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Got That New Job? 6 Financial Steps To Take Immediately
You’ve got a new job. Maybe it’s your first real job after graduation. Maybe it’s a significant step up from your old job. Maybe you’ve just returned to the workplace after a break. Whatever it is, you passed the interview and signed on the dotted line, and now you’re a fresh new employee.
This is the perfect moment to make some smart financial moves. Why? For one, this new job likely means an increase in income over your prior situation, thereby put some of that extra income to work for your financial health. For another, the first week or two in the workplace offers you abundant opportunities to get these things set up, as many workplaces offer meetings and other opportunities to get it done.
Here are some key things you should do as soon as you start your new job.
Sign up for your workplace retirement plan
If your employer offers a workplace retirement plan, find out if they offer any sort of match to your contributions. If they do, sign up immediately with a healthy contribution right off the bat. The contribution should be at least enough to get every dime of contribution matching that your employer offers.
The advantage of doing this immediately is that it doesn’t feel like you’re “cutting” your pay. If you get a few paychecks without any retirement contributions taken out, then you suddenly start contributing to retirement, it can feel like a pay cut (even though you’re just choosing to save that money instead). By starting with the contribution right off the bat, it doesn’t feel like a pay cut at all.
What if they don’t offer a retirement plan, or don’t match?
Consider whether or not you realistically expect to earn a much higher salary later in your career. If you follow your current career trajectory, can you expect to double your income in a decade or two? If so, strongly consider opening a Roth IRA if you’re eligible for it. It takes advantage of your relatively low income tax rate by having you pay taxes now on your contributions, then when you take withdrawals later when you’re retired and may be in a much higher tax bracket, you won’t have to pay taxes.
If you’re likely not going to see major increases in salary over the course of your career, consider a traditional IRA instead.
You can sign up for a Roth IRA or a traditional IRA through your investment firm of choice. It’s easy and can be done online. You’ll then fund those accounts directly from your checking account, usually through a regular automatic transfer. Not sure how to get started on this? Our retirement guide can help you by showing you the ins and outs of each of these types of accounts.
Learn about health care options
Does your new job offer health insurance? If it does, you should sign up for some level of coverage, simply to protect yourself against catastrophic injury or illness, or to cover ongoing expenses if you have someone with ongoing medical costs in your family.
However, if your partner already has health insurance that covers you, you should sit down together and compare policies. Choose the one that’s the most cost effective for your situation.
What if they don’t offer one?
If your employer does not offer a health care plan and you don’t have a partner with a plan that covers you, you should seriously consider the options available on the health care exchange in your state and sign up for a plan on your own. Again, the biggest reason to do so is to protect you and your family against the expense of a catastrophic injury or illness, and with a new job, you can likely afford a basic health insurance plan.
Stabilize your financial situation
If your income is seeing a big boost, this is a perfect moment to stabilize your financial situation. You choose to live day by day on a large portion of your take-home income, say 70%, and then use the other portion (in this case, 30%) to get your financial house in order. If your income increases significantly, living on 60% or 70% of your take-home pay is likely to result in little change to your day-to-day life at first, but you’ll quickly see your finances stabilizing, which will greatly help with financial stress. Here’s what to do.
Construct a debt repayment plan
If you’ve accumulated debt while going to school, unemployed, or working a lower-income job, a major financial goal should be to eliminate the high interest debt. Your first step in doing this is to assemble a debt repayment plan, which, at its core, is just a list of your debts ordered by interest rate, with the highest at the top. Make minimum payments on all debts, then make a large extra payment each month on whichever debt is at the top of the list, until you’re down to just low-interest debts.
A new job is a perfect time to start hammering away at your debts because you’re likely seeing a big bump in income. Don’t just spend that income on fun things! Use it to clear the table for a healthier financial life going forward.
Start an automatic emergency fund
An emergency fund is a pool of cash set aside to handle emergencies so that you don’t go into high interest debt to cover it. Plus, cash handles many situations that credit cards struggle with, such as identity theft and natural disasters.
Building up an emergency fund is challenging when you don’t have a healthy, steady income, but now that you do with a new job, it’s easy. Just open a savings account and set up an automatic small weekly transfer, then forget about it until you have an emergency.
What should you prioritize?
With all of these options, what should you prioritize? Start by assigning your increase in pay to solving your financial difficulties, so that you continue to live on your previous income level. If you need more than that, do so, but you should start from day one by putting aside a good chunk of your income for long-term financial stability.
Essentially, you want to prioritize things by return on money. Make sure you have health care coverage, because the financial downside of a major injury or illness is catastrophic. After that, your best return is getting employer matching on your retirement savings. After that, it’s paying off high interest debt, then building up an emergency fund so that you don’t get into high interest debt again. After that, you should focus on saving for retirement without matching, up to 15% of your take-home pay, and keeping your emergency fund well stocked.
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