So you’ve finally landed your first full time job? Congratulations on reaching a major milestone! What comes next? Here are a few steps that will help start you on the right path financially:
1. Budget Yourself
Now that you are receiving paychecks regularly, it’s time to sit down and work on a budget. The first step is to identify how much money you have coming in. You want to use your net income then subtract all of your expenses including rent, utilities, car payments, food, and entertainment. If you’re spending more than you are taking in you need to cut down expenses any way possible. A budget is like a road map to your financial goals; do your best to stick to it and refer back to it consistently.
2. Build up an Emergency Fund
An emergency fund is a cash reserve saved for just what it sounds like, emergencies. The recommended amount to have in this reserve is 3-6 months of living expenses. Living expenses are expenses you cannot forego such as rent, car payments, and food. So if you need $2,000 each month for living expenses you should consider a cash reserve of between $6,000 and $12,000. These savings can be used in case of a sudden loss of employment or other circumstances that stop incoming paychecks.
3. Choose your Health Plan
Health insurance is now mandatory and can be costly through the marketplace so if your employer offers health insurance that is great news. When choosing your plan you want to consider your medical history and potential medical needs. There are four different kinds of plans: HMO’s, PPO’s, EPO’s, and POS’s, all of which provide different kinds of coverage and benefits. The most common two are HMO’s (Health Maintenance Organization) and PPO’s (Preferred Provider Organization). If you choose an HMO, your premiums will be lower but you will be limited to seeing in network providers only. If you go with a PPO, you substitute the lower premiums for having the option to see any doctor you want. To find out more about health plans and which one will be best for you, click here.
4. Get your Retirement In Order
We have previously written about the benefits of participating in your employer sponsored retirement plan here. If your employer matches make sure you contribute at least up to that match. This is essentially a way to earn free money towards your retirement. You can read more about how contributions work here. Consider other vehicles when saving for retirement such as individual retirement accounts, both traditional and Roth. Contributing to an IRA can have tremendous benefits, such as tax deferment in the case of a traditional IRA or letting your money grow tax free in the case of a Roth IRA. To learn more about IRA’s, we go over them in detail here. The earlier you begin saving for retirement the better and you are giving yourself the advantage of time, the most powerful tool in investing. A Retirement calculator can be useful to see the effects of time and interest on your savings. Follow this link to try one out, https://connect.emaplan.com/2kp.
Landing your first job can be exciting but also overwhelming. Following these steps can help you get off to a great start financially. If you have any questions about planning for you future or need help when starting your new job, feel free to contact one of our advisors. Good Luck!