5 things to do with your money when you get your first job – The Washington Post | Vette Leader

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I dance spontaneously because my son finally found a full-time job 15 months after high school – like a real job.

After Labor Day, he starts as a chartered accountant at an accounting firm. His younger sister, who graduated last spring, is also starting a new job. She is a kindergarten teacher. Now all three of my 20-year-old children – the eldest is a therapist – are full-time employees.

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Next comes the part where my husband and I show them what to do with their real job money. And by “genuine” we elders don’t mean disrespect. But it gets real when your paycheck gets split for expenses your parents used to pay for.

Our children know how to save and spend well. Their money management training started as soon as they could speak and started asking for things.

However, our finance lesson is not over yet. I figured that after 25 years of her mother writing a personal finance column and her being dragged to finance workshops, once her mother started working full-time she wouldn’t need much guidance.

Gen Z thinks, “The money will come back.” Will it?

Practice is always more difficult than theory.

So here are five things you can do with your money when you land your first full-time job.

Automate your savings instantly

You are now in the big savings leagues. You’re not saving for short-term goals like an outfit or a concert.

Your roommate might move out unexpectedly and you’ll have to pay the entire rent. There will be a $1,500 car repair. Maybe a down payment on a home in the years to come. Maybe you want to start a small business.

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Choose to divert a certain percentage of your salary into savings each pay period.

Yes, every single paycheck.

The best way to ensure you aren’t tempted to deduct a paycheck from saving is to instruct your employer to transfer a portion of your paycheck to a special savings account or accounts.

Right now it’s more about establishing a lifelong saving habit than how much you save. Push yourself. Start by saving a standard dollar amount or a percentage of each paycheck – 3 to 5 percent.

If you don’t develop a saving habit now, it will become harder to practice later as your paychecks get bigger. More money, more temptation to live beyond his means.

Set up different accounts for your money

No, not this pot. (I get high from saving.)

I like having different pots of money. It helps me break down my savings goals. It also prevents me from diving into a specific pot for something I don’t need.

I automatically put my paycheck into three bank accounts — a checking account from which I pay household expenses, an emergency fund set up with a credit union (in case I lose my job), and a “life events” fund to cover such unexpected expenses as a big one car repair.

Alternatively, you can do what my governor’s daughter does. She set up an automatic transfer from her main checking account to a savings account at another bank. She says she wants to see all the money before it’s sent to her various pots.

I only have an ATM card with me for the household account.

With the advent of payment apps, bypassing the ATM strategy is now easy. So when you download the apps for your financial institutions onto your mobile device, discipline yourself not to click money from your savings accounts on a whim. Do not connect paid apps to your savings pots.

Start saving for retirement now

Do you want to be a 401(k) millionaire?

Aim to put at least 15 percent of your gross income into your retirement plan as soon as possible, a percentage recommended by Fidelity Investments, one of the largest workplace plan managers. The 15 percent may include a combination of what you pay in and a matching contribution from your employer.

If you can’t contribute that much, start with 3 to 5 percent and then increase your contribution when you get a raise or bonus.

What you need to know about setting up a 401(k) for your first job

If your first employer doesn’t offer a 401(k) or similar workplace plan, you can still save for retirement through a traditional IRA or a Roth IRA. Instead of setting up an account with your employer, you need to contact a financial company and open a retirement account. For 2022, the annual IRA contribution limit is $6,000.

One more thing, don’t cash out your retirement account when you move to another job. If you like the investment opportunities at your old job, cut the money. If not, you may be able to transfer the money to your new employer plan or a rollover IRA.

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If you came out of college with debt, make paying it back a priority. If you have credit card debt, rising interest rates make it even more important to get rid of it now.

Use your 20s to get out of debt, which gets more expensive the longer it lasts.

The focus on debt could mean less money to save for retirement. That’s okay. They still have decades to catch up. The caveat is, if your employer offers a supplement to your retirement plan, put in enough to get the supplement. Then, after deducting expenses, focus the rest of your extra funds on paying down the debt.

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Don’t spend what you don’t have to

Keep the rattle car you drove.

You don’t have to dress to impress. One thing we’ve learned from the pandemic is that your workwear doesn’t define you or your success.

In the US, financial independence is considered unattainable without a life of your own, even if it means being crushed by exorbitant housing and living expenses. You don’t fail as an adult if you can live at home. It’s an opportunity to build a savings cushion or pay down your debt.

If inflation is higher, it makes economic sense to live with your parents

Adult children can also save on health insurance premiums by staying on their parents’ plan, provided the parents are willing and can afford to keep dependent child insurance.

Generally, under the Affordable Care Act, you can stay on your parents’ plan until you turn 26, even if your employer offers coverage.

However, make sure you have access to the same provider network if you don’t live in the same area as your parents.

Do all of these things now and you will position yourself for real prosperity.

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