It is graduation season!! Hard work has paid off and hopefully a (paid) internship has been landed or even better a full-time job!
Graduating from school to the workforce is truly one of the biggest transitions one can make in your early years. Gone are the breaks and extra credit, enter manager expectations and salaries. While submitting applications and landing a great job are the focus, there are financial implications I want to discuss as the graduates of 2024 and beyond enter the workforce.
So, you landed to job, negotiated your salary and days off, now what….
Let’s first talk about your benefits package. This is likely the first time you have had to make these choices and hopefully you have someone trusted, such as a parent to advise you, but for the sake of your now independence let’s talk about the different things you must choose typically.
Medical
First, medical. The Affordable Care Act created a rule that says parents can keep their children on their health insurance until they reach age 26 even if offered coverage at work. As you are in your entry level job by being on parents’ insurance this can save you money monthly as your parents will pay the premium. As you make this decision, talk to your parents about the choice to see if they are ok keeping you on until you are 26. As you approach 26 pay attention to the monthly premium charge for the different plans offered.
You will typically have access to a health maintenance organization (HMO) plan, preferred provider organization (PPO) plan or a PPO high deductible plan. The HMO is a group of doctors that creates a smaller more restrictive network and requires you to have a primary care physician that would have to refer you out. The PPO plan gives you access to a larger network of doctors, sometimes on a national basis and does not require a primary care physician. The high deductible plan is the same as the PPO, but it would require you to pay more out of pocket in the event of a health care need.
Now I am not going to go into the ins and outs of health insurance here, but rather point out that between those 3 the monthly premiums can range from $0-$150 that you would pay. Your company typically covers most of the cost.
Now say you work for a small business that does not offer health insurance. Then you have the option to stay with your parents if available and if not on a local state exchange.
Health insurance is a big decision and one of the biggest employee/employer costs, but thankfully one you get to update and make changes on each year during enrollment season for your company.
Other Insurance Coverages
Alongside medical insurance you will be offered insurance for your eyes and teeth. Typically, inexpensive as a monthly charge but needs to be added if you are selecting medical insurance.
You will also be offered short- and long-term disability. Here in Colorado, you now may pay into a state funded program if your company does not offer higher quality insurance. If they offer this type of coverage, consider what you would do if you got into a car accident and needed surgery and time to recover? By having short term disability, you get to cover a portion of your income while out in your recovery. Common reasons for needing it are accident, illness, injury, or pregnancy. Typically cheap, but something to add to your benefits package as according to the Council for Disability Awareness one in four 20-year-olds can expect to be out of work for at least a year before they reach retirement age.
401k
A 401k is a retirement savings plan, and it may be offered through your work. It takes a portion of your income and invests it for your future retirement. Upon enrollment you get to select a dollar amount or percentage to contribute each pay period. The rule of thumb is to start by contributing 10% of your income, if at all possible.
Example: say your first job is paying you $50,000 a year and monthly you receive $4,166.67. If you are deferring 10% right out of the gate, you are setting aside $5,000 or $416.67 a month. You are learning to live off $45,000 or $3,750 a month (gross pay, before taxes).
As your salary adjusts you should naturally increase more in what you save. Know you can defer all the way up to $23,000 for 2024. Which is a pretty good idea if your parents are letting you live at home.
Let’s next talk about the 401k match. A company incentivizes you to participate in the 401k by offering to match your dollars that you put in. They do this by saying as a company we will match everything you do up to 3% of your contributions. So, in the example above, you put in your $5,000 or $416.67 a month, the company will put in an additional $1,500 or $125. Bringing the total contributions to $6,500 or $541.67.
Your future self, thanks you.
Getting a Salary
We have now talked about some of the major benefits you may encounter when getting your job, but now I want to shift to the money that goes into your bank account. For some this may be the first time you are consistently earning money like this. Going from making money over summer or part time jobs to getting a consistent salary can set yourself up with good habits or create bad ones.
First start by creating a budget and understanding what your monthly bills look like. With this new job there may come expectations that you now pay for things like your cell phone bill, car insurance or Spotify, for example. Understanding what needs to go out allows you to understand what you will have left over.
Next, open a savings account alongside that checking if you do not have one, as you need to start an emergency fund. This money is used when something happens, like losing a job or paying for your car if you get in an accident. It would be smart to set up an automatic contribution to your savings account aiming to get that account to match 3-6 months of your expenses.
Now that we have our budget, and set monthly savings, any money left over is your discretionary income. Use this for dinner with friends, or maybe buy some new clothes for work. But be careful not to let your discretionary expenses creep up to where you can no longer save monthly. The goal is to always spend less than we make.
If you have a big purchase in mind, it’s best to create separate savings for that purchase. If you hit your 3–6-month target in your emergency fund, then shift those savings to your big purchase. This could be for a vacation or a new car, etc. You could also save money from your discretionary spending money as well.
Anytime you get a pay increase you should adjust your budget, grow your savings, and monitor your discretionary spending.
You can easily get caught in spending on the fun stuff first and then have nothing left for what is important. Set yourself up for success and work to build healthy money habits.
“You’re off to great places! Today is your day! Your mountain is waiting, so…get on your way! - Dr. Seuss
This is a summary of some of the major considerations when taking your first job. Know that each benefit package and company will have their own nuances and specifics.
Attending the HR benefits training to understand your options and have a trusted person or financial advisor to help guide you in these decisions. Ask questions and be curious.
Congratulations and welcome to the workforce.
This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.
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