Welcome to our very first personal finance column at Indy Maven. We’ll be tackling many of the money issues facing women today—from retirement savings to mortgages. But we’d also love to get hear what your questions are and what topics you’d like to see covered. Email us at firstname.lastname@example.org! This week, Zina Kumok tackles some of the financial decisions to make at your first “real” job—or even your fourth or fifth.
No one feels ready for their first “real” job. It’s totally normal to show up on your first day feeling like a kid pretending to be a grownup.
Becoming a full-fledged adult is a gradual process, accomplished by consistently making responsible choices and rising to meet the challenges you come across. That starts by figuring out what needs to be done and…well, just doing it.
For starters, let’s look at some basic ways to get your financial house in order. Here’s what you should be doing during your first week on the job.
Open a Retirement Account
The best thing to do after starting a new job is to examine your retirement plan options. Many companies offer a 401(k), which is a retirement account only available through your employer. You often have to spend a certain amount of time with a company before you become eligible for a 401(k), but sometimes you can qualify right away.
Some firms contribute to their employee’s 401(k) accounts, usually requiring that the employee contribute some of their own money in order to be eligible. A common rule is that the company will match up to 50% of what the employee contributes, usually between 6 to 10% of their salary.
It’s a good idea to save as much as you need to get the company match. Otherwise, you’re just passing up free money—and who wants to do that?
Save between 10 to 15% of your income for retirement if you can. If that doesn’t work with your budget, then pick a more feasible amount and start there. Building a nest egg isn’t about how much you can save, but how long you can save. It’s better to start with $25 or $50 a month now instead of waiting five years until you can afford to do $200.
That’s because the power of compound interest rewards those who start saving early. Let’s say you invest $50 a month for five years and earn 7% interest. After five years, you increase the monthly contributions to $100 which you do for 25 years. You end up with $102,155.69.
If you hadn’t started investing with $50 a month, you’d only have $81,490.92 after 25 years. That’s a $20,000 difference.
Check Your Benefits
Health insurance is the second-most important thing to consider when starting a new job. Almost two-thirds of all bankruptcies are related to medical costs, so it’s important to find quality coverage as soon as possible.
You can still qualify for your parent’s health insurance coverage if you’re 26 or younger— assuming they don’t kick you off the plan—but anyone else should see what their new employer offers. You may only have a month after starting the job to pick a health insurance plan.
Those who are young and healthy should choose a high-deductible plan with lower premiums. Anyone with a chronic condition or an upcoming surgery will be better off with a silver or gold plan with higher premiums and a lower deductible.
Other company benefits may include tuition reimbursement for grad school, a discounted gym membership, or student loan repayment assistance. Ask the HR department what benefits and perks are available.
Make a Budget
Now that you’re making real money, it’s time to create a budget. A budget divides your salary between bills, debts, saving and other expenses. You can create a budget using a spreadsheet-based system like Tiller or an app like Mint.
Many people don’t like making a budget because it feels too restrictive, but a smart budget is anything but. It’s just a way to make sure you’re reaching short and long-term goals, like buying a house, paying off debt or saving for a vacation, while still leaving room for the things you love most.
Zina Kumok is a freelance writer in Indianapolis who paid off $28,000 worth of student loans in three years. As a journalist, she’s covered everything from murder trials to the Final Four. Find her financial coaching business at ConsciousCoins.com.