Did you recently graduate from college? The years after graduation are crucial not only for launching a
- Set up an emergency savings fund. This should be 3- 6 months of living expenses (not salary). If you encounter a financial emergency, this money will be extremely helpful.
- Save and invest for retirement as soon as you can. Time is your greatest advantage. Invest what you can, even if it’s not a lot. The earlier you begin saving for retirement, the more years your investment assets have to grow and compound. If you put off retirement planning until your forties (or later), you may end up having to devote huge portions of your income just to catch up, at a time when you may have to fund college educations, care for elderly parents or pay off a mortgage.
- Sign up for health insurance. Yes, entry-level paychecks can be meager and
electingto have health insurance taken out can make them even smaller. But this amount is minimal compared to the amount you will pay later if you experience an injury, illness or accident without health coverage. Also, remember that you can stay on the health insurance policy of parents until age 26 (in some states, insurers will let you stay on until 29 or 31). Of course, you will want to confirm this is the more frugal option. If you are in good health, a plan with a low monthly premium and high deductible may be right for you. 1,2
- Make a plan for repaying student debt. If you have student debt, give yourself a deadline to pay it off. You can nail down a reasonable timeline with the help of your financial planner. If your income changes due to a bonus or raise, you can discuss changing this timeline. If you have a federal loan balance that is unbearable, see if you qualify for an income-driven or graduated repayment plan. This could help to make your monthly payment more manageable. 3
- Be careful with credit cards. Credit cards can be great when used for airline points or cash back rewards. But think of your credit card as a debit card. Only buy what you can immediately pay off. If you are not cautious with your spending, debt can quickly accumulate. This balance can quickly grow due to accumulated interest charges if you don’t pay it off each month.
- Find out if your work matches retirement savings. Many companies will reward employees with matching retirement plan contributions. These contributions could be a percentage or even a dollar-for-dollar match. Make sure you aren’t passing up free money. If you are not yet eligible to contribute to the employee plan, consider saving on your own through a Roth or Traditional IRA.
- Ask for what you are worth. You may not feel ready to negotiate for a higher salary at your first job, but the time may be right a few years later. Jobvite, a maker of recruiting software, commissioned a survey on this topic last year and learned that only 29% of employees had engaged in salary negotiations at their current or most recent job. Of those who did, 84% were successful and walked away with greater pay.4
- Stay invested.The market goes up and down, sometimes to extremes, but historical analysis shows that when viewed in 10-year increments, investing in the market will historically provide positive returns. Remember that you are saving for the long run.5
Take small steps today that will help lay the foundation for a successful retirement. Your future self will thank you.