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 Congratulations on your first job! It is one of the most exciting time and you want to make sure that you put your financial knowledge to some good use. Generally speaking, most of what you learned in school will not prepare you for this. Perhaps you did an internship or participated in some other type of cooperative education experience. In that case, good for you. You will be a step ahead of your peers. However, there is a big difference between being a student at work, and being an employee. Certainly, more will be expected of you. Here are some of the important financial decisions that will help you start your journey towards a solid financial future.
Review Your Student Loans
Take closer look at your current financial situation. You may have student loans that will be a concern since you must start making payments now. You should check to see if you could get a better interest rate on your student loans as compared to your current rate. Sometime a little shopping around could save you lot of money and this is one of the item that sure can. Evaluate your student loan to see if you can refinance.
Review Your Employer Retirement Plan
Like most of us, you'll need to retire one day. Retirement planning is usually not the first thing on agenda when you're just starting out. However, an early start could make a big difference in the end. You should review your employer's retirement plan and options available to you. Most employers offer a retirement plan such as 401(K) with some matching contribution. If a 401(k) plan is not offered, there is usually a 403(b) plan that most non profit employers offer. Whatever is the option available to you, you need to make best use of it. Remember, you're allowed to contribute up to a certain percentage of your annual salary towards your retirement plan each year. Most employers permit employees to contribute up to 15 percent of their salary to a retirement plan. However, your annual contribution is also subject to certain maximum contributions limits per year. The annual maximum for 2009 is $16,500. If you are over 50, a "catch-up" provision allows you to contribute an additional $5,000 into your 401(k) account. It is also important to note that employer contributions do not affect an employee's maximum annual contribution limit.
Your employer may also offer a matching contribution. To explain this, here is a simple example:
An employer may offer to match 50% of your contribution with a maximum of 4%. It means that your employer will match 50% of your match as long as your match is 8% o less. You can still contribute beyond 8% but employer contribution is capped at 4%. So in this case, if you decide to contribute 8% of your salary towards 401(K), you're are essentially putting 12% of your salary(8% yours + 4% employer contribution) ) into your retirement funds.
Here is another example of how small contribution towards retirement plan can help you save big in long run.
Impact of Increasing 401(k) Contribution
Review Your Health Benefits:
If you're young and starting your first job, chances are that you're in good health. You should use your good health to your advantage by electing a high deductible health plan instead of traditional "fit for all" health coverage that your employer may offer. Remember, health care costs are rising at double digits and most employers are looking for ways to reward responsible healthy behavior for their employees. High Deductible Health Plan(HDHP) with HSA account is a great option for young and healthy people. HSA accounts have tax treatment similar to 401(k) accounts. All contribution to a HSA is non taxable and that could save you lot of money. Also, if you don't use all the money is your HSA account, it will rollover into your HSA account next year and you won't lose a dime. You want to make sure you get a big advantage by building your HSA balance during early years when you're young and less likely to get sick. A well planned HSA account will help in controlling your out of pocket healthcare expense when you start a family or have higher healthcare expenses. You can read more about HDHP Health Plans and HSA Accounts
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