So, you’ve finally done it. You graduated college, quit your part-time job, and scored a salary-paying nine-to-five. Now what?
Unfortunately, becoming an official adult comes with these pesky little things called responsibilities…crazy, right? You can try to ignore them if you want, but trust me when I say they really enjoy surprise-slapping you in the face. So instead of adopting the #YOLO philosophy that’s currently plaguing our generation, do your future self a favor by making smart financial decisions now — no matter how tempting a free-for-all shopping spree may be.
1. Max Out Your 401(k)
Retirement may not seem like something you need to be worrying about in your twenties, but it’s a lot harder to save a sizable amount at a realistic pace if you don’t start as young as possible. The good news is that most companies will match your 401(k) contribution up to a certain percentage (usually 4%). This means that if you contribute 4% of each paycheck to your 401(k), your employer will contribute 4% as well.
While you can contribute as much or as little as you wish, it’s wise to take advantage of this and contribute at least as much as your employer will match. It’s also good to begin contributing to this account as soon as you’re hired so you learn how to budget with your take-home pay and don’t feel like you’re taking a pay cut later.
2. Take Advantage of Your Benefits
One of the biggest benefits of having a full-time job is the availability of health insurance. Some employers offer extensive health benefits, while others may not. One of the best options available is setting up an HSA or FSA account to pay for doctor’s visits and prescriptions.
These special types of savings accounts allow you to put money in them before you’re taxed, which basically means you can save approximately 25% more on every dollar you earn. If you’ve been in the working world for any amount of time, you’ll quickly realize how much of your money goes to paying taxes — so any way around this is something you should definitely take advantage of.
3. Set up a Savings Account
Whether you want to save for a down payment on a car, take a trip to Paris, or you’re a chronic Christmas spender (guilty), your savings account should be your best friend. While credit cards can be helpful in certain circumstances, don’t use them as a way to enable your impulse spending and end up with a dark cloud of debt following you around. Instead, use direct deposit to put a certain amount in a separate savings account that is taken out from each paycheck before you ever see the money.
4. Create an Emergency Fund
It’s easy to think that something emergency-worthy will never happen to you, but the truth is that you can’t predict the future. Financial experts advise that you should put back enough money in a “rainy day account” to sustain you for at least three months in the case that for whatever reason you are unable to work for an extended period of time (because of losing your job, a death in the family, a medical condition, etc.). This money should be put in an account that is separate from your checking account and savings account. Better yet — put the money in a different bank to make it even less accessible.
Try to forget the money is even there so you’re never tempted to use it on something else. My financial advisor has also told me that to keep yourself from spending the money in your emergency fund on other things, you should write down 10 things that you would consider an “emergency” before you open the account. For example, unexpectedly losing your job would obviously be an emergency, but having to get new tires would logically not be since you should expect to replace your tires approximately every three years or so.
5. Open up a Roth IRA
While a 401(k) is a great way to invest in your retirement, there are many other ways that you can plan for your golden years. Ideally, you want to have one or two million dollars saved up to comfortably live without working for approximately 30 years. One way to achieve this is to invest your money in more than one account. A Roth IRA is a good supplement to a 401(k) because you put money into it after you’re taxed, meaning that whatever is in the account once you reach retirement age is 100% yours to keep. Money that is contributed to a 401(k), on the other hand, is pre-tax, meaning that it will be subjected to taxes once you begin to make withdrawals.
6. Make a Budget for Your Fixed Expenses
When you’re on a student’s income, it’s easy to just “wing it” and live paycheck to paycheck. But now that you have the means, creating a budget for yourself so you know exactly how much you need to cover your living expenses will help you to breathe easier. Once you have a salary, your paychecks will be exactly the same every month, so it makes it even easier to add up all of your fixed expenses (rent, utilities, car payment, insurance, groceries, and even Netflix) so you know how much should be set aside just to keep the roof over your head and food on the table.
If you live with your significant other, you may even want to put this money into a separate account to keep your living expenses separate from your “free money” — so you never end up short on rent because you ate out one too many times that month.
7. Pay Off Your Debts
Unfortunately, as much as we try to avoid it, most of us have at least one dark cloud of debt following us around for one reason or another. Whether you have student loans or way too many credit cards, now that you’re starting your career, make a plan to put it behind you as quickly as possible. Because of interest, it’s extremely easy for debt to accumulate and grow into a formidable monster if you don’t take control while you have the chance.
No matter how much you may think you need that new pair of shoes, make it a priority to put any leftover income each month toward paying off your existing debts before you start creating more.
8. Upgrade Your Wardrobe
Now that you have everything else covered (notice the order of this list!), maybe it’s time you take a look at your closet. If you’re anything like me, you may find that your college wardrobe isn’t transitioning very well now that you’re in the “real world.” But hey, that’s okay.
It just gives you an excuse to hit up your nearest Macy’s or Dillard’s and splurge a little bit on some new staple items (classic black pumps, nice blazer, go-to LBD) so you can look (and feel) like the adult that you are now — even if you’d rather keep wearing Nike shorts and oversized T-shirts forever.
9. Spoil Yourself (a Little)
Being an adult is hard. You deserve to do at least one thing for yourself now that you finally have a steady income. Go out and get that mani/pedi you could never afford in college, take a weekend getaway somewhere you always wanted to go, or buy that dress you’ve been eyeing for months but couldn’t justify spending so much on. It’s okay to reward yourself in small ways now that you’re financially able, just don’t get too carried away (remember that dark cloud of debt? Nobody likes that guy).