Landing a new job is a pivotal moment in your financial life—especially when it’s your first job. And this salary surge brings a ton of potential. But while you’re getting your feet wet in your new role, tasks like setting up a 401(k) and structuring a budget can fall by the wayside. That could be an expensive miss.
We tapped a few experts to help you lay out five powerful money moves for when you enter the workforce. This way, your nest egg can thrive right along with your career.
1. Discover Hidden Employee Benefits
Congrats, you got the job! Now for the not-so-exciting part: wading through a mind-numbing benefits packet. “It can trigger information overload very quickly,” says David Lewis, president and chief executive of the HR consulting firm OperationsInc. Research suggests this leads to poor decision-making or procrastination.
But little-known employee perks can have big payoffs. Think tax-advanced accounts for health, child care, and transportation expenses. Discounts on cell phone plans and gym memberships. Tuition assistance. And free or low-cost disability and group life insurance, just to name a few common offerings.
Take time to digest the material before acting—a study found that distancing yourself from information overload helps. Just don’t wait too long: “Most employers give you up to 30 days from your start date to enroll in benefits programs,” Lewis says.
2. Navigate Your Health-Care Options
Here’s the 101 on health insurance, one of the most important decisions on your plate: “Due to the Affordable Care Act, regular checkups are covered under any plan, often in full,” Lewis says. “For other services, most plans contain an out-of-pocket deductible, which essentially means that coverage doesn’t kick in until you spend that amount.” And that’s on top of the premium, a monthly fee you pay the insurance company.
When weighing your options, “consider what kind of coverage you might need above and beyond a yearly physical,” Lewis says. Crunch the numbers to see what your costs would be under each plan, given your medical needs.
Still unsure? Make an appointment with HR. Although they can’t legally advise you, they can walk you through the offerings in detail. Even better: If you have a financial advisor, ask them to eyeball the enrollment packet.
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3. Set Yourself Up for Retirement
Want to earn extra cash, easy? Many employers will match your contribution to a company-offered 401(k) retirement savings plan up to a certain amount (often around 3 percent of your salary). Skipping out is like leaving free money on the table.
Many companies offer two types of 401(k) plans: traditional and Roth. “With a traditional plan, taxes are deducted when you withdraw the money, while contributions to a Roth plan are taxed up front,” says Britton Gregory, a certified financial planner and principal at Seaborn Financial, LLC in Austin, Texas.
If this isn’t your first job, now is also a good time to think about what to do with that 401(k) from your previous employer. Check out our guide on that here.
4. Kick Off an Emergency Fund
An emergency cash stash is like a financial life vest in case you’re faced with an unexpected medical issue or job loss. “It should be sufficient to maintain your current lifestyle for three to six months,” says Joshua Escalante Troesh, a registered investment advisor and president of Purposeful Strategic Partners in Rancho Cucamonga, California.
He urges new hires to aim to contribute 10 percent of their income until they’ve amassed three months’ worth of salary, then drop the amount down until the six-month mark.
5. Hammer Out a Budget
Even if your new job comes with a pay bump, do what you can to rein in lifestyle creep. “Building a robust budget when you get your first job is a powerful jump-start for the rest of your life,” says Troesh, who is also a professor at El Camino College. “Find the balance between living comfortably, yet frugally.”
After you’ve created a practical living plan, list your financial goals—from a yearly vacation to starting your own biz—and order them according to your priorities. Figure out how much you’d need to put aside to achieve each of your goals by its target date.
And very importantly, avoid comparing yourself to coworkers. “They may be driving fancier cars or living in nicer neighborhoods,” Troesh says. “But [keeping up with the Joneses] will set you back in the long run.”
March 21, 2019