You’ve landed your first “real” job and steady paychecks are an actual thing. The financial freedom and comfort might feel very real as you enter the workforce, but now it’s time to really set the stage for adulthood. Not to put too much pressure on you, but the foundation you build now can help set you up for success.
Here are some smart financial moves you should make when you’re just starting out.
TAKE A TEMPERATURE CHECK
Establishing credit was a to-do in college. Now, make sure your credit score is what you think it is. Run your credit report through one of the major credit agencies, and make sure everything is accurate. If something looks amiss, take care of business now.
SET GOALS AND MAKE AN ADULT BUDGET
Once you’re sure everything in your financial history is accurate, you’re ready to set goals. What do you want to do right away? What are the bigger things you might want to do in the future? An adult budget is about prioritizing how you’ll pay for the things you need and want both now and in the future. That means figuring out what it will cost you to live (your housing, food and transportation), and then dividing the rest for fun things now, and saving for long-term goals. A financial planner or professional can help you think through how everything fits into your budget.
START AN EMERGENCY FUND
With your goals set, you’re going to start saving for all the things you’ve planned for. But what about the things you don’t plan for? Say you get sick and you have a hospital bill, or your cell phone breaks and you need to buy a new one tomorrow. Where will the money come from? That’s right, your emergency fund.
One of the most important things you can do to set yourself up for financial success is to get in the habit of saving a little every month for things you don’t plan for. A good rule of thumb is to get a month of expenses saved up before you start saving for any other goals. After that, you can start saving for other goals, while still saving into your emergency fund. You should shoot to eventually get enough saved for six months of expenses.
PAY DOWN DEBT, AND BE CAREFUL ABOUT TAKING ON MORE
While certain debt, like a mortgage or a car loan can be a good thing, avoid high-interest credit card debt or anything similar. Yes, you’re young, and you should have fun, but try to avoid putting a $10,000 charge on your credit card if you can’t afford to pay it off any time soon.
If you have debt, work to pay off debts with the highest interest rate first (probably your credit card), while still making the minimum payments on other debts like student loans. If you have high-interest credit card debt, generally it’s a good idea to try to pay it off within two years.
PROTECT YOURSELF
You’re on your own now. That means you need to support yourself with the money you’re earning. What happens if you’re in a car accident tomorrow and you can’t go to work for a year or more? Disability insurance can make up for most of your lost income. You may get some through work, but likely only enough to make up a portion of your salary. You can buy more though a private insurer.
START SAVING FOR RETIREMENT
Yes, you read that right. It seems insane to start saving for something that might be four decades off, but it’s actually the best time since the money you save now will have such a long period of time to grow. If your company has a 401(k), make sure you’re contributing enough to take advantage of your company’s match (matching = free money). But even if you don’t have a company match, contribute anyway. And if you don’t have a 401(k) at work, there are other options like an IRA. It’s a good idea to start saving at least 6 percent of your salary for the first year and increase your contributions a little each year when you get a raise.