Financial Planning Tips For New College Grads
Graduating college is a huge milestone and transition. For many graduates, it’s the first time that they start working full-time jobs. It’s also the first time when they may start seriously thinking about their finances and building a long-term financial plan.
If you’ve just graduated or will be soon, here are a few tips to help get your career and financial plan started on the right track.
For job offers, look at the entire compensation package
As you consider job offers, it’s important to look at more than just the starting salary. While salary is definitely an important part of your compensation, employers offer a number of other valuable benefits as well. Some of the points you should consider include:
- Does a company offer a health insurance plan and how much will they contribute for your coverage?
- Do they offer other benefits like a dental plan or disability insurance?
- Is there a retirement plan in place and do they match a portion of your contributions?
- Does the company offer a type of stock or equity option or is there an annual bonus? For sales roles, what is the commission and draw structure?
- Will they pay towards any post-graduate continuing education, such as an MBA?
All these extra benefits add real value to an offer and the best overall package might not necessarily be from the company that offers the highest salary. Evaluating the entire package against your personal needs will help you make the right choice for you.
Consider your other goals beyond compensation
Besides compensation, you also need to think about your ideal career path so that you can pick a job that helps you reach these goals.
- Is there a career track or path for advancement? Does that track align with your goals?
- What types of roles are available firm-wide? It is often very difficult to determine what you want to do the rest of your life when you’re 18 and choosing a major. A firm with greater flexibility could suit you best in the long-term.
- Are you trying to break into a competitive field or need to develop more skills on top of what you learned in college? Extensive on-the-job education is highly valuable in most industries and some companies are known for their robust training and development.
- Are you looking for a flexible work/life balance or are you willing to travel? Be honest with yourself as you weigh a potential trade-off between more money and more flexibility. A consultant’s lifestyle isn’t for everyone!
Keep track of moving expenses for taxes
If you have to move for your first job, you may be able to take a tax deduction from certain qualified moving expenses. If your employer is covering the cost of your relocation, you can’t also take a deduction. If given the option – it is almost always best to have the employer pay over you.
If the costs aren’t covered, and you’re moving at least 50 miles from your current residence and will work full-time for at least 39 weeks of the first year, you may qualify for this deduction in 2015. If you think you may meet these criteria, keep a record of your moving expenses and discuss with your tax preparer.
Maximize matching contributions
When you just start working, retirement is so far away that it’s likely not your top financial priority. Still, you should look to maximize any matching contributions in your company’s retirement plan, such as a 401(k) or 403(b), if they offer this benefit. The matching amount will vary by employer, but is typically done as a percentage match up to a percentage of your salary. For example, a common matching structure is 100% of your contributions, up to 6% of your salary. Sometimes companies only do a partial match – so if a firm offered 50% matching up to 6% salary, you would need to contribute the entire 6% of your salary to the retirement plan to receive the full benefit offered.
As you determine the best financial course of action, also remember to consider your employer’s vesting schedule for their contributions. If you aren’t planning to stay in a job for more than a year or two, you may not be fully vested in their matching contributions. Your contributions are immediately 100% vested, though, and can be taken with you if you leave.
Getting started as a young professional can be very exciting. No more homework, a steady paycheck, and the world at your fingertips. Invest in yourself by starting out on the right financial foot and developing solid budgeting habits. It could pay dividends throughout your life.
by Darrow Advisor Caroline E. Coderre, CFP®, CDFA™