Career Advice, Salaries

What Not to Do With Your Finances When You Get Your First Real Job

You rarely forget the first time you land a real job. After all, swapping your coffee shop apron or retail store name tag for office attire and those hourly paychecks for the security of an annual salary is a big deal.

Sometimes, though, those fond memories carry with them dubious spending based on a mixture of excitement about finally earning a good wage along with an acute hunger to celebrate your entrance into the adult world. When a surplus of money and an enthusiasm to spend meet, though, there will most likely be a lot of waste — and there’s nothing more detrimental to your wealth than wasting money when you’re young.

Managing your finances wisely after you land your first real job is a skill that even seasoned veterans of the salaried world haven’t mastered. A 2016 article from Forbes indicated that only about 45 percent of working-age Americans have money in their retirement accounts, an indication that, even with a salaried, steady job, people aren’t always very good about making smart long-term decisions (or even short-term, for that matter). 

If you want to set yourself up for success, it’s critical to implement healthy spending habits from the beginning — here are a few tips to get you started.

Curb Your Enthusiasm for a New Car

The temptation to drive around in a fully-warrantied, completely new car can be strong, but instead, you may want to consider a well-maintained used car.

Edmund’s 2017 Used Vehicle Report notes that the average payment on a six-year new-car loan was $508 a month, while the payments on a used vehicle were $380. Over the course of the six years that you pay back your car, that $128-a-month difference amounts to $9,216. If you took that money and put it in a 401(k) that earned five percent a year, buying a used car instead of a new one could earn you about $67,815 if you retire at 68.

If you bought buy a used car for even cheaper — say, $15,000 — your monthly payment would be around $220. Contributing the difference between that payment and a new car payment could turn into around $92,600 by the time you retire.

Don’t Sign Up for a Luxury Credit Card

The Chase Sapphire Reserve took the personal finance world — and Millennials — by storm when it launched in 2016. The card presented an interesting dichotomy of financial principles. It had an annual fee of $450, which is high, but many posited the card’s travel-related cash benefits balanced out the annual fee. But if you aren’t much of a traveler, it’s hard to justify keeping a luxury card after the first year.

Instead, opt for a non-luxury, cash back credit card like the Citi Double Cash, Chase Freedom Unlimited or Capital One Quicksilver. J.D. Power reports that cash-back cards have the highest customer satisfaction, and their rewards structures make earning cash rewards an easy thing to do. If you’re looking for a credit card that offers a set of benefits and rewards that are not quite luxury but better than most, Bank of America’s Premium Rewards card is a good fit.

But whichever card you choose, be honest with yourself about your spending habits. If you tend to carry a balance, know that your interest payments will seriously undercut the value of your credit card rewards.

Resist the Temptation to Sign Up for Store Cards

With more disposable income in your bank account, there’s a good chance you’ll be tempted to open up a store credit card, especially if you get your job around the holidaysMany times, these credit cards offer higher interest rates than normal, zero percent interest offers that have deferred interest and rewards that are only good in their store.

If you’re smart, you’ll refrain from the store cards and create a budget for the holidays, which includes the names of the people for whom you want to buy gifts, what you want to buy and where you want to buy them. This type of planning curbs the unnecessary spending that plagues consumers who get reeled in by offers for big savings when you sign up for store cards.

Avoid the Desire to Max Out Your Budget With Rent

When I got my first real job, I was working part-time at Apple and Starbucks. I was living in a granny flat behind someone’s house. The structure was old, the oven was from the 50s and the power went out whenever I turned on more than two appliances at once. I was tempted to move into a big, spacious house or apartment once I settled into my new job, but instead, I chose to rent a room from a friend of a friend at work.

After the first few weeks there, though, I came across a chance to move into my own place: a fantastic remodeled apartment a few minutes from work. However, the apartment required a sizeable security deposit that would’ve taken me several months to earn back through saving. So, I decided to pass.

I stuck with the room I had and eventually found someone I used to know from my grad school days who rented a room out to me in a beautiful craftsman the same distance from work as the apartment I originally wanted. In my experience, waiting to move into your own place is a smart idea if signing a lease is going to exhaust your savings.

The pay raise that usually comes with your first real job gives you more buying power, yes; but it also gives you the chance to build up a good emergency fund of $1,000 to $2,000 to cover you in case of an unexpected large expense. Once you’ve built up enough in your reserves, then you can make a goal to save for a security deposit, or whatever big-ticket item you have on your mind. Doing so puts you in a much better financial position down the road.

J.R. Duren is a personal finance reporter at HighYa.com, where he covers credit cards, credit scores, student loans and more. He is a three-time winner at the Florida Press Club’s Excellence in Journalism contest.

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