First Job
Landing your first job is an exciting milestone, bringing new financial opportunities and new responsibilities. From understanding your income and benefits to making decisions about saving, investing, and debt management, navigating your finances at this stage can feel a little overwhelming. The experienced advisors at McRae Capital Management can provide guidance and support to help you understand all of this and establish a strong financial foundation. That way you can focus on thriving in your career. (See the Navigating That First Job video on this page.)
Understanding Income
Congratulations on landing your first job! As you start your career, it’s essential to understand your income. Review your pay stubs to see your gross income (before taxes) and net income (take-home pay). Understand why certain money is being withheld, including healthcare costs, federal income taxes, state taxes, and any other deductions. You’ll want to consider contributing to a retirement plan like a 401(k) or a Roth IRA so you can start funding your retirement—money you contribute when you’re young has lots of time to compound and grow.
Paying Rent and Bills
With your first job comes new financial responsibilities. Paying your bills on time helps keep your credit score high, which is a key determinant of how expensive it’ll be for you to borrow money for purchases down the road, like a first house. Consider setting up automatic payments for bills, for example, to ensure they’re never late. McRae Capital Management can help you create a budget that accounts for all your income and expenses, prioritizing needs like rent/mortgage, utilities, and food, but allocating some money for “wants” like entertainment and hobbies.
Filling out Tax Forms
As a new employee, you’ll need to fill out tax forms, including the W-4 form which tells your employer how much taxes to withhold from your paycheck. You have choices here, like choosing a number of “allowances” to claim: Claiming a higher number of allowances means your company will withhold less from each paycheck to pay your taxes, but you’ll have to catch up with any underpayments by April 15th. Claiming fewer allowances means more taxes are withheld—you keep less money each paycheck, but you might get a refund at tax time. McRae Capital Management can help you fill this form out in an optimal way.
Applying for Credit
Establishing and maintaining good credit is important for a range of things, from renting an apartment to buying a car. However, only apply for cards or loans you need and can afford to make timely payments on, because if you fall behind your debt can grow out of control, and damage your credit score. Always make sure you understand the interest rate, fees, and repayment terms.
Starting a 401k
If your employer offers a 401(k) or similar retirement plan, consider contributing—especially if they match contributions, which is essentially free money. And if they don’t, you can set up a plan for yourself. However you get there, small contributions now can add up significantly over time, thanks to compound interest, and typically offer tax savings as well. McRae Capital Investments can help you understand your situation and determine an appropriate contribution amount to meet your goals.
Buying Insurance
Having health insurance is crucial. Unexpected medical expenses, if you have to cover them out of pocket, can wreck any financial plan. Employer-provided health insurance is often the most cost-effective option. But you may be able to stay on a parent’s plan until age 26, or buy a plan through the health insurance marketplace. Consider the premium, deductible, copays, coinsurance, and maximum out-of-pocket costs when selecting a plan.
Paying Student Loans
If you have student loans, McRae Capital Management can help you create a plan to pay them off efficiently. Understanding the balance, interest rate, and repayment terms for each loan is the start. But you might also consider consolidating or refinancing loans to potentially lower the interest rate, or prioritize paying off high-interest loans first. McRae can help.
Connect your finances to what matters most
Starting your first job is only one of many life stages where smart financial planning can make a difference. If you’re interested in learning more, please read our First Job Commentary.
