Few things are more exciting than getting your first job. There is a feeling of independence, maturity, and responsibility that comes with donning a uniform, clocking in, and serving others. One of the most exciting parts of getting a job is getting a paycheck! Your own money! It is easy to spend that paycheck on things that make you happy (this is the voice of experience speaking). I submit that buying things that make you happy is a legitimate part working; however, with a paycheck comes some obligations. I’d like to share my thoughts on how to best use those precious pay checks.
You must have a budget. You must write that budget down on a piece of paper (or on a spreadsheet in the computer). A budget in your head is nothing more than a dream! US News and World Report states 5 reasons you need a budget:
- To set and reach financial goals. Once you understand the overall picture of your finances–specifically, identifying how money flows in and out of your life–you can better see how to reach your financial goals.
- To spend according to your priorities. If you’re in the dark about how much you spend and where you spend it, changing you habits will be difficult. And even if you’re financially comfortable, a budget can help you identify unnecessary expenditures and deduce ways to redirect funds towards your priorities.
- To build wealth. Once you have a clear view of your overall financial picture, you can shift your focus to aggressively eliminating debts and building wealth.
- To plan for retirement. Though technically an aspect of building wealth, retirement planning is so vital to your future that it warrants special attention. A recent Harris poll showed that 34 percent of Americans have no retirement savings, and many of those that do have a retirement fund don’t contribute enough.
- For peace of mind. If you don’t have a budget, you might not know whether you can afford a new flat-screen TV, a new car, or any other major purchase. In fact, if your finances are one big mystery, your mere desire for an item might alone justify the expense.
Spend less than you make. Consumer debt will lead you down a path of bondage. Remember that “the borrower is servant to the lender” (Proverbs 22:7). You will never become wealthy (or have feel the associated feeling of financial peace) if you spend more than you make.
Pay an honest tithing. “Bring ye all the tithes into the storehouse, that there may be meat in mine house, and prove me now herewith, saith the Lord of hosts, if I will not open you the windows of heaven, and pour you out a blessing, that there shall not be room enough to receive it” (Malichi 3:10). Tithing is a temporal commandment with temporal and spiritual blessings.
What is an honest tithe? It is 10% of your interest and increase.
Elder John A. Widtsoe explained: “Tithing means one-tenth. Those who give less do not really pay tithing; they are lesser contributors to the Latter-day cause of the Lord. Tithing means one-tenth of a person’s income, interest, or increase. The merchant should pay tithing upon the net income of his business, the farmer upon the net income of his farming operations; the wage earner or salaried man upon the wage or salary earned by him. Out of the remaining nine-tenths he pays his current expenses…etc. To deduct living costs…and similar expenses from the income and pay tithing upon the remainder does not conform to the Lord’s commandment. Under such a system most people would show nothing on which to pay tithing. There is really no place for quibbling on this point. Tithing should be given upon the basis of our full earned income. If the nature of a business requires special interpretation, the tithe payer should consult the father of his ward, the bishop.” (emphasis added, Evidences and Reconciliations,2:86, quoted in D&C Student Manual)
Save for a rainy day. You should save at least 10% of your paycheck for a rainy day. When you are younger and have less financial obligations, you could easily double that savings to 20%. Many financial experts agree that a wise steward will have 3 months of income saved for a rainy day.
Prepare for future obligations. There are some things you know that you will want to do with your life: college, mission, car, trips, etc. If you save for these events, then you’ll be able to accomplish them without acquiring debt. Again, I lean on the magic number of 10% for this area of the budget.
Have fun (and be responsible). You worked hard for your money…now enjoy it! Buy a book, see a movie, go on a date. Do something that makes you happy. Money won’t buy happiness, but it doesn’t hurt to have some lying around.
One of the financial experts I respect is Dave Ramsey. Here is a graphic from his website regarding a good budget breakdown:
Notice the column for charity comes first (that is tithing). Second is savings (always pay yourself before you pay “the man.” Next is housing at 25%, then utilities, transportation, and medical. At the end of the month, you’ll still be left with 33% of your budget.