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You and Your Money: Your first job can be the first great move in a
long, and successful, financial life |
New college graduates will be
entering the work force this summer with plenty of excitement — and
plenty of debt. This year, the average college debt stands at
$20,000 for the first time ever.
Though your first job is probably not going to be your last job,
the financial moves you make on that first job can create benefits
and good money habits for a lifetime. Here are some of the best
moves to make coming out of school:
Talk to a financial planner: A financial planner can look at your
new income, your debt and your particular financial goals and give
you a road map. Sure, you can do it yourself, but an expert can
spend the time developing a plan while you’re developing a career
and a new life. It’s a good idea. Ask your parents for a referral or
go to www.PlannerSearch.org to find a professional in your area.
Sign up for the company 401(k) the minute you’re eligible: A 401(k)
plan accomplishes more than retirement savings. It teaches a new
worker the value of “out of sight, out of mind” savings — when money
goes to savings before you have a chance to spend it. But it’s
important to stress that even if it takes a year before you can join
the company plan, start putting money away in a personal IRA. You’ll
be capturing funds from the start, which experts say is the absolute
best way to build a financial future.
Always aim for the maximum: It’s a tremendous challenge to put away
the most you can put away in any retirement plan once you get out of
school — you have a household to set up, school loans to pay off and
you need to have a little fun, too. But even if you can’t set aside
the maximum in your various retirement options at the start, make it
a goal to get there as soon as your income rises and your debt
falls.
Check your investment balance each year: Studies show that many
people will pick a handful of mutual funds for their 401(k)s at the
very start and not change them. That’s one of the great reasons to
have access to a financial planner because you can examine whether
your investment choices and style fit your age and goals.
Hold off on buying a new car: Mass transit is best, but if you need
a car, think about buying a quality used car that you can pay off
quickly. A new car with a low down payment means you’ll be doubling
your debt if you owe the national average of $20,000. That’s a
tremendous burden for a new professional.
Don’t forget about insurance: If you’re single, it’s not time for
life insurance, but you must have auto, health, rental apartment and
yes, disability insurance. Even if your employer does not offer you
health insurance right away, you must find another insurance
resource since you probably won’t be able to piggyback on your
parents’ health plan forever. If you’re driving a used car, you may
not need to keep as much collision coverage. Don’t forget to insure
the contents of your apartment — one break-in can cost you thousands
of dollars you don’t have. And if you think about “old folks” being
the only folks who can become disabled and cut off from a paycheck
until they can work again, guess again. Think of how losing a
paycheck for six months would hurt your finances.
Start laying away an emergency fund: Even if all you have is the
proceeds from two missed lattes a week, start putting money in a
special account you will not touch unless you are out of work and
need to find some way to pay the rent. Make the trigger something as
serious as that, or you’ll never have a serious reserve for
emergencies.
Figure out taxes: New workers tend to do one of two things when it
comes to taxes — they either withhold too much or too little. It
makes sense to sit down with a planner or a tax professional to make
sure your annual tax set-aside is correct, because withholding too
much means Uncle Sam gets to hold the money that could go to your
retirement or your emergency fund.
This column is produced by the Financial
Planning Association. |
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From
June 27, 2007,
Newberg Graphic
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