The New York Times recently published an excellent financial primer for recent graduates accepting their first full-time job. The gist of the article is simple: even if you’re only 22, don’t neglect health insurance, taxes, and your retirement.
Health insurance isn’t on most healthy twenty somethings’ radar, but the Times puts it bluntly:
Priority No. 1 is to protect yourself from some huge expense that you cannot possibly afford. That is what insurance, in any form, is supposed to do.
Choose your health insurance carefully, paying attention to how much it will cost you (in payroll deductions and copays), but keeping in mind how much the alternative — getting sick without insurance — would cost.
And let’s not forget taxes. Thanks to Uncle Sam,
Sadly, a $36,000 annual salary won’t turn out to be anything close to $3,000 a month.
Don’t forget tax withholdings when you write your budget, and consider how much you want withheld from each check. For a single person living alone (not as a dependent), one withholding allowance usually suffices. Keep in mind, however, that if your parents claim you as a dependent or you receive income from a second job or other sources, you may need to select zero, or even elect to have an additional amount withheld each pay period. This W-4 Calculator can help.
Finally, if you’re really smart, you’ll open a 401(k) as soon as possible. Not only will you put the power of compounding interest to work in your favor by starting to save for retirement early, if your employer matches your plan contributions it’s like an optional raise.
Turning it down would be a real shame. Nor will it cost you as much as you think. Saving 3 percent out of an annual salary of $36,000 amounts to roughly $20 a week.
If you pay attention to these three things at the start of your career, you will be light years ahead of millions of Americans both your age — and considerably older.