Starting your first full-time job is an exciting milestone that often brings increased financial independence and new responsibilities. Along with a steady paycheck come important financial decisions, including evaluating employee benefits, creating a budget, managing debt, and beginning to save for the future. Yet many young adults enter the workforce without a strong foundation in personal finance. In fact, recent research found that 71 percent of Gen Z and 70 percent of millennials say gaps in their financial knowledge have resulted in costly mistakes.
The good news is that you don’t need to know everything on day one. Taking a few intentional steps early can help you build confidence and create a strong financial foundation.
Your salary is important, but it’s only part of the picture. The first step is understanding what your new income actually means. It’s important to understand your overall financial picture. Knowing how your paycheck, taxes, benefits, and monthly expenses fit together can help you make more informed choices from the start.
Understand your paycheck: Gross salary minus federal, state, local taxes; OASDI, life insurance, disability insurance, and 401(k) savings. Any pre-tax deduction means the benefit will be taxed when used, like group disability insurance and 401(k) distributions.
For many young professionals, employer benefits are unfamiliar and often overlooked.
Understanding retirement plans, employer matching, and other workplace benefits can help you take advantage of opportunities that may have a lasting impact. Many employers offer a $50,000 life insurance death benefit or 1x base salary death benefit and may also offer 50-100 percent short-term disability and may also offer 65 percent long-term disability. Consider signing up for these right at the start of a new job. Even though the company may offer these benefits, one still may have to opt in to receive them.
Many employers provide a 401(k) match, or “free” money. It can be difficult to see so many line items be for taxes, but 401(k) contributions by the employee help reduce that tax liability.
Be sure to sign up for disability and life insurances and start at least 10 percent 401(k) savings as soon as possible. Be sure to have a first and second beneficiary on the life insurance and 401(k). Update these as your situation changes. Starting 401(k) savings in one’s twenties could be the difference between retiring sooner than later.
Even if your employer doesn’t offer a retirement plan or matching contribution, help may be on the way. A new Trump administration initiative highlights a federal program that could provide eligible workers with up to a $1,000 annual match on retirement contributions starting in 2027. This underscores the importance of saving for retirement.
A first full-time job often comes with the temptation to immediately increase spending. But this is your chance to establish good financial habits that can grow with you throughout your career. Developing a realistic spending plan, building an emergency fund, and managing debt intentionally can provide flexibility while helping you work toward future goals. Typical debt at this stage includes school loans and credit card debt, possibly a car loan. All these debts must be taken into account from the net salary. Unpaid debts will lead to bad credit scores which can lead to the inability to find housing, banks won’t provide a mortgage, and there can also be difficulty getting utilities.
After subtracting taxes, benefits, debts, rent, utilities, food, other mandatory expenses, save a portion to a savings account that is for emergency use only. Think like this: If I lost my first job without another one lined up, how do I afford all my expenses? If I had a major car repair, how would I pay for it? With the cash reserve that you’ve been building up.
The general rule of thumb is to have three months of one’s mandatory expenses in a reserve pool of cash. If your position is a remote one or close by, is it possible to stay with your parents longer so you can really make a dent in building up a cash reserve, paying down debt, and getting a jump on a major purchase? A short-term part-time job also can help one accelerate debt relief or boost savings.
When beginning your career, some of the most important financial steps are enrolling in your employer benefits, make sure to pay debt down and with increased payments to high interest credit card debt; save into the employer retirement plan (401(k), Simple IRA, 403(b)) to get that ‘free’ money mentioned above; and build up a cash reserve. This will set you up with good financial routines for life.
Your financial plan will evolve as your career and personal goals change. Whether you’re saving for travel, graduate school, retirement, or a home, the habits you build early can help create more options in the future. The goal isn’t to have every answer today, but rather to build a foundation of financial health.
One simple strategy is to make positive life events trigger positive financial actions. For example, when you receive a raise at your first job, consider directing part or all of the increase toward a savings goal rather than immediately increasing spending. Whether your goal is a car, a home, college, travel, or long-term financial security, it is important to remember that all goals have a price tag. Creating good financial habits early can help turn those goals into reality. Look to work with a professional financial advisor as your life gets more complex.
Your first full-time job is more than the start of your career; it’s also the beginning of your financial journey. While every path will look different, taking time to understand your finances, building healthy habits, and planning for your future can help you move forward with greater confidence.
Bronwyn L. Martin is a Financial Advisor and Chartered Financial Consultant with Martin’s Financial Consulting Group, a financial wealth advisory practice of Ameriprise Financial Service LLC. in Kennett Square, and Havre de Grace, Md. To contact her: www.ameripriseadvisors.com/bronwyn.x.martin.
Sydney Rathnayaka, is an Intern for Martin’s Financial Consulting Group.