How you and your money can rule this thing called “adulting”
Maybe you’ve recently graduated. Or maybe you’re ready to get that first real adult job. Either way, it’s an exciting time.
It would be great if there was some sort of guide on how to manage your money. Unfortunately, that doesn’t exist. So until your paycheck comes with an instruction manual, we’ve put together some money tips to help you launch into this adventure called adult life.
Tip: choose a career rather than letting it choose you
The first job you accept could have a bigger impact than you may realize. In fact, it could set the course for your career. After all, you will be developing skills. And you’ll find that you can build on those skills to rise up through an organization or get that next gig.
It can be too easy to accept a job based solely on the money. That could lead to you ending up on a career path that you’re not all that excited about. Then, down the road, having to make a decision to either take a step back to switch careers or just suck it up and accept your situation.
You don’t have to have it all figured out right now, but it’s worth really thinking about where you want your work life to go.
Tip: make a smart move with where you choose to live
It seems like it is the default advice to keep living with your parents. But this may not always be the best advice. For example, if you don’t have living expenses (rent, utilities, grocery bills, etc.), what you have to spend each month could seem pretty awesome. You could end up developing spending habits (i.e. eating lunch out every day) that you won’t be able to sustain once you move out and have to pay all those bills.
For some, getting an apartment and getting a handle on how to live on a salary could be the best way to figure out this thing called adulting.
Of course, don’t automatically dismiss the living-at-the-parent’s-house option. Just be smart about it. Figure out what rent, utilities, and groceries would be, then put that amount aside each month. You will quickly build up an emergency fund while getting an idea of how to realistically live on your salary. Both of those things will be invaluable when the time is right to leave your parents’ home.
Tip: understand what’s coming out of your paycheck
It can be a bit of a shock when that first payday rolls around if you haven’t anticipated what’s coming out of your paycheck. For starters, there are the taxes. Your employer will usually withhold a portion of each paycheck to pay for state and federal taxes. Wait, there’s more. FICA taxes will come out (which help pay for Social Security and Medicare.) And you may even have to pay taxes specific to the city you work in.
Beyond taxes, you may have your healthcare costs deducted. And if you’re contributing to a 401(k) or other retirement plan, that money will also be coming out of your paycheck. All of this can make your paycheck quite a bit lighter. That’s why it’s important to understand what your actual take home pay is. That way you won’t get caught spending what you don’t have to spend. Check out this helpful video about understanding your paycheck.
Tip: don’t let your new car drive you to the poor house
It can be exciting to think about dumping that beater you’ve been driving now that you have your first real job. Your first inclination may be to go get something new. But getting everything you’ve always wanted can drive that new car price up, up, up. And that can leave you a little stretched making that new car payment each month.
This doesn’t mean don’t consider a new car. Just be realistic about what you can afford. And be ready to accept the reality of how that car will depreciate. Many reports show that a new car loses 10% of its value when you drive it off the lot. And can even lose 20% of its value after just one year.
Sometimes it’s a smart decision to buy a car that’s just a few years old. You won’t be taking the hit for that depreciation and you may even be able to get more features for your price range. Whichever you choose, just make sure the car payment is comfortable for where you are salary-wise. Otherwise, you’ll end up feeling like the car owns you rather than the other way around.
Tip: take control of your spending
Taking control of your spending is one of the most empowering things you can do. When you know what you’ll earn and what you’ll owe each month, you’ll have less anxiety and feel more confident each time you make a spending decision. The best news is that it’s really not that hard to set yourself up for this. Here are some tips:
- Quit the comparisons. Don’t play the game where you try to keep up with your friends’ spending on expensive nights out or on cars and clothes. First of all, they may be making horrible decisions with their money. And second, c’mon. You’re better than that. Do you with what you know you have. Real friends will respect that.
- Find your safe-to-spend number. That’s what you make minus what you owe minus what you put aside as savings. Absolutely know this number. It will make life easier. Here’s a helpful post about what you should be saving.
- Be best buds with your budget - a budget gives you the power to make decisions with your money so you don’t feel out of control or overwhelmed. Sounds like a pretty good friend, eh? Download this budget worksheet to get started.
- Become the frugal funmeister - fun doesn’t have to be expensive. When you start thinking this way, you start finding all kinds of creative things to do that don’t won’t break the bank.
- Take control - today, more than ever, we have the power to stay on top of our spending. Set up alerts on your bank accounts to remind you when bills are due and to avoid overdrafts - your bank’s app should allow you to do that. Do the same on your credit cards. And check your accounts regularly (it’s easy through the app) so you never feel like you don’t know what’s going on.
Tip: get smart with your student loan payments
Many student loan programs give you a 6-month grace period before you have to start repaying that loan. Don’t forget your student loan payments when you’re figuring out your monthly safe-to-spend number.
You could find yourself with a standard 10-year repayment plan. But there could be some options you could take advantage of if your payment is overwhelming - these options could limit your payments to 10% to 20% of your income. Some even forgive what you owe if you’ve paid consistently but haven’t paid it all off after 20 to 25 years. Do some checking to understand what your options are. And once you have a payment that works, automate it to make it easy and avoid any problems.
Tip: don’t forget insurance
Nothing says ‘adulting’ like buying insurance. Sure, it’s not really a lot of fun. But it’s important to understand what you will need (and maybe not need) as you launch into this new phase of life. And you’ll need to plan for those costs.
First, the good news. You probably won’t need life insurance until you have someone who is dependent on your income besides you (like a spouse or child). You could probably buy a little to cover your funeral expenses - but let’s not go there right now (it’s kinda dark).
You will need health insurance. Check to see if your employer has a plan first. It’s usually less expensive than buying it on your own. You’ll also need auto insurance. And if you’ve moved out and are renting an apartment, consider renter’s insurance.
Tip: start saving now (no, really - right now)
Your most valuable asset is time. Saving and investing at a young age allows your money to take advantage of the magic of compounding interest over the years. That’s where your money not only earns interest, but then earns interest on the interest. The earlier you start - the more potent that magic (and the more your savings will grow.) This is one of the most powerful opportunities you have. Unfortunately, we just don’t hear enough about it as we’re taking our first steps into the working world. For more on it, check out the Parable of The Two Twins.
Okay, so you get that you need to save. Now how about some guidelines to get you started. The first thing you need is an emergency fund. Get $1,000 put away (in a separate savings account so you’re not tempted to spend it unless it’s an emergency.) This will help you handle the speed bumps in life - like your car breaking down - without having to rack up credit card debt or resort to payday or title loans (eeek!)
Next, work on saving up 6 months' worth of living expenses. This money will help you handle the detours in life - like a layoff or an injury that keeps you from working for a few months.
Now, take advantage of what’s available to you to save for the future. If your employer has retirement plan - like a 401(k) - consider joining in. Some employers will even offer to match your savings by a certain amount (up to a limit). That’s like getting paid to save! Wait, it gets better. That 401(k) contribution usually comes out of your paycheck before taxes. That means you can invest money that you would have otherwise given to the government (woo-hoo!)
If your employer doesn’t have a retirement plan, you can still get those tax advantages by opening your own individual retirement account (IRA).
Here’s another tip. Decide how much you’re going to save and then automate it with automatic transfers. It improves your ability to reach your saving goals by making saving a no-brainer.
Managing money doesn’t have to be hard.
Money can be confusing as you take this next step in life. That’s why there is this place called Wellbeingville where you can get the insights, know-how, and tips to make it all so not overwhelming. Drop by and check out these five real-life guides:
With the right know-how, you can take a confident step out into the world of work. And own your future.