I don’t know about in your family but in mine there comes a time when our children begin taking those first steps toward adulthood. They may be graduating from school like Charlie did, starting their first job which Charlie did have, receiving that very first paycheck, or trying to figure out how to pay their own bills.
As parents, we want them to succeed, but we also know there are lessons about money that they need to learn along the way. Getting that first paycheck is exciting. It can also be tempting to start spending money on everything you’ve been wanting. However, learning how to manage money early can make a difference for years to come. Just ask Charlie.
That’s why I was interested in hearing from Stephen Dissette about three important financial rules young adults should understand before entering the workforce. From learning to save money to understanding taxes and keeping debt manageable, these are conversations worth having before the bills begin piling up.
Today, we’re sharing Stephen’s advice in a written Q&A to help young adults understand some of the financial decisions they’ll face as they begin building their futures.
Meet Stephen Dissette
Stephen Dissette is an Investment Advisor Representative with Horter Investment Management. He graduated from Northwestern University and served as an officer in the United States Navy. Stephen’s interest in helping people prepare for retirement began with his own family experiences. As a young boy, he watched his grandfather work until his final days because he was unable to retire. His father also had to continue working into his 70s. Those experiences inspired Stephen’s passion for helping pre-retirees and retirees work toward their preferred financial futures. You can learn more about Stephen and his work at StephenDissette.com.
The 3 Financial Rules Every Young Adult Must Know Before Entering the Workforce
1. For a young adult receiving their first paycheck, what does “paying yourself first” look like in practical terms, and how much should they try to save?
Stephen Dissette:– Paying yourself first in practical terms means setting aside a portion of your income for savings or investments before you pay any bills or discretionary expenses. Setting up an automatic transfer from your checking to your savings account every payday is the most effective way to do this.
To start out, this is a good way to create an emergency fund, which ultimately should have about three to six months of income. For retirement planning, if a 401(k) is available, choose a percentage out of your salary that you will put into the company plan. If there is a company match, it would be ideal to do at least what your company matches. As for how much to save, the general rule of thumb is to aim for at least 20 percent, but for a young adult just starting out, starting with any consistent amount, even five or ten percent, builds a vital habit.
2. Many young adults misunderstand tax brackets. What should they know about how income taxes work and how a raise might affect their take-home pay?
Stephen Dissette:– They should understand that we use a progressive tax system, meaning only the income that falls into a higher bracket is taxed at that higher rate. A raise will never result in a lower take-home pay, as the increased tax only applies to the additional earnings.
3. What is a debt-to-income ratio, and how can young adults keep theirs manageable when considering
Stephen Dissette: A debt-to-income ratio is the percentage of one’s gross monthly income that goes toward paying debts. To keep it manageable, young adults should aim to keep this ratio low, prioritize paying off high-interest credit cards first, and avoid taking on new debt for non-essential items, especially before applying for a mortgage or car loan.
4. What are some common financial mistakes you see young adults make during their first years of employment, and how can they avoid them?
Stephen Dissette: Common mistakes include lifestyle inflation, not starting a retirement fund early enough to take advantage of time and compound interest, and failing to build an emergency fund. Additional mistakes include not tracking expenses. They can avoid this by first creating a realistic written “spending plan.” I prefer not to use the word budget, as it often creates a negative emotion in people, feeling like they have to tighten their belt too tight to enjoy life.
These mistakes can also be avoided by automating savings and living below their means. One of the biggest “budget busters” that I see, especially with young people, is entertainment and eating out. Not only is it wise financially to keep a cap in that area, but also would improve their health as well.
5. If a young adult can establish just three financial habits during their first year in the workforce, which would you recommend and why?
Stephen Dissette: The three most critical habits are automating savings to ensure you pay yourself first, living below your means through a strictly followed written “spending plan,” and immediately building an emergency fund to protect against unexpected expenses.
I recommend those three because they form the foundation of financial stability and long-term security. Automation removes the temptation to spend, a “spending plan” prevents you from living beyond your means, and an emergency fund prevents you from relying on debt when life happens.
Greatful Thoughts: Lessons That Last Beyond the First Paycheck– One thing I appreciate about Stephen’s advice is that it reminds us that financial responsibility isn’t just about how much money someone earns. It’s also about the habits they develop and the choices they make with the money they have.
That first paycheck can feel like a little taste of freedom. After all, you’ve worked for it, and it’s natural to want to enjoy some of what you’ve earned. There’s nothing wrong with enjoying your money, but learning to save a portion of it before spending the rest can help create a foundation for the future.
I also like Stephen’s suggestion of a written spending plan. Sometimes, the word budget makes us feel as though we’re being told we can’t have anything fun. But knowing where our money goes can help us make room for the things we enjoy while still preparing for the unexpected. And let’s be honest: unexpected expenses happen. Cars need repairs, appliances stop working, and life doesn’t always follow the plan we had in mind. Having money set aside can help keep one unexpected bill from turning into a pile of debt.
For parents, these are valuable conversations to have with our young adults. We may not be able to make every financial decision for them, and eventually, they have to learn to stand on their own two feet. However, we can share what we’ve learned, encourage good habits, and remind them that building a secure future starts with the choices they make today.
Thank you to Stephen Dissette for sharing his advice with Greatful Moments. I hope this Q&A encourages young adults who are entering the workforce, as well as parents who are helping their children navigate those first financial milestones. Remember, you don’t have to have everything figured out with that first paycheck. Start with a plan, build good habits, and give yourself room to learn along the way.
Grateful, Thankful, and Blessed.
GreatfulMoments.com
Thank you,
Glenda, Charlie and David Cates
