Your first job thrusts you into the adult world; a never-ending balancing act between your income, benefits, and expenses. The key to a healthy, wealthy, and low-stress lifestyle is not to get rich, but to master this balance as early as possible.
Here are six money-related moves to make during your first job to pave the way to happiness.
1. Open a checking account and set up direct deposit
The two most common reasons why Americans are hesitant to open bank accounts are a) they don’t think they have enough cash, and b) they want to avoid bank fees. But most banks won’t charge you a penny for opening an account, and as long as you can keep a minimum balance of ~$25, they won’t charge you any fees either.
The next question would be: which bank? You might’ve heard shifty things about some brick-and-mortar banks in the headlines, so who can you trust?
For example, through Chime you can set up direct deposit, whereby your paychecks go directly into your bank account so you’re paid two days faster. Ask your employer if you can set up a direct deposit; if so, it’s a no-brainer.
Chime keeps things safe, simple, and efficient. But if you’re looking for a bank with more robust features that offers a trickle of interest, check out Radius Bank. In addition to the usual suite of tools (mobile banking, no ATM fees, budgeting support), Radius Bank offers a few unique features.
First, there’s their low-yield checking account. While compounding interest is typically reserved for savings accounts, Radius offers 0.10% APY on checking accounts with balances below $100,000 (and 0.15% thereafter). It’s not much, but if you’re depositing ~$4k monthly, the interest will pay for date night.
Second, for the philanthropically-minded, there’s the Superhero Checking Account. Radius will automatically donate 1% of your monthly debit purchases to the March of Dimes.
2. Get the right credit card
Once you’ve opened a checking account, your next step is to get the right credit card (your credit card doesn’t have to come from your bank).
As a good rule of thumb, you should look for cards that have no annual fees and give you cash back on purchases you’re already making. Don’t be seduced by fancy metal cards that offer 3% cash back on nonessentials like restaurant and travel purchases. These “lifestyle” credit cards often carry high annual fees, high interest, and can subconsciously lure you into overspending.
Instead, find a good starter card that offers 1.5% cash back on everything (including bills).
One of the most rewarding 1.5% cash back cards on the market is the Chase Freedom Unlimited®.
For starters, it offers a wide array of cash back in addition to 1.5% cash back. Here’s what you’ll earn:
- 5% back on travel booked through the Chase Ultimate Rewards® portal.
- 3% on dining, takeout, and drugstore purchases.
- 1.5% on all other purchases.
And that’s all for a starter card with no annual fee!
3. Start budgeting
Budgeting is like driving. When you’re first starting out, it’s awkward, anxiety-inducing, and decidedly un-fun. But soon it becomes second-nature, even enjoyable.
The simple art of budgeting will greatly serve you throughout your life. The practice will save you money, make you a better life partner, and best of all, relieve a tremendous amount of stress. Knowing precisely how much money you have and where it’s going will eliminate surprises and help guide smarter decisions in the future.
My #1 tip for easing into the budgeting process is to find a good method. There are countless apps and spreadsheets out there that make it simple and easy. I’m personally a fan of PocketSmith and MoneyPatrol.
PocketSmith, available on desktop, Android, and iOS, is a budgeting app with a twist.
Yes, it’ll track your income and expenses and sound warning bells when necessary as a good budgeting app should. But its most unique and useful feature is financial forecasting; you can insert a “dummy expense” like a $3,000 vacation and see how it’ll affect your finances as far as 30 years into the future!
Naturally, this feature is immensely helpful for anyone with a sudden uptick in income wondering: hmm… can I really afford this shiny object? When you can see that a fancy car, for example, crushes your daily spending limit down to $14, you may decide you can’t afford it after all, avoiding a costly mistake.
If you have outstanding student loans, Money Patrol offers a more robust suite of tools and analytics for tracking and paying your debts (and thus building good credit!)
Plus, in general, Money Patrol is also an all-around superior budgeting option if you’re a visual learner; the site offers tons of ways to visualize your data in bar graphs, pie charts, and more so you can easily track trends and clamp down on spending at vital times.
4. Start building good credit
You’ve probably heard a used car commercial say: good credit, bad credit, no credit, no problem! So what exactly is “credit,” why is it important, and how can you build it?
Your credit score is a three-digit number between 300 and 850 automatically assigned to you and updated by one of the big three credit bureaus: Equifax, Experian, and TransUnion. Your score essentially tells financial institutions “here’s how reliable this person is at paying back loans on time.”
Having good credit throughout your 20s and 30s will pay off big time. For example, if you take out a $25k auto loan with a credit score of 750 instead of 650, you could end up paying ~$6,000 less in interest over 60 months.
