A new job brings an increased income, but how can you wisely put that money to work for you?
Reassess Your Budget
Congratulations! You have just accepted a job offer and you’re ready for a new stage in your life. One of the most exciting aspects of starting a new career is the financial security that goes with it. To avoid common financial mistakes that most employees make when starting a new job, start by creating (or revisiting) a financial plan.
If you already have a financial plan in the works, kudos to you! Starting a new job is a great time to revisit your budget and give it an update. Don’t have a financial plan yet? No worries. You can start from scratch with the start of your new job.
- Take a Look at All of Your Finances. This will give you a clear idea of what’s going on with your income and expenses. It is important to develop a firm understanding of what you’re spending each month, how much money remains at the end of each month, and creative ways to cut back on expenses.
- Make it Your Priority to Move Toward Financial Success. This doesn’t have to happen overnight, but small changes can mean big financial victories. Something as simple as setting up automatic bill pay can make a world of difference. Make it your goal to eliminate late fees completely. You can also closely examine your spending categories and cut down on expenses that are not necessary such as dining out and morning coffee runs.
First Day Paperwork
The first day on the job always comes with a stack of paperwork to complete. Some of it is pretty straightforward, while other forms can be confusing. Knowing ahead of time what kind of financial forms you will be presented with can help when it comes time to actually fill them out.
- Filling Out Your Tax Form. The W-4 form, which is the Employee’s Withholding Allowance Certificate allows your employer to know your tax filing status and how much to withhold from each paycheck for federal income tax. Although this form has a set of instructions at the top, you might still be unsure of how much to withhold. Refer to this guide for detailed instructions. Keep in mind that you can submit a new form once a year to update your filing status and the amount you want to withhold.
- Setting up Direct Deposit. Be prepared to fill out this form by having the account numbers handy for the account that you would like to deposit your paycheck into. You’ll also need to have a voided check available. Aside from those two components, the rest of the form is straightforward.
- Consider directly depositing a percentage of your paycheck into your savings account. This is a great way to keep yourself accountable and maintain your saving goals.
Save Your Raise
Did your new position come with an increase in income? It may be tempting to start living a new lifestyle that aligns with your higher pay, but try to resist that urge.
- Consider Putting the Additional Money Toward Debt or Savings. Chances are, you might have student loan debt that needs to be paid off. Focus your extra income on paying down your loans faster. Building an emergency savings fund is also a wise idea in the event of an emergency or sudden lay off from your job.
- Don’t Make a Big Purchase. It’s common to associate a new job and higher pay with the ability to purchase a brand new car or put down a payment on a new home. However, what most people don’t consider is the maintenance costs that come with these purchases, which could really put you over the edge fast.
Too Young to Worry About Retirement? Wrong!
A common misconception among young people is that there is plenty of time to save for retirement because, after all, retirement is decades away. Unfortunately, putting off retirement savings can cost you. The amount you contribute to a retirement savings plan is just as important as the time it takes to grow.
- Get The Most From Your Company’s Retirement Plan. If your company offers an employer-sponsored retirement plan, like a 401(k), they may also offer an employer match. This is a specified amount that the company contributes to your retirement savings plan based on a percentage of your own contribution. If you turn down the opportunity to contribute, then you are literally throwing away free money.
- Retirement Savings Accumulate Tax-Free. Another huge advantage of retirement savings is that your savings will grow tax-free until you decide to withdraw the money.
If your employer doesn’t offer employee retirement benefits, there are other ways you can save for retirement. Individual Retirement Accounts (IRAs) are accounts that you can open on your own, at your credit union or bank, and still enjoy tax-deferred savings.