How To Set Financial Goals for Your First Year at Work: 6 Key Things
If you’re starting a new job, there are certain things you shouldn’t skimp on and one of the biggest is how you set up your financial goals.
“Creating a money plan is one of the most important things you can do in the first year of starting a new job,” said Uku Tomikas, CEO and founder of Messente.
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“It’s not just a number; it’s your financial security blanket,” Tomikas said.
Below are some ways experts suggest you can go about setting these money goals to ensure long-term success.
First, Develop an Emergency Fund
“Start by setting aside money to cover your living expenses for the first three months after starting a new job,” Tomikas said.
“You’ll need to set aside at least $3,000 to $6,000 monthly to cover the first three months.”
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Participate in an Employer-Sponsored Retirement Plan
According to Robert R. Johnson, Ph.D., chartered financial analyst (CFA) and professor of finance at Creighton University, one of the most important financial decisions anyone makes in their life is the decision to participate in an employer-sponsored retirement plan.
“Perhaps the worst financial mistake anyone can make is turning down free money,” he said. “If one does not contribute enough in a 401k plan that has a company match to earn that match, one is basically turning down free money.”
He says that many people put such a high priority on paying down debt — like student loan debt — that they do not participate in their company’s 401k plan.
“People should do whatever it takes to participate in their company’s 401(k) plan to the level to get the full employer match,” he said.
Johnson also said that participating in an employer-sponsored retirement plan also reduces your tax bill. “When you contribute to an employer-sponsored retirement plan, your contributions reduce your taxable income in the current year.”
“That is, you reduce your tax bill by contributing to an employer-sponsored plan. But, the tax advantages don’t end there. As your portfolio grows in value, you aren’t taxed on the increase in value each year,” he said. “Your money is allowed to grow tax-free. You are only taxed when you withdraw the money in retirement.”
For Retirement: Invest, Don’t Just Save
Counterintuitively, Johnson said the biggest mistake many people make in 401(k) plans is not taking enough risk. “Individuals need to be taught to invest for retirement and not to save for retirement.”
“The surest way to build true long-term wealth for retirement is to invest in the stock market,” Johnson said. “Albert Einstein said that ‘compound interest is the greatest mathematical discovery of all time.'”
“Time is the greatest ally of the investor because of the ‘magic’ of compound interest,” he said. “Investors need to begin compounding early and let that compounding work its patient magic over decades.”
Spend Wisely
Those wise spending decisions when making money strategies are very significant, said Chris Townsend, financial advisor and owner of Three Movers.
“For instance, try applying for a cashback rewards credit card and make sure to pay the dues every month fully,” he said. “That is how you will get a great credit score.”
Townsend equally recommends eliminating unnecessary costs wherever possible and being creative with saving money, such as avoiding eating out very often or finding a cheaper apartment.
“By cutting down on daily expenses, you will unlock resources to pay off loans, save money and invest,” he said.
Manage Debt Responsibly
“Get help in managing your student loans and dues wisely by devising an efficient approach to repaying them early,” Townsend said.
“Choose the debt with a higher interest rate first and search for refinancing or consolidation of the loans to enhance related options,” he said. “Prevent the acquisition of excess debt and be particular about the utilization of credit cards to ensure a successful credit score.”
Get Started With Investing
“As your investment journey begins, learn about the many options available for investment, which include stocks, mutual funds or exchange-traded funds (ETF),” Townsend said.
He also recommends engaging a financial advisor to be able to know your ability to bear risks and your investment objectives, too.
“To begin with,” he said, “you need to invest in relatively cheap, diversified index funds or target-date funds to have a solid base to start your investment portfolio.”
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