Your first “real” job is probably an entry-level position. It may not pay very much but your first paycheck is almost sure to be significantly larger than any you have earned in the past for part-time or summer jobs.
If you do not have one yet first thing is to open a bank account and set up direct deposit. Consider looking for free checking accounts that either don’t charge monthly maintenance fees or waive said fees when you set up recurring direct deposits or maintain minimum daily balance requirements. Another option to look at is overdraft protection. Overdraft fees often exceed $30 per item – an unwelcome hit for anyone, but especially for young workers without much financial cushioning. In addition, don’t forget your savings need to be a priority.
Aside from your salary your first job may compensate you with benefits. While this may be new and overwhelming it is important to review and make good choices. Health insurance is the most well-known and used benefit. There may be options to choose from they usually include health, dental and vision plans. Company-sponsored retirement plans are also a particularly great choice, because you get to put in pretax dollars and often companies match part of your contribution, which is like getting free money.
Your company may not offer this option, or you may be self-employed. Do not worry you also have some options to set up retirement plans. You can you’re your own IRAs, and set up an automatic withdrawal from your savings account into your IRA each month. Even if it is only a small sum, it will eventually add up to something helpful.
Many companies additionally offer life insurance as a benefit. Your employer might offer life insurance with a death benefit of one, two, or three times your annual salary as a free or inexpensive employee benefit. A drawback is that if you leave the company, you usually will not be able to take your policy with you. Although you may not have much disposable income and you have no one that depends on your income. It may be a smart move to establish a baseline of coverage purchasing a policy if you do end up having dependents.
Another milestone is renting vs. buying.
Here are some things to consider.
A fair comparison must consider the whole financial picture. Renting involves a (usually refundable) deposit, rent and perhaps renter’s insurance and amenity fees. In comparison purchasing a home includes a down payment and closing cost upfront along with a mortgage, home maintenance, insurance and taxes. If you live in a big urban setting the difference between rent and a mortgage may not be large. At this point the deciding factor may be more of a lifestyle choice. Most people think about interest rates and their ability to afford home ownership, but it is often overlooked that this can be a factor in a landlord raising rents. It could be more affordable to buy with a lower interest rate than rent with routine rent increases.
Another variable to think about is the financial implications of the market. This is also known also known as a seller or buyers’ market. This can impact the cost of a home purchase too. As a young professional starting out mobility may also be a part of your career path. Consider you should stay in your current location for at least 3-5 years for home purchase to make sense. Aside from a transfer your start-up employer can also wipe out, or you can move to a new company with a pay cut.
Love & Marriage
Getting married will change your financial life profoundly. You are no longer just sharing expenses or financially independent but your legal and tax status changes. Your future financial plans can be changed by what you bring into the picture as well as how you work together once married.
While not the most fun of premarital activities it is a smart idea to sit down with your partner well before the wedding to talk about these issues and do some financial planning. These conversations about how to handle money will have long-term repercussions for both of you, regardless of how you choose to combine your finances completely or keep certain things separate.
Before you exchange vows, it is important that you and your partner each disclose your full financial circumstances to each other. Once you know the facts you both can decide how to handle your finances in your marriage.
If either or both of you carries considerable debt, a plan is needed for paying it off. While premarital debt does not automatically transfer as a marriage license is signed, it can still affect your joint finances. In addition, if either of you has poor credit, come up with a plan for improving it. Life and future plans will be easier if you both have good credit. For example, getting an automobile loan or mortgage together.
If one partner has considerably more assets or earning power than the other, a prenuptial agreement may be in order. These contracts can protect premarital assets and provide for children from previous marriages. They can also establish responsibility for debts acquired before marriage and prearrange spousal support in case of divorce.
Along with discussing your premarital finances individually you need to set joint financial goals for your future and create a household budget that will help you get there. Even if you may not know all the answers, it’s helpful to get a sense of where each stand and evaluate what you each might need to think about or research further.
The hard work of marriage will exist in maintaining healthy communication. The best way to be sure you and your spouse are on the same page with your joint finances is to talk about them regularly, honestly, and without judgment. It may be helpful to schedule a time to check in on short- and long-term goals. They may even want to enlist the help of a financial advisor or planner for impartial advice.
Finally, these major life milestones discussed are all a part of the transition into your mid-twenties and thirties. Your forties will perhaps find you with the picket fence, 2.5 kids and an established career. These picture-perfect details also have some things to prepare for and lessons to learn. We will be pursuing these years in an upcoming blog. There is always more to understand and grow. Your finances are a major part of every stage of life from birth to retirement. Here at BEW, we are able to walk you through each stage. Just call and let’s get started!
