You’ve nabbed your first big job! Congrats! It’s a huge milestone that calls for celebration. You’re finally earning “real” money – what a thrill!
Getting hired for your first job after college is a big deal. But don’t be foolish now that you’re making the big bucks. Setting yourself up for long-term success is essential. Here are five things you should do to get into tip-top financial shape so you can prosper and enjoy that hard-earned cash.
Make A Financial Plan
The first big step to take once you’ve landed that first “real” job: make a plan for your life and your finances.
I know, BORING. But we all know people who float through life and don’t pay attention to their finances. They don’t have money when they really want (or need) it. That doesn’t have to be you!
Think about what you want for yourself next year. What about five years from now? Don’t just coast and go along with what your friends are doing. Take some time to plan and dream.
Is a pile of student loans crushing you? Is marriage, buying a house, or travel on the horizon? Making a game plan for your life will help you focus on what matters most and clarifies where you are now. Write down your financial essentials (rent, groceries, student loans) and your future goals and prioritize what you want and need to do. Create a monthly budget (which can include “fun” money) and then stick to it. You’ll appreciate yourself much later when you’re sitting on the beach or opening the door to your first house.
Build an Emergency Fund
You’ve likely heard that about half of Americans don’t have enough money for a small emergency. How stressful! We all have to be prepared for those little things that go wrong in life. Do you want a fender bender to rack up credit card interest? A minor medical bill to derail your budget for months?
Everyone needs an emergency fund. Even when you’re just starting and may not be making big bucks, it’s a necessary step. $1,000 is a great starter emergency fund, and you’ll eventually want to build that up to include 3-6 months’ worth of expenses.
Using a high-yield savings account is perfect for this. It helps keep your e-fund separate from your regular funds, plus the higher interest rate helps make your money work for you. So, get a savings account started immediately (like TODAY). It’s super simple to set one up online in minutes!
Don’t think you’re immune – emergencies will hit you, too! While you can’t always prevent them, you can ease the financial burden by socking away cash for those events.
Start Saving for Retirement
What? I just started my first real job, and you want me to think about retirement already?
Yup. You got that right. Starting your first job means it’s the perfect time to start planning for your future. In fact, socking money away in a work-sponsored retirement account is one of the best investments you can make!
Investing for retirement early in your career will set you up for success. Time is on your side, especially in your twenties! The magic of compound interest can turn your $10, $20, or $50 each month into serious money in thirty to forty years! If you save enough, you may even be able to retire early!
No matter how little the amount, when you give money time to grow in a Roth IRA or other investment account, every dollar multiplies. As your income goes up (and as you pay off debt), be sure to increase your investment contributions. And, of course, if your employer offers a 401(k) match, that’s a no-brainer benefit to snatch up! It’s free money!
Pay Off Student Loans Promptly
Another big step on the path to financial wellness is to pay off your student loans ASAP! With average loan balances in the tens of thousands, this aspect of your finances can’t be ignored.
The last thing you want to do is hang on to those babies for the next twenty or thirty years, right? They’ll hold you back from investing and serious fun. So, start paying a solid amount over the minimum on those loans right off the bat. Even an extra $5/month can shave thousands off your loans over time.
The sooner your loans are wiped out, the less you’ll fork over in interest payments. As your income increases, you should increase your monthly payment amount to knock out the debt faster.
Trust me, once your student loans are out of the way, the freedom will be intoxicating. No student loans in your name? Think what you could do with that money!
Act Your “Wage”
As an adult with a real job, you can use common sense with your money and not spend beyond your means. Act your “wage”, not just your age, by living a lifestyle that matches your income and financial situation.
So, your friends are beaching it up in Cancun next spring? That doesn’t mean you should be booking a ticket, too! Your college roomie just got a hot new car? That doesn’t mean you should saddle yourself with those hefty monthly payments.
Go back to that plan you made in the first step, and you’ll see what fits into your budget and what doesn’t. Someday, you’ll probably be earning more money than you are today, but you’ve got to live realistically in the meantime.
Create a reasonable budget that allows you to pay off debt and cover your basic needs. Then – here’s the key: follow the budget! Don’t be swayed into luxuries you can’t afford. (Hint: don’t let credit cards fool you into thinking you make more than you do!).
Some tips for keeping expenses low:
- Choose affordable housing or split costs by having roommates
- Drive an inexpensive used vehicle with good gas mileage
- Make an expensive night out a rare treat that you’ll look forward to
- Never say “but it’s only $20” (it adds up!)
It may feel impossible to squeeze a single dollar out of the budget after all the necessities. But trust me, you’ll thank yourself later if you get into the habit of saving and investing now.
Starting your first job can be daunting but putting a strong financial plan in place will be worth it!
Kate Underwood is a freelance writer and staff writer for Club Thrifty, a website dedicated to helping people dream big, spend less, and travel more.
Tell us your experiences with saving and investing after your first job (and give us your tips!) in the comments below!