Congratulations, you've landed your first job! In addition to your new title, new workplace and new lifestyle, your job also gives you a golden opportunity to start your adult life on firm financial ground.
If you want to make the most of your income, here is a checklist of five smart money moves to put into practice now:
1. Get a firm grip on your wallet
"One of the biggest financial mistakes people make when starting a new job is overspending, especially if it is their first (job)," says David Bakke, contributor to the personal finance site MoneyCrashers.com. "It can be very tempting to spend money on items you probably don't need when you have a significant paycheck coming in for the first time."
Avoid the impulse to run out and buy a new flat-screen TV, tablet or smart phone. In addition, new workers should be careful not to fall into the trap of immediately buying a new car or even a house simply because their income now makes them eligible for a loan. A better option is to wait until you have accumulated some savings before making a major purchase or going on a spending spree.
It's also much easier to live within your means if you implement smart money move No. 2.
2. Break out your calculator
They're not sexy or necessarily much fun, but a budget is your best friend when it comes to being financially successful. Matthew Boersen, a certified financial planner with Straight Path Wealth Management in Grand Rapids, Michigan, says he prefers a method of money management that relies on ratios.
"There are numerous budgeting plans out there, but one of my favorites is the 50/20/30 method due to its simplicity and flexibility," says Boersen. "Fifty percent of take-home pay should go to fixed expenses like rent, mortgage and utilities -- with the exception of cable TV. Then 20 percent goes toward planning and saving for your future -- things like 401(k) contributions, emergency account build-up and saving for a down payment for a home. Lastly, 30 percent goes toward discretionary spending like cable TV, car payments, dinners out and entertainment."
While you don't have to use Boersen's system, you should have a monthly plan -- in writing -- that outlines how much money you expect to make and how you plan to spend it each month.
3. Look ahead toward retirement
Regardless of which method you choose, your budget should include saving for retirement.
"Enroll in your employer's 401(k) or comparable retirement plan and take full advantage of any match they offer," says Boersen.
Don't assume it's fine to wait before beginning your retirement savings. Compound interest rewards those who start early.
According to the MoneyRates.com retirement calculator, if you begin investing $200 a month at age 25, you'll have $398,298 at age 65, assuming a 6 percent annual rate of return. If you wait until age 35 to start saving that same amount of money, you only end up with roughly half that amount, $200,903, when you hit retirement age. By waiting until age 45, that amount dwindles even further to $92,408. Also note that inflation is likely to significantly diminish the purchasing power of these amounts by the time you reach retirement.
If your employer doesn't offer a 401(k), don't stress. You have other options.
"Start a Roth or traditional IRA," advises Bakke. "You should be able to set up automatic contributions through your bank."
4. Start an emergency savings fund
Along with retirement, your other savings priority at this point should be to create an emergency fund.
"This account should not be used for anything except bona fide emergencies, and a vacation with friends or a bigger TV for the Superbowl does not count," says Boersen.
Even if you can't afford much to start, having a line item in your budget for an emergency fund is essential. It's only a matter of time before an unforeseen expense requiring some immediate cash pops up.
"Even if it's only $100 per month, you'll be off to a good start," says Bakke. "Your ultimate goal should be roughly six months worth of living expenses."
5. Insure what matters
Finally, you can minimize your need for emergency cash by having the right types of insurance coverage.
For example, you may want to consider comprehensive coverage on your vehicle if you don't have cash on hand to buy a new one in the event of an accident. Homeowners or renters insurance is a must too. While you can remain on your parents' health insurance plan until you are 26, after that, you will need your own coverage. Finally, if you're married or have children, invest in some inexpensive term life insurance to protect them in the event the unspeakable occurs.
If you don't think you can possibly afford all that insurance, don't overlook your employer as a source for coverage. Many workplaces have voluntary benefits that allow you buy reduced-rate life, disability and other insurance products, sometimes for only a few dollars per month. In addition, some large employers have worked out affinity agreements with insurers that provide discounts on auto and homeowners policies.
Your new job offers you a tremendous opportunity to start your adult financial life on the right foot. Even if you've racked up credit card and student loan debt in college, you can use your job as a fresh chance to pay off your debt and start building savings. From there, you can enjoy knowing you're financially prepared to face whatever your new life brings.
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