Things are really taking off for Chris Rightmire of Ewing, N.J. The 22-year-old graduated from the College of New Jersey in May and has begun work at his first full-time job, as a social-media coordinator at Princeton, N.J.-based Resound Marketing. Mr. Rightmire has been socking away cash since high school, when he worked as a janitor, and has amassed about $10,000 in savings, he says. His current monthly take-home pay is about $2,400, and he keeps living expenses low.
But Mr. Rightmire has his financial work cut out for him: His savings will come in handy as he begins payments on his roughly $10,000 in student loans in the coming months, he says. And, on the advice of a friend in financial services, he's thinking of opening a Roth IRA rather than taking advantage of the Simple IRA that will soon be available to him through work.
For 20-somethings who have recently landed a first job, the logistics of financial independence can seem daunting. It is never too early to start laying a solid foundation for your future. Here are some things young workers should be sure to take care of within the first five years of starting out:
Set a budget. Financial experts such as Kimberly Foss, a wealth adviser in Sacramento, Calif., recommend writing down your financial goals with pen and paper. They sink in better this way, Ms. Foss says. Then enter them into an app, such as Intuit's Mint, for tracking, she says.
Return to your goals every six months to update them and re-evaluate your progress, say experts. During the summer months, ask yourself whether you're on track for savings goals you set at the start of the year, says Michael Kitces, a Columbia, Md.-based financial adviser. Similarly, re-examine your spending, he says. Is it in line with what you'd planned?
Save for emergencies. Financial advisers recommend setting aside enough cash for three to six months of living expenses in case you lose your job or become unable to work. But Ms. Foss recommends boosting your emergency fund even further and socking away 12 months of expenses. Don't dip into the fund unless there's a true emergency, she says.
Take stock of debt. Look at any outstanding debt (such as student loans or credit-card debt) and evaluate not only whether you're on track to pay it off in the desired time frame, but if you might benefit from consolidation or refinancing if applicable, Mr. Kitces says.
Think about retirement. A rule of thumb is that you should be working your way up to saving about 15% of your salary for retirement, says Judith Ward, a senior financial planner at T. Rowe Price Group. The 15% figure includes individual and employer-based plans, and employer contributions, she says.
As soon as you can afford to bump up your contributions, do so, Ms. Foss says. But if that's not possible, make sure you're contributing at least enough to get any employer match, so that you're not leaving money on the table, she says. If a plan isn't offered through your workplace, consider opening a Roth IRA account, which allows savings to grow tax-free, experts say.
Manage risk. Evaluate your insurance, including homeowners/renters, auto, health, disability and life, Ms. Ward says. Does your home insurance adequately cover your personal property? Do you have sufficient short-term and long-term disability insurance to cover living expenses should you become injured and unable to work? You might receive some life insurance through your employer, but is it enough to support any dependents? If selecting your employee benefits got lost in the shuffle of the first weeks on the job, look ahead to the fall, when most employers have an open-enrollment period for benefits, Ms. de Baca says.
Take time to do some basic estate planning, such as selecting beneficiaries for life insurance and any investment accounts, Ms. Ward says. If you have dependents, work with an attorney to draw up a will.
Manage taxes. Did you receive a big tax refund or, alternatively, owe a significant amount this tax season? You might want to adjust your withholding, says Michael Garry, an adviser at Yardley Wealth Management in Newtown, Pa.
While some people enjoy the forced savings and seeming windfall that over-withholding can provide, it amounts to an interest-free loan to the government, he says. Plus, it's tempting to blow the big check, Mr. Garry says. You might be better off having less withheld for taxes and directing those dollars to your 401(k).
And don't forget to track tax-deductible expenses, like charitable donations or mortgage interest, Ms. de Baca says.
BY LINDSAY GELLMAN
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor.
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