Congrats! You’ve landed your first “real” job and are now earning a regular paycheck. After many years of studying and preparation, it’s time to put your feet up and ask others to fetch the coffee. You’ve probably already discovered it really doesn’t work that way! But while the executive boardroom could be a few years down the road, there are some money basics you can adopt now to make the most of your new income and help secure your financial future.
Budget, budget, budget
Can we say it again? Budget. Yes, it’s very tempting to just pay for rent, groceries and utilities, and then let the good times roll. But you’ll have more control over your money and be less prone to racking up debt if you set a budget and stick with it. It means prioritizing your expenses so you can make saving an automatic habit, like brushing your teeth. Think of regular savings as paying yourself! Tracking your income and expenses every month can also help stop you from racking up credit card debt and driving yourself down a financial dead end.
Picture yourself at 60
You probably don’t want to think about retirement at this point. But if you start saving toward it now, you could have a big chunk of change when that time eventually rolls around. The longer you save, the longer compound growth can work for you on building capital.
If your company offers a retirement plan like a 401(k), sign up today and contribute as much as your budget allows. If your employer offers matching contributions, consider saving enough to get the maximum match. This can help build your savings even faster. Also, contributing to a workplace retirement plan gives you some great tax advantages. Contributions lower your current taxable income, reducing what you owe to Uncle Sam.
If you don’t have a workplace plan, or want to save more than your plan’s limits, consider speaking with a financial advisor to discuss whether an Individual Retirement Account (IRA) is right for you. A Traditional IRA can give you an up-front tax deduction if you meet certain income qualifications, and a Roth IRA provides a source of tax-free income for qualified distributions in retirement. Think about cash value life insurance as a means to help protect your family’s financial future.
Do your homework
Retirement plans like 401(k)s and IRAs require you to make your own investment decisions. Income tax will be due when you withdraw money and if you withdraw before age 59½, there will also be an IRS 10% penalty tax unless an exception applies.
You’ll want to monitor your investments to make sure they keep performing over time. A little reading and research on the basics of investing can go a long way toward helping you make the right decisions.
Your first job is a big step to building the career and the life you want. Establishing good financial habits now will give you even more options later. You’ll thank yourself for it down the road.
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. We recommend that you consult an independent legal or financial advisor for specific advice about your individual situation.
The tax information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
Securities and investment advisory services offered through Voya Financial Advisors, Inc. member SIPC.
Neither Voya nor its affiliated companies provide tax or legal advice. Please consult with your tax and legal advisors regarding your individual situation.