Years ago, in the fall after graduation, I had been out of college for five months and working full time for three. I was making more money than I ever had in my life, and had no idea what to do with it. Then I read The Automatic Millionaire  and The Money Book for the Young, Fabulous and Broke , and turned to the web for even more financial advice.
Now I’m managing my budget , saving for multiple goals , paying off my student loan  as fast as possible, and contributing as much as I can to my retirement funds. But for a little while there, I was just earning and spending without a plan. Below, I highlight a few mistakes that I made – and that I’ve watched friends make as well – as well as ways to fix them. If there are new earners out there looking for advice, I hope these can help! And of course many of them can be applied to just about anyone.
1. View your paycheck as “so much money.”
Problem: Whether it’s $25,000 or $80,000 your annual salary probably sounds like a huge number to you. It’s easy to think you have all the money in the world to spend frivolously. But by the time you divide that number by 24 or 26 (depending on how often you are paid ), and take out taxes  and your portion of any benefits (such as health insurance premiums ), your take home pay isn’t nearly as much as you expected.
The solution: Wait until you are working for at least a month so that you can get an idea of how much you are spending, and understand how much you will actually see each time you get paid. Then use the two amounts to draw up a reasonable budget  that allows you to meet all obligations without turning to credit. If you find yourself a little short on money, look for ways to decrease your outflow , like bringing your lunch, or increase your inflow . Make sure to allow for short- and long-term savings too!
2. Purchase a new work wardrobe and full apartment’s worth of furniture all at once.
Problem: You have a new job and a new apartment—and you want to use your new paycheck to look the part of the successful professional. So you go out and buy a whole new wardrobe and multiple pieces of brand new furniture. The only problem? You’re spending so much money on clothing and furniture, you don’t have much left for anything else. Or worse, you don’t have enough money to buy those things at all, and are turning to credit to finance them instead.
The solution: Purchase just the essentials  up front, and add a little more with each paycheck. When you do buy, visit the outlet mall (my mom and I had a great bonding experience there before I started my job!) or online discount sites (my bedroom furniture all came from overstock.com ). Buy a couple skirts/pairs of pants in neutral colors like black, grey and khaki. Buy shirts/blouses that can match any of the bottoms, and mix and match to create multiple outfits. For furniture, all you really need up front is a bed. As time goes on you can add a couch, coffee tables, dressers, etc. I used plastic stackable drawers for a few weeks until my dresser was set up! Commit to spending no more than a certain dollar amount or percentage of each paycheck, and stick to it. And when you have enough to get you through – stop buying and use that money for something else!
3. Think you’re too young for words like “retirement” or “emergency” to be in your vocabulary.
Problem: You’re only 22 (or 25, or 28), and retirement is seemingly light years away. What’s more, your definition of an emergency is not having shoes for an upcoming event, or missing out on tickets to see your favorite band. But your retirement savings have the most time to grow if you contribute when you’re young. And emergencies do come up even if you don’t have a house or family – a few examples are car failure, illness, or the need for a sudden flight home to deal with a family emergency. If you don’t make room in your budget for these types of savings now, it will never be easy to add them in later.
Solution: Build up an emergency fund  of at least 6 months of expenses. Start by contributing $25 or $50 per paycheck to a high-interest savings account . If that’s easy, increase your savings amount to $100 or more. In addition, commit to saving at least 10% of your income in a tax-advantaged retirement account like a 401(k) or Roth IRA . If you can’t afford 10%, try to start with enough to get your full employer match if you are entitled to one. If you can’t afford that much, start with 1 or 2%. The point is, start. Good habits now will stick with you throughout life. And once you start putting aside money before you have the chance to spend it, you’d be surprised at how much you don’t miss it. Once you start try to save 1% more each year .
4. Live like your friends, regardless of salary differences.
Problem: You work for a non-profit, and your friends…don’t. It’s easy to feel the need to meet them for nice dinners, buy an iPhone (with expensive data plan), live in a bigger apartment, etc. But the reality is that living within your means is the only responsible thing to do.
The solution: As discussed earlier, create a budget and stick to it . If your friends are living a lifestyle you can’t afford, pick one or two times to join them and refrain from the rest. Alternatively, suggest some entertainment options that are more in your price range. Whatever you do, don’t let yourself feel inferior for living a less-flashy lifestyle. You have to do what makes sense for you. And it’s worth noting that these seemingly wealthy friends may not have the money to live said lifestyles any more than you do – so you’re really a step up by choosing to handle your money more responsibly. In the long run, you’ll be much better off.
5. Leave debt to pay later.
Problem: You have thousands of dollars in student loan , auto, and/or credit card debt that you think you can tackle “later” – you know, when you have “more money.”
The solution: Take it from me – you’ll never think you have quite enough money to do everything you want to do. But no matter how much (or little) you make, paying off debt should be at the top of your list. The longer you wait to pay off your debts, the more you’ll pay in interest. What’s more, outstanding debt could prevent you from getting approved for necessary credit (such as a mortgage) later in life. Commit to using a certain amount of your paycheck to pay off debt. Then create a plan to pay off your debts  as soon as possible using that money. As an added bonus, when you do make more money later, you’ll get to enjoy more of it since you’re not sending off debt payments!
6. Do it alone.
Problem: You think you can handle your money on your own – or even when you realize you might need help, you’re not sure where to turn.
Solution: Talk to your parents, other relatives, or older friends – they’ve been earning and spending money much longer than you! Get to the library and check out personal finance books . The two I mentioned above are great starts. Use online resources to learn. Lastly, seek out workshops or seminars targeted at young people. Your college or local non-profits are great places to start.
Earning your first “real” paycheck is an exciting time, but only if you handle it well. The younger you are when you start managing your money well, the better positioned you will be later in life. Take these and other money tips into consideration and you’ll be sitting pretty.
What other problems and solutions can you offer? Share them in the comments…and make an effort to start a conversation about financial management with any new earners you might know!