Landing that first big job out of college is a major accomplishment, and a huge landmark in a young person’s life—it’s the culmination of many years of hard work, and in many cases, lifelong dreams that have been fulfilled.
In my work with young professionals, I see some common threads in planning concerns. When someone is finally out on their own, has their own place, and their first high-paying job, I often am asked what they should be doing from a planning standpoint. Following are a few thoughts and observations:
· If you have student loans, design a plan to pay them down. Work on the highest interest loans first if you can pay extra, and pay those off, then work on the next ones. This also goes for any credit card debt you may have accumulated during college. Craft a monthly budget for paying off revolving debt and stick to it.
· Resist the temptation for new, big purchases. There is plenty of time to buy a nice car and have that fancy condo; immediately putting yourself in a financial bind can lead to years of financial stress.
· Start building an emergency fund. The goal is to have an emergency fund of six to twelve months of cash in the bank for emergency expenses. This could be new tires, a refrigerator that goes out, or any number of things. Remember, you’re out on your own now, and your new-found freedom brings a lot of expenses.
· Take advantage of any match available in your employer’s retirement plan. If your new employer has a retirement plan that matches your contributions, contribute at least what you need to in order to get the full match. This is basically “free money” your employer is giving you for participating in the retirement plan, so you don’t want to leave it on the table. In addition, if a Roth option is available, this may be a good choice…while you don’t receive a tax advantage on the contribution, your money grows tax-deferred, and you will not be taxed on the withdrawals.
· Be aware of the insurance available to you through your employer, and eliminate the “disability gap”. Most employers will have life and disability insurance available to you at little or no cost. Most employer disability plans do not cover your entire income, and the benefit they pay is taxable. This can create a serious shortfall in income should you become disabled. For more information on this, see this link.
Of course, this article only touches on a few of the issues graduates are hit with as they begin their working lives. It’s an exciting time, full of opportunity and new adventures. With proper planning, this time can lay the groundwork for a lifetime of financial success. If you would like to discuss planning for your future, feel free to contact me.
Monte Miller (865) 776-5577 firstname.lastname@example.org