Congratulations on landing your first post-graduation job. It isn’t an easy task, and that paycheck brings new responsibilities (outside of paying off student loans) that you may not have anticipated. Even if you received a stellar education, university courses don’t usually incorporate information about basic financial literacy.
A few simple steps will help you get on the right track to managing your finances. First things first: If you don’t already have one, open a checking account. Once that’s done, here’s what you can do to set the stage for your financial life.
Most businesses pay their employees twice a month — and the quickest and most efficient way to get your money is via direct deposit, which routes your paycheck straight into your bank account. It’s easy, convenient and can help you avoid a bank’s monthly maintenance fees.
Setup is simple: Ask your company’s human resource department for the enrollment form; fill it out with your bank account information — usually bank name, account number and routing number — and attach a paper check. Some banks even offer early access to direct deposited funds, meaning you could get paid two to three days in advance.
Creating a budget can help you keep track of your money and identify your spending in different categories like groceries, bills, entertainment and gas. Without a financial game plan, it can be too easy to overspend. Though some budgeting methods are more exhaustive than others, yours doesn’t have to be any more complicated than it needs to be. In fact, your budget can be a loose set of guidelines or allocations. According to the 50-30-20 rule, 50% of your income should go toward needs, 30% towards wants and 20% toward savings. Simple. And there are a handful of budgeting apps that are easy to use, can import your income and expenses effortlessly and can accommodate a variety of financial styles.
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As the pandemic — and its continuing aftermath — have underscored, advance preparation can help you navigate life’s inevitable ups and downs. Andy Taylor, CEO and founder of Douugh, a banking and investing app, believes in the importance of emergency funds: “By preparing for the unexpected, you have a way to survive without setting yourself back, or worse, putting the expense on credit and going into debt.”
Preparation is best when you start early, and you can start an emergency fund with your next paycheck. Set aside as much as you can to build a fund that can cover your expenses when disaster strikes, whether it’s unemployment, a medical emergency or a needed car repair. A basic emergency fund should have enough to pay your living expenses for one to two months; having enough to cover you for six months would be ideal. And the funds should be easily accessible, kept in a high-yield savings account or money market account.
Read more: Investing for Beginners: Everything Experts Want You to Know for 2022
If your company offers a retirement plan, such as a 401(k) program, consider enrolling and contributing a modest percentage of every paycheck. Contributions are taken from your pre-tax income and invested in the stock market. Some employers may match your contributions up to a certain percentage of your income. If yours does, take advantage of it — it’s free money.
In addition to maxing out your 401(k), it’s worth your while to explore other types of investment accounts such as individual retirement accounts, 529(k)s, and health saving accounts. All of them offer tax advantages that will enhance your financial position.
A good credit score is essential to many milestones: buying a new car, renting an apartment and buying a home. Most recent college graduates won’t have much of a credit history and it can take time to build one. One of the quickest and easiest ways to do it is to get a credit card. (Here’s how to pick the right one for you.)
Credit cards let you borrow money to purchase goods and services. Though you don’t always have to pay them off every month, you should — the interest rates are onerous and can add up quickly. Though it may be difficult to get approved without a credit history, there are credit cards geared specifically for students. Another option is a secured credit card, which requires an upfront security deposit; your “credit limit” is usually equal to the amount you deposit.