By: Michael Crotty
If you’ve just found your first ‘real job,’ congratulations! Are you already thinking about what you’ll do with your first ‘real’ paycheck? If you make some smart money decisions now, you can reap so many rewards later.
Here’s 6 financial steps that you can take at the beginning of your career, starting with your job interview!
- Negotiate your salary. Did you know you can do that, even as an entry-level worker? Most young people don’t, but we recommend that everyone who looks for work, no matter their level, should research the average salary for the position they want to gain a clearer idea of expectations and what offers might be falling short. Then have a conversation with your recruiter; let them know what you’d like to receive and see how they counter; you might be surprised! Even better, learning how to negotiate early in life is a skill that can benefit you throughout your career.
- Sign up for a 401(k), and if your employer offers a match, take it! A 401(k) plan is a retirement savings plan, where you agree to have a percentage of each paycheck paid directly into an investment account. Just having a 401(k) is already a smart start, but when an employer offers to match contributions, it’s a home run. According to Investopedia, the most common match is 50 cents on the dollar; so, for every $1 you contribute to your company 401(k), your company will contribute 50 cents. That’s free retirement money at your fingertips! Remember: the earlier you start, the better off you’ll be by the time you’re eying retirement, even if it feels eons away.
- Understand how your taxes will work from the moment you sign your W4 form. This form that every employee must fill out to determine the amount of taxes that are withheld from each paycheck. Your withholding counts toward paying the annual income tax bill that you calculate when you file your tax return for the year. The more accurately you fill it out, the less you will owe when you file annual income taxes.
For most, it’s straightforward: if you’re single, don’t have dependents, have one job, and you aren’t claiming tax credits or deductions, then all you must do is fill in your name, address, Social Security number, and filing status, then sign and date the form. If, however, you have dependents, a spouse with earnings, or plan to claim any tax credits or deductions, then things get a little more complex, and you’ll have to provide more information. Also, a good rule of thumb moving forward is to never ‘depend’ on your tax return as a windfall, because it will fluctuate every year!
- Review your Long-Term Disability Insurance in your Group Benefits. It is typical that your Employer will provide 60% of your base salary for coverage paid by the employer. That is a great start for coverage. In most cases that will not be enough coverage if you were fully disabled. If your employer allows you to buy up more coverage, take advantage of that option. There may also be an option to pay for your coverage which would make the benefit tax free. This takes a 60% benefit and makes it a larger benefit. The key is to understand your options and make sure you have enough coverage for your situation. Good protection planning is vital even for younger professionals, so it’s important to understand your options!
- Watch videos or read articles on how to create a budget that works with your new job. First, write down your fixed monthly bills, like rent, student loan payment, car insurance, utilities, cell phone plan, etc. Second, add up your monthly expenses that can vary, such as groceries, clothing, or other activities where you could technically cut back spending as needed. Now, add the two together, and subtract the amount from your take-home pay to determine your discretionary income. If it’s tighter than you expect, what can you adjust, so you meet step #5?
- Start a savings account to cover short-term expenses in case your circumstances change. After you determine your discretionary income, think about much of it you want to save every month. This is an important step, because the future is uncertain. A car accident, a broken phone to replace, or other circumstances can quickly add up. Be proactive and avoid debt before it happens with a healthy savings account at the ready. If you’re worried about temptation, or forgetting to put money aside every month, consider setting up an automatic transfer into your savings account. It’ll help you avoid impulse buys!
Looking for more advice and guidance on how to start your career on the best financial footing? G9 Financial is open to new clients; click through to make an introductory appointment.