getting financial advice from friends

If you start your early career with a few existing financial commitments—say a study loan—always aim to clear these as quickly as you can. Stick to a lean monthly budget, or use some of your savings to clear the debt (assuming it’s an easily cleared debt). And if you have multiple loans to clear, be diligent in setting aside funds each month to service your commitments – once a loan is cleared, use the balance funds to clear your other loans sooner.

The bottom line: be purposeful in how you spend your hard-earned money. While you’ve definitely earned the right to reward yourself with your first paycheck, cultivating a habit of prudent spending and financial discipline will be something your future self will definitely thank you for.

Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

Disclaimer for Investment and Life Insurance Products

Do more with your salary