So you graduated college and just scored your first job in the real world — and you did this all during a global pandemic. While you may feel eager to spend your new income, it’s crucial that you take advantage of your age and put some of that money toward retirement. Your non working years may feel incredibly far away, but the earlier you start building a nest egg the bigger it can become.
Onboard to start saving, but not sure where to contribute your money? Here’s where you should prioritize putting your income from your first job to ensure you’re saving enough for the future.
Your employer’s sponsored 401(k) plan
Many companies offer their employees a 401(k) retirement plan. These retirement savings accounts offer opportunities for you to put money into investments that you’d otherwise likely not have access to because some investments are made only for 401(k) plans. The money you contribute to your 401(k) is not taxed, meaning that contributing to your 401(k) reduces your taxable income and can lower your overall tax bill.
Roth 401(k)s are another option that is funded with after-tax dollars. Many companies also offer dollar-to-dollar match options that allow you to earn up to a certain percent match on what you contribute to your 401(k). If possible, contribute the same amount as your match to take advantage of as many “free” dollars as possible.
Your own Individual Retirement Account (IRA account)
If your new employer doesn’t offer you a 401(k) plan, you can still save for retirement by opening your own Individual Retirement Account, more commonly known as an IRA account. Unlike a 401(k), you don’t need an employer to open an IRA account.
IRAs also offer a range of investments for your money, such as individual stocks, bonds, index funds, mutual funds and CDs. They are a good option for those that don’t have access to a 401(k) or if you want to supplement your 401(k) with another retirement account. Just like with a 401(k), you can set up automatic contributions into your IRA from a checking or savings account.
Your Own High Yield Emergency Fund
As we talked about many times prior, it’s important to build up an emergency fund of cash to keep nearby in case of emergencies, or unprecedented circumstances, such as the coronavirus pandemic. The typical rule of thumb is to save about 3 to 6 months of your monthly expenses into an emergency fund. When choosing where to put your emergency fund, consider a high-yield savings account, such as Capital One 360, where you can earn a higher interest on the money that is sitting in the account.
Create Your Own Brokerage Account
For those who are ready to further diversify their accounts, consider opening an individual brokerage account where you can invest on your own. Within your own investment account, you can begin to to introduce yourself to the world of investing and start purchasing stocks that are meaningful and could be beneficial to you.
These few tips are a great way to get started and build a solid financial foundation for yourself as a recent college graduate. We know finances can sometimes seem overwhelming and confusing, but if you start small and slowly take steps in the right direction, it will be worth it in the long run. For more resources and tips as you start your first job, reach out to us at email@example.com or schedule a complimentary 30-minute meeting here.