Thankfully, building credit is pretty simple (REbuilding credit later in life is where the challenge lies).
Once you get your first job and steady income, you can begin building good credit by getting a credit card, spending less than 30% of your spending limit each month, and always paying your bills on time (including utilities). Be sure to set up automatic payments for everything that you can: your outstanding student loan debt, your rent, your utilities, etc.
One way to start building credit rather quickly is to use a secured card like the OpenSky® Secured Visa® Credit Card. With this card, you’ll put down a security deposit ($200 – $3,000), which will become your credit limit. What’s unique about the OpenSky® Secured Visa® Credit Card is that your credit will not be checked when you apply, so you won’t see a ding in your credit score. BUT, all of your on-time payments will be reported to the three credit bureaus so you can start building credit.
If paying a deposit to get a card isn’t you’re thing, you can still build credit with an unsecured card like the Credit One Bank® Platinum Rewards Visa, which has no annual fee and a basic rewards structure for folks who aren’t looking for anything too fancy. You’ll earn 2% cash back on purchases in select categories (gas stations, grocery stores, etc.). You’ll also get up to 10% cash back on purchases at select merchants.
5. Open a retirement account
Is it ever too early to think about retirement? Nope! In fact, opening a retirement account in your teens and 20s is perhaps the best financial decision you can make.
A retirement account is a specialized savings account that you deposit into throughout your working years but never withdraw from (without penalty) until you retire. That way, the account can “mature,” meaning whoever handles it for you (your financial advisor or bank) has decades to invest it and let the interest compound.
If you deposit $40 into your checking account each month, you’ll have $19,200 after 40 years. But if you put that same amount into a retirement account, you’ll have closer to $250,000.
The two most common types of retirement accounts are 401(k)s and IRAs. To put it simply, a 401(k) is one that your employer opens for you, and oftentimes will even match your contributions up to ~6%. An IRA is one that you open yourself and is more common among self-employed folks.
If your employer doesn’t offer 401(k) options, you can open an IRA yourself pretty quickly and easily through your bank. Your bank can manage your retirement account for you, but you can instead opt to have a third-party adviser handle it better.
blooom is like other “robo-advisers,” the site uses AI to optimize your retirement accounts.
Why should you trust an AI? Well, because investing is largely quantitative, AI is not only smart enough to optimize algorithms, but it can react instantaneously to dynamic market trends (whereas human advisers have to sleep).
Plus, blooom is also uniquely capable of managing both employee-sponsored 401(k)s and Roth IRAs. Finally, the chief advantage of using a robo-adviser like blooom is that they’re incredibly affordable; blooom’s annual management fee undercuts the price of a single advisement call with a human.
Betterment is another great choice, as they can help you choose the right retirement account for your needs. If your go-to retirement account is an IRA, Betterment offers a host of different options, including traditional IRAs, Roth IRAs, and SEP IRAs.
To get started, all you’ll need to do is answer a few questions, and Betterment will build and manage an investment portfolio for you that aligns with your retirement goals. Plus, they offer tax-loss harvesting to ensure that your investments are always working in your best interest.
6. Understand your employer’s health insurance benefits (or get some on your own)
Most medium- to large-sized employers will offer health insurance and automatically deduct your premiums from your paycheck. If it’s optional, take it; the deals employers can negotiate with providers usually result in much better benefits and premiums than you’d find on your own.
Once you opt-in, you should at some point receive an email PDF or paper packet with all of your benefits. It’s absolutely worth reading through this stuff because you’ll find some hidden perks that could save you big bucks.
A common perk of employer-sponsored health insurance is free or subsidized gym memberships, which can save you hundreds annually. Plus, you may get big discounts on fitness-related purchases like running shoes or Apple Watches.
If your employer doesn’t offer health insurance benefits, you’ll probably want to get some health insurance on your own to protect yourself from medical debt.
As an alternative to healthcare.gov for browsing private insurance, head to Policygenius. Similar to how KAYAK.com shows you affordable flights, Policygenius aggregates insurance quotes for all types, ranging from auto to life, medical, even pet insurance.
The site not only saves beaucoup time and money, but does a good job of protecting your privacy, obfuscating your personal details so you can browse quotes in peace without being hounded by insurance salesmen.
Becoming happy and well-off isn’t a matter of making money, but managing it. Making these six smart money moves during your first job shouldn’t take you more than a few hours and a few hundred bucks, and will accelerate you on your path to financial freedom.
You might’ve noticed that this list didn’t include much investing; I believe that only once you’ve made these six moves first, you’re in a safe financial position to begin some hands-on investing. If that’s you, head on over to 7 Easy Ways To Start Investing With Little Money.