Welcome to Your First Job: Here’s How to Manage Your Money From Day One by Kate Ashford

Hey, someone hired you. (Hallelujah!) Even more awesome: There’s a paycheck in your future! Before you think of all the ways to spend it, consider this: The habits you put in place now can set you up for a lifetime of successful money management. Follow these strategies to point you in the right direction. The future you will thank you.

1. Create a Budget

Your first paycheck can feel like an endless supply of cash, but it’ll go faster than you think. Start by entering your salary into a paycheck calculator like SmartAsset, which will calculate your take-home pay after taxes and other withholdings. “This will give you a good idea of what you will net,” says Melissa Sotudeh, a financial planner in Rockville, MD. “Taxes throw a lot of people for a loop.”

Then sit down and figure out how much you’ll spend on needs (groceries, commuting costs) vs. wants (concert tickets, an upgraded phone) each month. Tracking cash flow means you won’t find yourself in a situation where you’ve blown two weeks’ pay on dinners out and can’t pay your electric bill. “We’re talking rent, bills, and very specific line items. You can do it in Excel or on a piece of paper or use an app to see where your cash will go,” Sotudeh says.

Several apps can help: MintPersonal Capital, or YNAB (short for You Need a Budget).

2. Prepare to Pay Back Your Loans

If you’re coming out of school with loans, and chances are good you are (the average class of 2018 grad had nearly $30,000 in student loans), you’re most likely going to have to start paying them back six months after graduation, when the “grace period” ends. The good news is that there are more options than ever before to help you manage and pay back your student loan debt.

You can even refinance your loans into one monthly payment with a new servicer. “Refinancing is a great way to secure a lower interest or adjust your loan term to save money over the life of your loan,” says Alyssa Schaefer, CMO of Laurel Road, a digital lending company that offers student loan refinancing. “If you’ve been working for a few months to years and have had the opportunity to build credit, it’s a great idea to look into potential refinancing partners and, in many instances, you can view preliminary rates in minutes.”

Ask your HR department if they offer a refinancing program through partnerships with lenders such as Laurel Road. Many employers are now providing loan payback programs as a benefit just like health insurance, 401Ks, or paid time off. “The main goal should be developing a plan to pay that debt off on a schedule that aligns with your financial goals,” Schaefer says.

3. Plan Your Savings

When you start your job, you might have access to an employer-sponsored retirement account, such as a 401(k) plan. If you won’t have access to a 401(k), open a Roth IRA. To start, set aside as much of your paycheck as you can manage—at least as much as you need to max out any employer match, if one is offered. “If your company offers a 6 percent match, then start contributing to your retirement plan at 6 percent so you’re not leaving money on the table,” Sotudeh says.

If you have other savings goals (you want to buy a car; you’d like to go to Europe next year), decide how much you need to set aside each month for those as well, and plan to save that money as soon as you’re paid each month. An app like SmartyPig or Qapital can help you funnel your money into a designated account for those goals at regular intervals.

4. Start an Emergency Fund

Being out in the “real world” can come with surprises, from huge car repair bills to medical emergencies. And many of us aren’t ready for these budget crushers. In fact, a recent national survey by Laurel Road found that nearly two-thirds of millennials (61%) have less than $500 in an emergency fund.

Aim to have at least one to two months of living expenses in a savings account for emergencies, Sotudeh recommends. That way, a surprise expense won’t force you to whip out your credit card or derail your other financial plans. Start small: Set up automatic transfers from your checking account to an interest-earning savings account on paydays, in whatever amount you can afford, and you can build up those savings $20 or $50 at a time.

5. Build Your Credit History

Establishing a good credit score and a strong credit history can help you with all kinds of things, from renting an apartment to snagging a better rate on refinancing a student loan (and someday, a mortgage!).

A full 35 percent of your credit score comes from your payment history, so you can improve your credit by developing some solid habits. Start by making on-time payments every month on your credit card, and don’t miss payments. If you’re not carrying a balance, don’t start! “Responsible credit card usage means you’re not carrying a balance. Ever,” Sotudeh says. “You use it, you pay it off every month, and you monitor that.”

6. Pay Yourself First

You’re just getting started now, but someday soon, you’ll be getting a promotion, a raise, or a bonus (or all of the above!) to reward your hard work. Accelerate your savings with this smart advice from Schaefer: “Mentors of mine have drilled into me that you should always save at least 50% of every raise and 50% of every bonus. That way your savings will take a big jump, but you’ll still have some extra ‘fun money.’”

Sure, the boost from getting a raise is awesome—but you’ll feel even better knowing you’re laying a strong financial foundation for your future.

Original content from The Muse. 

By Jeanette Hickl
Jeanette Hickl Jeanette Hickl