If you've just started a new job, or you're new to earning an income, congrats! You may be intimidated by the idea of finally getting your finances in order - but you shouldn't be. Starting a new job can be an incredibly exciting time, and the good money habits you establish today can put you on a path to true financial independence.
Of course, after buying a new work wardrobe and putting down a deposit on a new apartment, you (and your wallet) may already feel exhausted. But keep your eyes on the prize. With a little financial planning, you'll be adding "money pro" to your resume in no time!
Create a Budget Based On Your Priorities
When that first paycheck deposits into your account, it's time to start budgeting. "If you learn to keep track of your spending, set intentions for how you want to use your money in the coming months and years, and then stick to that plan. You will feel more financially secure and capable," says Kelley Holland, financial coach and author of the book "You Are Worthy." "Having a budget - or, as I prefer to call it, a statement of intent - will help you plan for future goals like buying a home."
But where, exactly, do you start with a budget? To make sure you can meet all your financial goals, your budget will need to include all the necessary spending categories, such as housing, utilities, groceries, transportation, insurance, and entertainment. Depending on your financial situation, you may also need to add a category for debt, including student loan payments and credit card debt.
You'll then need to compare your expenses to your income, and see where things are aligned, or where you may need to cut back. For example, if you notice that you don't have enough money leftover every month to contribute to your retirement account (more on that later) then you may need to cut back on entertainment, or make a few more affordable swaps when grocery shopping.
In a perfect world, your budget will also have a category for savings, including retirement, emergency fund contributions, and maybe even a savings account for that fun vacation you've been wanting to take. Speaking of which.....
Have a Plan for a Rainy Day
When you're first starting a new job, you'll likely have a ton of competing priorities, including student debt repayment, a new car payment, or other one-time expenses like furniture for your new place. Yes, it's a lot, but this doesn't mean you should skip creating an emergency fund. "Put aside a portion of your paycheck in a savings or money market account as a rainy-day fund until you accumulate six to nine months' worth of expenses," says Faron Daugs, a certified financial planner and CEO of Harrison Wallace Financial Group. "This money can be used for emergencies and/or opportunities that you couldn't anticipate or prepare for in advance."
If six to nine months' worth of expenses sounds impossible right now, don't let that stop you from getting started. Even just a few dollars every month can get you closer to your goal of having financial security should anything ever happen to your job.
Employer-Sponsored Retirement Benefits
"If your new employer offers a retirement plan, like a 401(k) or 403(b), sign up ASAP," says Kendall Meade, a certified financial planner at SoFi.
"If your employer offers a match on your 401(k), you should treat it as free money and leverage this benefit as much as is feasible for your financial circumstances," she says. In other words, you should maximize your own contributions to ensure you don't leave money on the table. This may mean making a few sacrifices here and there to prioritize your savings, but we promise your 50-year-old self will appreciate your efforts!
"It can be challenging as a young professional with limited earnings to prioritize savings," says certified public accountant and CFO of Petit Mort magazine, Mia Lee. "However, remember that every dollar you save in your early years will grow significantly more than dollars saved later in life."
If your employer doesn't offer a retirement account, don't worry. Look into opening an IRA and try to contribute as much as you can. For IRAs, the contribution limits for 2024 are $7,000 if you're under 50, or $8,000 if you're 50 or older. For 401(k) and 403(b)s, contribution limits are $23,000 for people under 50, and $30,500 for people 50 and over.
Eliminate Debt
If you left college with a mountain of student loan debt, first of all, take a deep breath. It can feel daunting - because it is - but creating a financial strategy to keep it under control is vital. "The key here is to be as aggressive as your income allows," urges Julia Pham, certified financial planner at Halbert Hargrove. "If you're not sure where to begin, start by prioritizing debt with the highest interest rate."
"All other things being equal, this will save you money in interest payments over time. Consider automating your payments so you never miss one," Pham says.
Resist the Urge to Upgrade
Have you ever heard the saying, 'Keeping Up With the Joneses'? The story goes like this: You find yourself with wealthy neighbors - the Jones family. They get a new car, so you have to get a new car. They remodel the kitchen, so you want a new kitchen, too... And on and on, until you find yourself completely broke. Of course these days, we may be more influenced by the people we see on social media than our next-door neighbors, but the impact is the same: Spending too much money on things we don't need can be detrimental to our financial safety net.
Meade suggests that as you receive promotions, raises, or bonuses in your new job, try to save the majority of them. "It can be tempting to get a bigger house or a newer car, but saving this money serves two purposes: it prevents lifestyle inflation and keeps your expenses lower," she says. "This means you will need less money to replace your current lifestyle in retirement, and it allows you to save more money which can be invested and grow over time."
Check In On Your Finances Regularly - And Keep Learning
As your job and you life evolve, you'll continually need to re-assess where your money is going, and check in on your account (ahem, like retirement) to ensure you're making progress towards your bigger life goals. Your annual salary and life needs will fluctuate, which is why it's so important to adapt your budget accordingly.
A big part of learning to adapt financially at every stage is continuing to learn and empower yourself with knowledge. Every year, try to allocate a small portion of your budget towards education. Every year, try to allocate a small portion of your budget towards education. This can include books, classes, or financial coaching. Remember, anything that enhances your money skills and helps you increase your long-term earning potential is never a bad investment!
