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By Pam Leibfried
If you’ve just started your summer internship or are about to start one, you’ll soon receive your first internship paycheck – assuming your internship is a paid one, of course. If your internship is a full-time one, it’s likely that this initial payday represents the biggest paycheck of your life. Maybe you worked a summer job in the past, but at minimum wage. Or maybe previous summers were spent in summer school, which limited your work hours and thus lowered your income potential.
So what should you do with your internship paychecks? Obviously, you need to pay your bills – on time, every time to help establish a solid credit rating. Having a plan that includes budgeting of your expenses and income can help to put you in a better financial position by the end of the summer. But what if you don’t want to create a budget for your summer expenses?
If there is one key thing we recommend for you to do with each paycheck, whether you are following a budget or not, it’s this: pay yourself first!
What does it mean to “pay yourself first” in the context of money management? Although it sounds like it’s some touchy-feely wellness mantra, it really is a simple finance and budgeting concept. As soon as your paycheck lands in your checking account, put a portion of it aside into your savings account. Think of your savings account as a separate pot of money that is yours for your future, and think of your deposits into savings as payments you are making to your future self (i.e., you are paying yourself).
So that’s the “pay yourself” part of “pay yourself first,” but why should this payment to your savings account happen first – before you pay your bills or spend any of your paycheck? Wouldn’t it make more sense to pay your bills and save what’s left over?
That seems logical, but human nature often tempts us to act in ways that are decidedly not logical. Because we use checking accounts to pay bills and get cash, we tend to think of our checking account balance as “spendable” funds.
If that money is in a savings account, on the other hand, it is less likely that you’ll spend it. Having a separate account dedicated to a specific goal can make it easier to fight the urge to spend your saved dollars.
Are you saving for a specific purpose like your school expenses for next year, a spring break trip, a post-graduation car or future student loan payments? Label your savings account with that goal to help motivate you. For example, Alliant’s Supplemental Savings accounts can be given a customized name, like “2015-16 textbooks,” “spring break trip” or “car fund.”
A great way to make sure that you always pay yourself first is to automate the process. Here are two simple ways to automate.
Direct Deposit. To make it easier for employees to pay themselves first, some employers will split your paycheck into two direct deposits – one into savings and one into checking. But what if your employer doesn’t? No worries. Just set up a recurring transfer from your checking account to your savings account.
Funds transfers. In Alliant Online Banking, it’s easy to set up a recurring transfer. Click on Transfer Money, then fill out the transfer form. It’s a short, five-item form; just select “Recurring,” the “from” and “to” accounts (checking and savings, respectively, in this example) and how often you want the transfer made (monthly, every two weeks, etc.), then type in the amount you want transferred.
How much you can “pay yourself” from each paycheck will vary widely. Your expenses will be higher if you have to pay rent. And your rent costs will be different depending on the location of your internship. If you are interning in San Franscisco, for example, rent will eat up more of your paycheck than it will for someone interning in Madison, Wisconsin. And if you don’t have to pay rent, you can likely save hundreds more each month, as your cost of living will be much lower. My college-age nephew, for example, had an internship last summer just a few minutes from his parents’ house, so he was able to live at home.
Don’t get discouraged if your best friend who is also interning is saving lots more than you because she is living at home while you are paying rent. Just keep in mind that every little bit counts. Even if you can only save $25 a week, it will add up over the course of the summer. Over a 12-week internship, you’ll end up with $300 in savings, plus the dividends or interest you earn on that amount.
If you’re up for a challenge, try to gradually increase the amount that you save. If you were able to save $25 one week, maybe you could find a small cost-saving technique that would enable you to save $30 the following week. You’ll never know if it’s possible unless you try!