How to Maximize Your Money as a Young ProfessionalJanuary 14, 2021
Starting your first “real” job can feel overwhelming, especially if you’re trying to get a handle on your finances at the same time.
The good news is that, with a stable source of income, you can start making better money moves. If you’re looking for financial advice for young professionals — the kind that will set you up for a better future — you’re in the right place.
Let’s take a look at some of the things you can do to maximize your money as a young professional just starting out in your first job:
- Learn about money
- Create a budget
- Set up your retirement plan (and get that employer match)
- Enroll in other employee benefits
- Start an emergency fund
- Protect your assets
- Understand the impact of taxes
- Tackle your debt
Learn about money
There is no shortage of financial advice for young professionals. Start by reading blogs, listening to podcasts and generating a basic understanding of money and how it works. Look for reliable sources, like those with financial credentials, that can provide basic information on financial management. Read a few books and get an idea of underlying principles, and you’ll be more likely to make the right decisions for your personal circumstances.
Create a budget
Learn how to budget for your first job so you have an idea of where your money is coming from — and where it’s going. Track your expenses and figure out which are needs and which are wants. Make a savings plan, and consider where your financial resources could be directed in order to provide you maximum benefit. This might mean trimming your costs in some areas so you have available money to set you up for a better future.
Your budget can help you take control of your money, and decide where it will do the most good, rather than always wondering where your paycheck disappeared to.
Set up your retirement plan
One of the best pieces of financial advice for young adults is to open a retirement plan ASAP. If your employer offers a 401(k), set up automatic contributions from each paycheck. The earlier you make a savings plan for retirement, the bigger your portfolio will be later — and the less you have to put aside to make it happen.
Even better? If you can get employer matching, that’s free money for your future. Some companies will match your contributions up to a certain percentage of your income. If you have the option, try to get the maximum match from your employer.
Enroll in other employee benefits
Talk to your human resources department to find out how to enroll in benefits offered by your company. This can include health insurance, a Health Savings Account, gym membership and financial coaching. Find out what’s available, and see if it makes sense to take advantage of the benefits offered by your employer.
At the very least, find out about your health insurance choices, and see what kind of tax-advantaged accounts, such as a Flexible Savings Account (FSA) or Health Savings Account (HSA), are available. If you have the opportunity, an HSA can be a good choice for some young professionals, since it rolls over year-to-year and you can build up savings if you’re young and relatively healthy.
Start an emergency fund
One of the most basic bits of financial advice for young adults is to start an emergency fund. Your emergency fund can help you pay for unexpected costs, from car repairs to covering your security deposit if you have to move suddenly. Rather than going into debt, you can draw from your emergency fund if unexpected expenses come up.
Consider putting a small amount each week in a high-yield savings account. While you might want to eventually build your emergency fund to a larger amount, just getting started is a big step forward.
Protect your assets
Look into other types of insurance to ensure that you’re protecting your assets and your finances. Get a renters insurance policy to protect your belongings. You might not think you own much, but could you replace the contents of your apartment — furniture, clothes, electronics, laptops — all at once?
Depending on your situation, other types of insurance might also make sense. Carefully think about what you can afford, and look for a policy that fits your budget and your needs.
Understand the impact of taxes
One of the most disappointing things about receiving your first paycheck is realizing how small it is. Remember that taxes are deducted from each paycheck. This includes income taxes, Social Security, Medicare and other taxes. Check to see if your state, county and city levy their own taxes, since those might also be withheld from your paycheck. Resources like PaycheckCity.com can help you run the numbers.
Your budgeting efforts should be based on your after-tax income, since that’s what you’ll bring home.
Tackle your debt
It’s increasingly common to start your first job with some debt, whether that’s student loan debt, credit card debt or both. Create a savings plan that allows you to start paying down your debt a little bit earlier.
Depending on your situation, it might make sense to refinance some of your student loans to a lower rate so you can save money and pay them off. In other cases, you might be planning for Public Service Loan Forgiveness and might need to get on an income-driven repayment plan.
Consider starting with high-interest debt, like credit cards, and then working your way down. Research methods of repayment, like the debt snowball and debt avalanche, to help you figure out how to approach your debt.
In the end, most financial advice for young adults builds on basic principles that can be used to build a strong future.