College Grad to Young Professional: A Financial Checklist for Your First Job

By VWG Wealth Management on June 2, 2021

College graduation will soon be behind us, and for some you may have already locked in that first job out of school.  Congratulations! Starting your first full-time job after college, while exciting, is one that comes with a lot of responsibility.  Yes, you guessed it, financial responsibility.  Soon you will be faced with significant financial decisions like understanding (and maximizing) your employer benefits, paying off student loans, and building an emergency fund.  And don’t forget about retirement planning, yes even as a recent college grad. Here are a few places to focus on getting started – but remember, while financial success isn’t achieved overnight, you can set yourself up for a rewarding financial journey if you embrace your financial independence now.

Create a budget. Learning to build and live on a written budget is a foundational first step to managing your finances.  Knowing your net monthly income and where your money is going is critical.  Track all your expenses for a couple months to see how much you are spending across categories (food, cable, entertainment, travel, etc.).  This will help you to identify areas of your budget where you might be overspending so you can put more conservative guardrails in place (aka trim your spending!).  Creating a spending plan that prioritizes some level of savings is an important habit to form early in your career.  A reliable rule of thumb is a 50-30-20 spending plan, 50% on essentials, 30% on discretionary and 20% going to savings (building your emergency fund + retirement savings).

Pay off debt. For those graduating with student loans, your first payment will be due 6 months post-graduation.  Be aware of your monthly payment add it to your budget!  If you’ve also built up credit card debt, pay it off quickly to avoid the high interest rates credit card companies famously charge.  Start by listing out all your debts and ranking by interest rates, then put together a debt management plan to pay off those with highest rates first.

Save an emergency fund. Think of your emergency fund as your first line of defense to unanticipated expenses or emergencies.  It is there to protect you during difficult times – those that had a proper emergency fund during the pandemic were able to continue to pay their bills and rent despite losing their income.  Aim to save 3-6 months of living expenses (based on the budget you’ve now created!) in your emergency fund.  As a recent college grad saving 3-6 months of expenses will be tough, so you might not be able to get to six months right away.  Consider saving $1,000 and build from there.  You also may need to revisit your budget and trim back some discretionary (purchases for pleasure!) expenses to free up cash flow.

Build Credit. Your credit score is one of the most important aspects of your financial life and will either serve as a tailwind or headwind in your financial journey.  What might seem like just a number is a vital measure of the likelihood that you will pay your bills on time.  Just like flying a plane, with a tailwind you will get to your destination quicker and with more efficiency.  Your credit score impacts whether you are approved to buy a car, rent an apartment without your parents or take out a home loan – it also impacts the interest rate you will pay on these purchases.  The better (higher) the score, the lower your rate.  My first employer out of college even checked my credit history before offering me a job!  The best way to build a strong credit score is to pay your bills on time and make sure to pay down your debts.  Be responsible with your credit cards and check your credit report regularly.  Don’t worry checking your own score won’t hurt it!  And you might have guessed sticking to a written budget can help bolster your credit score.

Know your employer benefits. Make sure to review your company’s benefits and understand what your employer provides.  Your new employer may offer health insurance, disability insurance, matching company retirement contributions or student loan repayment assistance.  Since this is probably your first time selecting benefits, talk to your parents, friends or your families’ VWG advisor before making any decisions.  When it’s time to enroll in your company’s retirement plan, figure out if your employer offers a matching contribution.  Many employers will match your contributions up to a certain percentage (aka free money).  While 15% is a suggested retirement savings rate, don’t feel discouraged if you can’t get there right away.  It is prudent to first focus on paying down your debts and building a proper emergency fund.  At a minimum, take full advantage of any company match and look to gradually increase your savings rate over time.

The first few years after college graduation are exciting and full of new experiences.  Learning and implementing personal finance strategies during this time will launch you into early financial independence early in your career.  For a little more coaching on your financial roadmap, reach out to your families’ VWG advisor.