First Things You Should Do When You Get Your First JobSubmitted by Tidemark Financial Partners on August 6th, 2018
Getting that first job is a huge milestone in what you hope to be a long and prosperous life. Although it is likely to be the first of many jobs you’ll have, you need to view it as an important stepping stone on your path to career and financial success.
You don’t want to look back after many years wishing you had done things differently. The compounding effect of missed opportunities can prove costly over time. Now is the time to set the wheels in motion for securing your financial future because, the longer you wait, the steeper your climb.
Here are the first things you should do when you get your first job.
Enroll in the 401(k) plan
When offered a chance to enroll in their employer’s 401(k) plan, many young adults choose not to because they say they have other priorities to save for and that they have plenty of time to save for retirement. While that may be true, they are missing out on one of their best opportunities to jump start their retirement savings with their employer’s help. Most employers offer a contribution match of between three and six percent of compensation.
In addition, by starting your retirement savings early, you will have that much more time to allow the magic of compounding do its work. You will never have this much time again and, the more it is wasted, the more money you will need to save for retirement. Consider the following example:
With his first job, Ryan starts contributing $10,000 a year to his retirement plan at age 25, but he stops saving at age 45.
After graduating, Ben enjoys the good life and waits until he turns 45 to start saving. He starts contributing $10,000 to his retirement plan and continues until age 65.
Assuming they both earned 6% annually on their savings, after contributing the same amount to their plans, Ryan ends up with more than $1.3 million in his retirement account. Ben has just $400,000.
That is the true cost of waiting to take advantage of the power of compound interest.
If your employer doesn’t offer a 401(k), you can start your own IRA. You won’t have an employer matching contribution, but you will still have the advantage of time.
Establish a strict spending plan
After four or more years of delayed gratification as a college student, you may feel the need to pursue a lifestyle. However, this is the time to gain your financial footing, especially if you have student loan debt. As you start to earn more money, your financial responsibilities will increase, so there is never a good time to start getting ahead of the game. Now it the time to develop the spending habits that will benefit you for the rest of your life.
We don’t like to use the word “budget” because it is often viewed as punitive. It is actually a spending plan to allocate your spending based on your priorities and goals. Whatever your savings goals may be, the only way you can attain them is to live beneath your means. If you don’t have some purpose for your money, you are more likely to spend your next dollar on the pursuit of more, which rarely amounts to anything you can count on in the future.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.