Tips for graduates on personal finance, starting first job


This spring, millions of students will graduate from high school and college, embarking on their journey into the workforce.

While this transition opens up new opportunities, it can also create financial challenges.

In this article, we provide valuable tips tailored to students starting their first full-time jobs, although they are equally relevant for all workers.

Take advantage of a 401(k) and company match options:

For new graduates, the idea of saving for retirement may seem distant since it could be several decades away.

However, the power of compound interest is undeniable, making it crucial to start early. By contributing to a 401(k) plan, you can reap substantial benefits in the long run.

Understand the tax advantage:

Opting for a Roth 401(k) contribution allows your money to grow tax-free, while a conventional 401(k) provides immediate tax savings.

Both options offer tax benefits worth considering.

Don’t miss out on company matching:

Many companies offer a matching contribution when you contribute a certain percentage to your retirement fund.

This is essentially free money, so be sure to take advantage of it.

Start saving and investing now:

Alongside your new job, you will likely encounter various expenses. However, it’s crucial to establish savings for emergency situations and regularly set aside money for retirement. Financial experts often recommend saving and investing around 10-15% of your income, but the key is to start – even if starting small – and gradually increase your contributions.

If your employer doesn’t offer a 401(k) plan, consider opening an IRA or Roth IRA to build towards a financially secure retirement.

Additionally, you can consider routinely contributing to a savings account to coincide with the frequency of your paychecks — think of this as paying yourself!

Financial experts recommend having 3-6 months of expenses saved in case of emergency.

Understand Your Tax Liability:

Before you receive your first paycheck, it’s essential to recognize that the amount your employer pays you and the amount you receive will differ.

Your income will be subject to various taxes such as federal, state, local, and social security and Medicare taxes.

Understanding your tax liability helps you plan your budget effectively.

Additionally, your marginal federal tax rate can guide you in choosing between a Roth 401(k)/IRA or a Conventional 401(k)/IRA.

Resist Lifestyle Inflation:

It’s common for expenses to increase when your income rises, a phenomenon known as lifestyle inflation.

With a newfound income, you may be tempted to make larger purchases or indulge in luxury items.

However, it’s essential to exercise caution. One of the benefits of earning an income, both now and in the future, is reducing financial stress.

To combat lifestyle inflation, consider these three key strategies:

1: Avoid expensive vehicles: Resisting the urge to splurge on a high-priced vehicle can save you significant money in the long run. Opt for a practical and affordable option that meets your needs.

2: Keep rent affordable: One of the largest recurring expenses is rent. Strive to find accommodations that fit within your budget, allowing you to allocate more funds toward savings and investments.

3: Limit expensive vacations: While vacations are a well-deserved break, it’s crucial to resist the temptation to overspend on extravagant trips. Consider budget-friendly alternatives or limit expensive vacations until you have a solid financial foundation.

To those graduating and about to start working full time: congratulations on entering the workforce!

Earning a paycheck is fantastic, but it comes with responsibilities that will likely be challenging.

By taking proactive steps now, you can pave the way for a happier and financially secure future.


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