Success! You landed your first job right out of college. You chose to start working right away instead of a post graduation trip.
Your hard work has paid off by you securing your first step on the career ladder, now it is the time to make building good financial habits.
Too often, people who draw a paycheck from their first full-time job forget that they need to manage their careers just like a business. They adopt a “wait and see” attitude about promotions rather than proactively planning for the next step. They also allow the luster to be diminished on their greatest product – themselves.
Here’s how to make the most of your new job and some financial advice to help your career and life.
1. Run Your Career Like a Business
Companies use a business plan to chart their course for the next several years. They establish the sales level they want to achieve in two years, five years, or ten years. They then take a realistic look at what is needed to reach those levels.
You should ask yourself what job you want to have in the future the moment you start your first real job. Set timelines, such as five and ten years, that are the target dates for working in those positions. Analyze what you need to reach your goals. Do you need additional certification or training to be a strong candidate for the job? If so, how will you pay for the courses in both time and money? Are there personal attributes you need to address, such as “people skills” or a tendency to arrive late at the office? Lay out your plan and begin working on the next promotion and raise as soon as you receive the last one.
2. Save for Retirement
The first financial habit to start you should do is start saving for your retirement. This is something a lot of 20 somethings won’t bother with or prioritize, but by contributing to your company sponsored 401(k) now, it will save you a lot of money in the future. Due to the power of compounding, the longer you give your money to grow the more you will have in 40 years. Often most companies match your 401(k) contributions, i.e. if you contribute 5% of your salary they will also match 5%. Ensure that you don’t lose out on matching contributions, which is essentially a risk-free return on your money.
- Assumptions: Current 401(k) balance: $0 Years to invest: 38 Annual rate of return: 8% Annual Salary: $44,350 Expected annual salary increase: 0% Percent to contribute: 5% Your 401(k) contribution*: $2,217.50 per year Your employer’s 401(k) match: $2,217.5 0 This is a 100% employer matchup to a maximum of 5% of your annual salary. Total you will contribute: $84,265.00 Total without employer match: $509,468 Total at age 60: $1,018,935
For example, if you are a newly employed graduate with a starting salary of $44,350 and your employer offers to match your contributions to your 401(k) by 5% what would you do? Ideally, you would contribute 5%, at least. This may not seem like a lot but your 401(k) could be worth $1,018,935 after 38 years assuming an 8% annual rate of return. Yes, it really does make a difference!
3. Do research on Dividend-Paying Stocks
It’s been said that the average millionaire has seven streams of income. Dividend stocks are usually always in the mix. Dividend stocks are similar to regular shares of stock, but they pay you a small portion of the companies earnings monthly or quarterly. So it’s wise to build a portfolio or dividend paying stocks!
If you want to learn more about dividend investing, check out Acorns. What I like about Acorns is that they make it really easy to invest in stocks, while still having a plenty of features as you get more comfortable with investing. You can learn more about it in this Acorns review. Or, if you’re ready to sign up you can get started with a $5 sign up bonus.
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Although this may seem like an obvious step, it is one thing that many people struggle with following through and most avoid. Creating the financial habit of planning your spending and sticking to your budget will allow you to save more money. You can make a good salary and still end up in debt or with little to show for it.
Learning about budgeting for beginners is the key to building your wealth and taking control of your finances. If you do not know how to budget, find budgeting software and take classes about budgeting. Alternatively, offers a variety of free tools that you can use to help you get control of your budget. I recommend using Personal Capital’s net worth tracker to help you track your net worth and track your budgeting skills, plus it’s free. Alternatively, your church or bank may also offer budgeting classes.
5. Avoid Debt
Once you land your first job, limit the amount of debt that you take on from here on out. Other than buying an automobile or purchasing a home, you should try to limit buying unnecessary items and find ways to save.
With credit cards it can easy to buy a lot of credit, so a good rule of thumb is if you don’t have enough money to pay for the item in full then you can’t afford it. If you currently have credit card debt, personal loans or student loans work out a plan that will help you to pay off your debt more quickly. Your budget will help you to reach these goals. Take a minute to add up how much you owe in debt payments each month and then determine what you could do with the money if you debt free.
Financial Planning For Your First Job
Take a good look at the successful people in your industry, just as a business evaluates its competition. Analyze why they have succeeded and see if you possess the same qualities. Often, a promotion goes not to the absolute brightest candidate but the one who takes the necessary steps to market himself as the best choice. Position yourself so that when decisions are made, there is no more logical selection than to promote you.
Your first paycheck might buy you a round of drinks with your friends. Your second one though should be used to start building wealth. The most important thing you can do after getting your first job is starting to save for retirement. Having a regular paycheck and steady income provide you exactly what you need in order to start making sound financial decisions for the future. Lastly, remember that shouldn’t forget about side hustles. You can use sites like Beer Money and Hustler Gigs to help you make extra income in addition to your income from starting your first job.