Disclaimer: Upstart is not a financial advisor, the following content is for informational purposes only.
Congrats, you got your cap and gown and a job! Now what? The habits you develop when you start your first job are important. What you do now can potentially put you in a great position to be financially successful for your entire career.
Today’s economic circumstances may make establishing a financial plan a bit unpredictable. Stay positive and consider using this time to develop solid practices to set yourself up for success. There are plenty of decisions new grads should consider to build wealth and have financial security. Seize the opportunity to get ahead while you’re starting out!
Consider starting a budget
Take the time to organize your monthly spending and categorize your expenses. Calculate how much you need to set aside for rent, utilities, groceries, gas, and other monthly bills.
Consider organizing your budget in a spreadsheet or downloading a budget app. Lay out your plan and adjust spending allocations after 1-2 months if necessary, once you get an idea of the amount you need to spend for each category.
Try to tackle debt – especially student loans
Starting your first job out of college is a great time to get ahead on paying down any student loan debt. Use a student loan calculator to determine exactly how much you will pay over time if you make more than the minimum payment. If your grace period extends after graduation, take advantage of this interest-free time to get ahead on repayment.
Address other debts as well. If you have outstanding balances on any high interest credit cards, set some money aside in your budget to pay them down.
Consider auto-transfer for a savings account and try to start saving
What should you do with the left-over money from that budget you set above? Start saving! To stay on track with your financial goals, consider setting up an auto-transfer to your savings account.
When you’re planning how much you want to save, think ahead a few years. If you’re looking to buy a house or vehicle, the savings you start now can make that possible sooner than you think!
Try to start funding for retirement early
Take advantage of this time to max out your retirement accounts with any additional income. A good practice is to plan on saving 15% of your income for retirement. If your company offers a 401(k) match, open an account and contribute as much as you can to maximize the amount invested. Plan to put any bonuses or extra funds into your retirement accounts through the year.
Consider opening a Roth IRA and making the maximum annual contribution if you’re able. A Roth IRA is funded from your post-tax income and you won’t be taxed on the withdrawals if you wait until retirement age. A Roth IRA is a great option for those just starting out, as the money you put toward retirement at a young age will only have more time to compound if you start now.
Consider opening a high interest savings account for your emergency fund
Consider setting up a high yield savings account to help your money grow faster. Some banks even provide cash incentives and user-friendly dashboards for linking other accounts.
This separate savings account would be a great place for your emergency fund. Aim to have at least six months to a year’s worth of savings set aside, in the event of unexpected circumstances. Keeping this money in a separate account will ensure you don’t spend it unintentionally.
Live within your means – Try to avoid financial pitfalls
Try not to spend more than you earn. If you’re in the habit of using credit cards, spend with caution. Do your best to avoid impulsive purchases and pay off your cards as soon as possible, before any interest accrues. Develop good spending habits now, so you can capitalize on your current income and save for the future.
Do your research
Read books, articles, and blogs to stay up-to-date on financial tips and market activity. Don’t be afraid to seek advice! Ask trusted mentors or family members what they wish they had known. Do research so you can develop a financial plan that makes sense for you.
Most of all, don’t wait! Establish a strong budget and savings plan to make the most of your money as you start your first job. The habits you establish now will set a foundation for your financial future. Good luck, and congratulations!