Transitioning from college to the working world is a big step and landing your first “real” job is a major accomplishment. If you’ve gotten used to being a broke student, getting your first paycheck may feel like you’ve hit the jackpot.
When you’re making more money than you ever have before, figuring out the best way to manage it can be difficult. You know that paying down your student loans and saving money are top priorities but where do you park your extra cash and how much should you be hanging on to? The sooner you get started with building some financial reserves, the better off your long-term outlook will be and we’ve got the best saving tips so you can make every penny count.
1. Your employer’s retirement plan
The most obvious choice for new grads to get started saving is right in the workplace. If your employer offers a 401(k) or similar retirement plan, it’s a relatively painless way to begin growing your nest egg. You choose what percentage of your income you want to defer into the plan and in most cases, your employer throws in a matching contribution. Basically, you’re getting a tax break for contributing and free money from the match so it’s a win-win situation.
How much of your pay you should funnel into your 401(k) really depends on what you’re making and what your overhead costs are. If you’re pulling in around $30,000 a year and you’re battling $50,000 in student loan debt, you may only want to contribute enough to qualify for the company match. If debt isn’t a problem or you were able to score a six-figure salary right out of the gate, socking away anywhere from 10 to 20 percent might be more appropriate.
2. Online savings account
Once you’ve gotten a start on saving for retirement, your next move is to start working on your emergency savings. This is money that you’d only need to touch if extra expenses, like a car repair or doctor visit, pops up out of the blue unexpectedly. Most financial experts recommend keeping anywhere from three to six months’ worth of expenses in an emergency fund so you have to decide how big you want your cushion to be based on your expenses and your comfort level.
Keeping the money in a savings account offers convenient access and you can earn a little interest on what you’re setting aside. You could go with a regular account through your local bank or credit union but online banks tend to offer slightly higher rates. When you’re comparing accounts online, make sure you’re paying attention to the fees and account minimums so you find the best deal.