First Job: Stack the Financial Deck in Your Favor

You’ve had your first career rite of passage and gotten your first real job offer. It feels great to know that you’ll finally have a steady stream of income, medical benefits, and even some paid time off. Your first job represents the start of your “adult life”, and is the time to start building the financial future of which you’ve dreamed.

See the Big Picture

Part of being professionally savvy is being aware of the ins and outs of the industry you’ll work in, and recognizing opportunities. While it’s important to negotiate for the salary your skills command, the truth is, your first (or first few jobs), will never feel like they pay enough. While it can be tempting to follow the money, resist the urge to evaluate an opportunity on salary alone. Evaluate the long-term potential a job may provide in giving you the career you want, decades from now. Consider what a role can contribute to your knowledge, growth, industry connections, and exposure and involvement in major projects.  Those factors are just as important as salary when it comes to long-term career building.

Now and Later

When you command a steady salary, you need a solid financial strategy. Budgeting is really just another word for planning, and it may take a few rounds of trial and error to find what works for you. Whatever your system, ensure that you have enough money coming in each month to cover the necessities and expenses, and find a way to track where the rest goes.  “The three big necessities in life are food, clothing and shelter. This does not mean gourmet dining, a trendy wardrobe and a mini-mansion are necessities,” says Kevin Gallegos, a consumer finances expert and vice president of Phoenix operations for Freedom Debt Relief. “Many financial experts agree that your home and utilities should cost 30 percent of your income or less.”

Remember that you will also need enough money to pay at least the minimum amount due on credit cards bills or loans (although you should aim to slash the debt as much as you can, even if that means temporarily taking on a second job). “Paying down credit card debt is one of the best investments you could ever make,” says Gallegos. If you can’t resist spending when you have a credit card, buy only in cash, and keep the plastic stored away.

If you have student loans, educate yourself on your loans’ terms and commit to paying them off quickly to avoid additional interest. Gallegos adds that  “some professions have programs that help repay student loans, whether in monthly assistance, one-time payoffs, or matching funds.” Look into any potential arrangements that exist with your employer or industry, and remember to take advantage of the tax benefits associated with student debt.

Pay Yourself

Money is tight when you’re just starting out, but regardless of income, everyone should be a saver—even if all you can spare is a few dollars each paycheck. (Aim for ten percent of your paycheck if you can). Your efforts are valuable for two reasons. First, saving is a learned behavior. Most people don’t find themselves in debt because they don’t make enough money; they spend more than they make, and don’t save enough. Create healthy habits early on.

Don’t discount the notion of compound interest, either. A person who saves just $20 of each bi-weekly paycheck, earning one percent interest in a savings account, will accumulate $5,218 over the next 10 years, according to MSN Money calculators. Gallegos suggests using the money you save initially to build an emergency fund. Once that is accomplished, you might later consider investing for even more long-term growth, or using the money towards a large down payment for your first house.

Think Ahead

Nathan Vanderploeg, founder of CapitalWise Educational Services, says that although retirement may seem like the least of your concerns at this stage in life, passing on a 401(k), especially when your employer offers a match, is giving up free money.

If your employer does not offer to a 401(k) match, contributing to it is still beneficial. Vanderploeg explains that your 401(k) contributions will not be subject to any income tax in the year you contribute (you’ll pay the taxes when you retire).  Better yet, the earlier you invest in a 401(k), the more money you’ll have later. A 25-year-old with a 401(k) worth $4,000 could have an account worth $128,000 by the age of 65, assuming a conservative average annual investment return of eight percent.

Plan for Expenses

Many people unknowingly fall into debt from an innocent misstep: failure to plan for irregular expenses. When expenses like weddings, car insurance, trips to the vet, and the holidays hit, those who haven’t planned and saved for such occasions in advance find themselves with no choice but to charge the expenses, initiating a downward spiral into debt. Gallegos suggests “estimating the annual total of such expenses, and dividing it by 12 (the number of months in the year). Add it into the budget as an ‘expense’ and commit to saving that amount each month, so that you’re prepared when the times come.”

Stephanie Taylor Christensen is a former financial services marketer based in Columbus, OH. The founder of Wellness On Less, she also writes on small business, consumer interest, wellness, career and personal finance topics.