You just graduated and got your first job. Tests are a thing of the past and you are finally making money. Now what? Life after school can feel a little daunting, almost like staring at a screen full of Netflix shows trying to decide which one to watch. Let’s set the foundation of adulting with a few steps you can take to set yourself up for success both personally and professionally.
Being disciplined and fighting the temptation to splurge with your first few paychecks is a difficult obstacle, but what you want to try to do is to save 3 to 6 months living expenses as an emergency fund. Add up all your bills, utilities, and rent and multiply by three to six. This is how much you want as a security blanket in case an emergency occurs such as: flat tire, unexpected medical bill, loss of your job, Taylor Swift adds a tour date in your city. You know, just for emergencies.
Second, we have debt weighing on us as well as pressure to save for retirement. I know what you’re thinking, I just started my career and we’re already talking about retirement? Well most employers offer a pre-tax retirement plan (401k or simple IRA) where you can pay yourself before getting taxed and collect additional money from your employer. Win win! The absolute minimum you should contribute is 3% so that you can claim the traditional 3% match from your employer. Confused already? Your employer will hand you a sheet of paper asking you how much you want to contribute, write a “3,” sign your name, and thank me later when you’re kicking your feet up in Fiji and sipping on a mai tai in retirement.
Next, we are going to further balance lifestyle with paying off student loans and saving for retirement. Student loans offer guaranteed interest, meaning that the slower you pay them off, the more you owe. Retirement savings don’t have that luxury. They fluctuate with the stock market. So put the stocks app on your cell phone and look smart in front of your friends. If you have extra money after your student loans minimum, then contribute to a Roth IRA because that is a retirement vehicle that allows you to take the money back without any penalty. It serves as both extra liquidity and retirement savings. If you can max that out, then you can further pay down your student loans or contribute above 3% to your employer plan. You can also consider refinancing your student loans with lenders like CommonBond, Earnest, Purefy, or Sofi.
My favorite way to keep track of all this adulting craziness is Intuit’s Mint app. Add all your accounts and it will calculate your net worth daily so you can track your overall progress with one number. Automate this foundation and you will be safe from an unexpected emergency, saving enough to be financially free in retirement, paying off student loans, and living comfortably. That wasn’t so hard, right? Now the tough part is, what should you watch on Netflix?
–Mark Phebus, OD
Founder & CEO of 20/20 Consulting
Contract review and negotiating consultant