You’re Starting Your First “Real” Job! Now What?

By Dawn Kellogg

Congratulations! You’ve just landed your first “real” job! You’re excited, thinking about having that first regular income and all the benefits that are included. Take a little time to bask in the joy of this accomplishment – you deserve it! As you are planning for that first day, there are a few things to keep in mind regarding your short and long-term financial goals.

Your first paycheck is almost certain to be larger than any that you received in the past for part-time work, and as your career progresses, you’ll likely earn more in the coming years of your working life. What will you do with your new “bounty?” How can you make the most of your steady income? What should you do to increase your financial literacy and set yourself up for financial success while avoiding pitfalls?

Here are some handy tips:

• Open checking and savings accounts. If you don’t already have one, open a checking and a savings account. Choose a bank or a credit union that fits your lifestyle.

• Set up direct deposit. If your employer offers direct deposit, set it up before you officially begin work. Many financial institutions waive fees if funds are directly deposited into your account and it’s really convenient for you as well! There’s no need to visit a branch to deposit your paycheck.

• Set up a 401k/403b. Take advantage of your employer’s offer of a retirement account. (I know, you’re thinking “Why do I need to start thinking about retirement? I just started my career!”) However, you need to plan for retirement as early as possible. We are all living longer and it’s likely that you will need a good retirement plan if you want to live comfortably after you stop working. Many employers offer a matching contribution up to a certain percentage, so don’t leave free money on the table. Your retirement account stays with you, so even if you change jobs, the money is yours.

• Set up regular savings contributions. It’s really easy to find ways to spend all that money that’s suddenly appearing in your account, but this is a great opportunity to build your savings. In addition to contributing to your retirement account, you should build up some ready cash in case you need it for emergencies or a big purchase. Whether you are able to set aside $20 or $200 per pay period, it’s never too early to start saving.

• Set up an HSA or FSA. If your employer offers a High Deductible Health Plan, you can also have pre-taxed deductions taken out of your paycheck and placed in a Health Savings Account or Flexible Savings Account. These accounts are specifically designed to help you save for medical expenses that aren’t covered by insurance such as co-pays or deductibles. (Note: In New York State, unmarried children can apply to remain on their parents’ health plan until the age of 30. If you are covered by your parents’ health plan, you cannot contribute to an HSA or FSA.)

• Address any debt. Most young people entering the workforce have some form of debt, whether it is a student loan or lingering credit card debt.  It’s important to pay these debts off as you are able. Carrying debt long term not only inhibits your ability to save but will affect your credit score.  Look for opportunities to decrease the interest rate on your debt. Many financial institutions have balance transfer offers that can save you money over time.

• If you don’t already have one, apply for a credit card. This is not to suggest that you can spend money that you don’t have, but having a credit card is a great way to build your credit. If you pay off your bill in full and on time each month, you’ll build your credit score so that when you do have a bigger purchase like a car or house, you’ll be in a good position to do so.

• Have goals. Differentiate between short and long-term goals. Creating savings buckets will help you compartmentalize and ultimately reach those goals. Whether your goal is to erase debt or save up for a vacation or for your own apartment, it’s important to have goals.

• Avoid lifestyle inflation. It may be tempting with your new-found income to spend money but remember to live within your means. This doesn’t mean that you can’t allow yourself a reward now and then but be smart and just say ‘no’ to unwise purchases.

Dawn Kellogg is the Public Relations and Community Engagement Specialist at The Summit Federal Credit Union.