Humble Savers lists 5 ways to save a portion of your income during your first job:
- Start saving
- Avoid getting into debt for purchases that fall in value
- Challenge yourself – set some ambitious saving and investment goals
- Education – don’t stop learning
- Protect your most important asset
These are some great recommendations for those just entering the workforce. When I started my first real job after college, I wasn’t used to receiving a steady paycheck every two weeks that was larger than any paycheck I’d received before. I didn’t know anything about investing for retirement, putting aside money for emergencies, or strategies for paying off debt. It was very tempting to “reward” myself by getting some new clothes, furniture, or gadgets.
Luckily, my dad taught me a little about saving as a child and encouraged me to stay out of debt, so I didn’t enter the workforce with crushing levels of debt. I started reading everything I could about personal finance and learned everything I could about how to handle finances.
One of the most important things a new grad can do is to set up an automatic savings plan. Have a portion of your income taken out each month and put into a 401(k) or IRA. If you set this up to happen automatically, you won’t even see the money and thus won’t be tempted to spend it. Because of the power of compound interest, it’s so important to start saving right away. You can think of retirement savings as “paying yourself first”, before the bills and everything else gets paid.
Some types of debt may be necessary because you’re just starting out. A low-interest car loan or mortgage fall into this category. On the other hand, going into debt to acquire the latest gadget or fashion is a bad idea. For this type of purchase, it’s best to save up beforehand to avoid paying a 20% or higher interest rate on your credit card.
Many new grads are burnt out on reading or learning after graduation. But it’s a good idea to educate yourself on the basics such as investing, how loans and interest rates work, and other personal finance topics that are relevant to your situation. A little work now will benefit you tremendously in the long run.
Consider your future needs and wants. Where do you want to be 5 or 10 years down the road? Make a plan to get there, and put it into action.
Your career is your most important asset. Without it, you won’t bring in money to make your future wants and dreams a reality. For this reason, you need to have some level of short- and long-term disability insurance in case you’re unable to work for a period of time. You also need life insurance if you have anyone who depends on your income for survival.
You don’t have to start big. Take just one of these ideas and go from there. Your future self will thank you!
Photo by michaelcrane123