So you just landed a new job or got your first job. Congratulations. All those hours you spent on internships and resumes have really paid off. Now what?
Getting a job is the first step towards financial independence, but making money is not the same thing as managing your money. Before you start living large, here’s our strategic advice for making the most of this critical, money-growing time.
Sign up for that 401K. Ask about your company’s retirement benefits. If your company offers a 401(k), will it match your contributions? If it does, put aside the greatest percentage you can. Although your take-home pay will be less, so will your taxes, since that money isn’t taxable until you withdraw it. It is much easier to start putting money aside when you’re in your 20s than to try to catch up with retirement savings when you’re in your 30s and 40s.
If your company does not offer a 401(k), consider an IRA. They offer the same tax-free opportunity as a 401(k), but there are a few differences. First, you decide where to invest—not your company. That’s a good thing if you know about investing; otherwise let an expert advisor at Vanguard, Fidelity or Black Rock guide you. Second, if you want to draw from the account before you’re 59 ½, you’ll pay a 10 percent penalty.
Make sure you have health insurance. Review your company health insurance plan, and don’t forget about premiums, deductibles, the cost of prescriptions, and dental care.
If your employer doesn’t offer health insurance, it’s your responsibility to enroll in a health insurance policy or ask your parents to cover you, if you’re eligible.
Pay off your student debt.
If you have a single loan, it’s easy enough to figure out what you owe each month. But multiple loans complicate things. Work with your bank to set up auto payments so you don’t default—and you could get a slight rate deduction. Not sure how much of your salary to devote to tackling student debt? As a general rule, an affordable student loan payment should not exceed 8 to 10 percent of your monthly income.
Depending on the terms of the loan, it might be worthwhile to make extra payments on the loan with the highest interest rate. Many lenders offer a grace period of about six months before borrowers are required to start paying. If that’s you, start putting aside money during the grace period to use as an emergency fund later.
And if you’re having trouble making loan payments, look into loan forgiveness. Sometimes you can obtain it for choosing a job in a certain field, or by meeting other criteria.
Live as cheaply as possible. “The cheaper you can live, the greater your options,” Mark Cuban writes in How to Win at the Sport of Business. As a new college grad, the future entrepreneur, investor, and owner of the Dallas Mavericks owner slept on the couch or floor of an apartment he shared with roommates. He used the money he saved to invest in his first business, MicroSolutions.
He strongly recommends using any money you earn or save to pay off bills and debts, and to start building a nest egg. Eliminate that morning cup of joe at Starbucks. Make or bring your own lunch. Avoid taxis and take-out. Drop the gym membership to exercise or run outside. Shop in vintage stores, or swap items with friends, for must-have wardrobe splurges.
Avoid credit card debt. If you can’t pay for a purchase in full by the end of the month, don’t buy it with a credit card. Credit card debt comes with ridiculously high interest rates. The sale items you buy today could end up costing you much more over time. Do not use credit cards to fund an expensive lifestyle you can’t afford.
But you shouldn’t avoid credit cards completely either. Use them responsibly to build credit. A strong credit score could help you land a more favorable loan for a car or mortgage in the future. Landlords often require a credit check before they rent you an apartment.
Build up savings.
Stick to a budget—and live within your means. Apps like Mint and HelloWallet can help you manage your money, and keep track of your spending. Keeping a record of your expenses and deductions will come in handy at tax time. Keep receipts for transportation costs, wardrobe, computer and cell phone purchases, and software.
If you can swing it, start building an emergency fund with three to six months of salary. Online savings accounts offer some of the best interest rates around.
Invest in yourself. Collect as many experiences as possible. Take every opportunity to learn new skills and software on the job and off. "If you're starting your first job, you should seek to learn as much as possible, from as many contacts as possible so that you build a strong foundation for your career,” advises Dan Schawbel, author of Promote Yourself: The New Rules for Career Success. “Outside of work,” says Schawbel, “you should be brushing up on your skills by taking courses, reading books, and going to networking events so that you're more connected and become better at your job and future jobs." Check to see if your company offers tuition reimbursement or tuition assistance, paid time off, corporate discounts, bonuses, or any other employee benefits.
Use any trial periods to assess if the company is right for you. Sure, you’re there to prove your worth and value to the company, but it’s critical that you make sure the work environment is a good fit for you, too. Many folks are so focused on making it through the 60-day or 90-day trial period that they forget the period of evaluation goes both ways. Some headhunters will even tell you to keep looking for a job during your first few months on a job, just in case the current one doesn’t work out.
Don’t eat lunch alone. In his book, Never Eat Alone and Other Secrets to Success, Keith Ferrazzi encourages building relationships, as opposed to merely networking. He urges folks to take every opportunity to connect with others. Instead of eating lunch at your desk, he recommends asking a co-worker to join you and sitting together.
Because as everybody knows, your network is your net worth. The ability to build and maintain relationships is crucial to your personal and professional success. But if you’re only reaching out to contacts when you need something, you’re not getting the full benefit of a relationship or connection.
From this pool of contacts, you will choose a mentor, a person who can help guide you. A resourceful mentor can help you see the big picture, define your long-term and short-term career goals, and offer calm and wise perspective and advice in tricky situations.