Your first job thrusts you into the adult world and the tricky balancing act of managing your money. The key to a healthy, wealthy, and low-stress lifestyle is not to get rich, but to master this balance as early as possible.
Here are six money-related moves to make during your first job so you feel good about your future.
What’s Ahead:
1. Open a Checking Account and Set Up Direct Deposit
If you don’t have one already, you’ll need a checking account to safely store your money.
The two most common reasons Americans are hesitant to open bank accounts are a) they don’t think they have enough cash, and b) they want to avoid bank fees. But many banks won’t charge you a penny for opening an account. And as long as you maintain the required minimum balance, if there is one, you won’t get charged any low balance fees and might be able to avoid maintenance fees.
The next question would be: which bank? You might’ve heard shifty things about some brick-and-mortar banks in the headlines, so who can you trust? Chime® and LendingClub are two great online-only options for modern banking.
Chime
Designed to help young people build their savings while they bank, Chime offers a safe and rewarding place to keep the money from your first job — and even get it early.*
When you set up direct deposit with Chime, you may be able to get your paychecks up to two days in advance if you qualify for early direct deposit.3 What’s more, Chime not only doesn’t charge overdraft fees but will cover up to $200 in overdrafts for eligible accounts with a feature called Chime Spot Me®. If you overdraw, Chime will “spot” you the money and deduct it from your next deposit at no cost to you.5
For its simple tools and variety of features to help make your life easier when money is tight, this is an ideal first checking account.
Open a Chime account or read our Chime review.
* Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.
3 Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.
5 Chime SpotMe is an optional, no fee service that requires a single deposit of $200 or more in qualifying direct deposits to the Chime Checking Account each month. All qualifying members will be allowed to overdraw their account up to $20 on debit card purchases and cash withdrawals initially, but may be later eligible for a higher limit of up to $200 or more based on member's Chime Account history, direct deposit frequency and amount, spending activity and other risk-based factors. Your limit will be displayed to you within the Chime mobile app. You will receive notice of any changes to your limit. Your limit may change at any time, at Chime's discretion. Although there are no overdraft fees, there may be out-of-network or third party fees associated with ATM transactions. SpotMe won't cover non-debit card transactions, including ACH transfers, Pay Anyone transfers, or Chime Checkbook transactions. See Terms and Conditions.
LendingClub
If you want a bank with more features that’ll pay interest on your balance, check out LendingClub. LendingClub offers a fee-free checking account that earns interest and cash back.
LendingClub’s Rewards Checking account pays 1.00% APY on balances between $2,500 and $100,000 (and 0.15% on balances above this). It’s not much, but the interest will add up the more you deposit. Plus, you can earn 1.00% cash back on qualifying purchases you make with your LendingClub debit card. And like Chime, users may be able to get their paychecks up to two days ahead of schedule.
Open a LendingClub account or read our LendingClub review.
Related: Best No-Fee Checking Accounts
2. Get the Right Credit Card
Once you’ve opened a checking account, your next step is to apply for a credit card. This can be through your current bank or a new institution altogether.
As a good rule of thumb, you should look for cards that have no annual fees and come with benefits like cash back and free stuff. But as you’re browsing rewards cards, make sure you choose one that actually makes sense for your spending habits.
Most likely, a fancy metal card that offers a high rewards rate on one category wouldn’t be as useful to you as a more basic rewards card that offers less cash back on more categories. Watch out for high annual fees and high interest rates with any rewards card.
One of the best cash back credit cards out there is the Chase Freedom Unlimited®. We recommend this card for anyone looking to build their credit when they start earning money from their first job.
For starters, this card offers a wide array of cash back categories. These are:
- 5% back on travel booked through the Chase Ultimate Rewards® portal
- 3% on dining, takeout, and drugstore purchases
- 1.5% on everything else
For a card with no annual fee that you can qualify for with average or good credit, you can’t do a lot better.
Apply for the Chase Freedom Unlimited card or read our Chase Freedom Unlimited review.
Secured Credit Cards
Depending on your income and credit score, you might not qualify for the exact card you want. Most unsecured credit cards like the Chase Freedom Unlimited have income requirements and want to see a certain credit score from applicants. Frankly, it can be tough to meet these as a newbie.
Secured credit cards can be a great option for people applying for credit for the first time. These are called secured because they require a security deposit, which is used as collateral in the event that you can’t pay back your balance. Secured cards tend to be easier to qualify for than unsecured cards but help you build credit all the same.
The OpenSky® Secured Visa® Credit Card is one of the best secured cards out there. With this card, you’ll put down a security deposit of between $200 – $3,000 when applying and this will become your credit limit.
All of your payment activity is reported to the three major credit bureaus, so making your payments on time will set you up for success and a better credit score.
What’s unique about the OpenSky® Secured Visa® Credit Card is that it doesn’t require a credit check or affect your credit when applying.
Apply for the OpenSky® Secured Visa® Credit Card or read our OpenSky review.
3. Start Budgeting
Budgeting is like driving. When you’re first starting out, it’s awkward, anxiety-inducing, and decidedly un-fun. But eventually, it kind of becomes second nature.
Effective budgeting can help you save money and feel less stressed. Knowing precisely how much money you have and where it’s going means there are no surprises and helps you plan for your financial goals. But making a budget and following it is a whole lot easier said than done.
If you’ve ever tried and failed to stick to a budget, it’s probably because you weren’t using the right tools. Trust us when we say the right tool makes all the difference.
We recommend PocketSmith and YNAB to beginners. If you want to make sure the money you’re earning from your new job is being put to good use, start with one of these budgeting products.
PocketSmith
PocketSmith is not your average budgeting app.
Yes, it’ll track your income and expenses and sound warning bells when you’re about to go over budget. But its most unique and useful feature is financial forecasting. With this, can insert a “dummy expense” and see how it’ll affect your finances as far as 30 years into the future. For example, if you want to go on a $3,000 vacation, you can see how much of a hit your money will take a year or two from now from that trip.
This feature is especially helpful for people with a new source of income. It takes a lot of practice to learn what you can afford to buy with each paycheck, and PocketSmith can save you from making some costly mistakes.
Start budgeting with PocketSmith or read our Pocketsmith review.
YNAB
You Need a Budget (YNAB) makes zero-based budgeting not only possible but simple. By linking your bank accounts, the app pulls information about your cash flow to quickly show you how much you have to spend. Then, you “give every dollar a job” each month by allocating all of your money to different spending and expense categories. Throughout the month, YNAB logs your transactions for you to help you stay on track in each budgeting category.
YNAB offers a variety of visuals and resources to help you figure out what you’re doing as you’re doing it. If you’re budgeting (or even just making money) for the first time and want to start out on the right foot, this tool is for you.
Start budgeting with YNAB or read our YNAB review.
4. Start Building Good Credit
You’ve probably heard a used car commercial say: good credit, bad credit, no credit, no problem! So what exactly is “credit,” why is it important, and how can you build it?
Your credit score is a three-digit number between 300 and 850 automatically assigned to you and updated regularly by the big three credit bureaus: Equifax, Experian, and TransUnion. Each bureau will have a slightly different score for you, but they’ll be roughly the same. Your score essentially tells financial institutions how reliable you are and how likely you are to actually pay your debt.
Having good credit throughout your 20s and 30s pays off big time. For example, if you take out a $25k auto loan with a credit score of 750 instead of 650, you could end up paying ~$6,000 less in interest over 60 months.
Thankfully, building credit is pretty simple if you’re consistent.
Here are the two main things you can do to build good credit:
- Spend less than 30% of your credit limit each month on your card – this is called your credit utilization ratio and it says a lot to lenders about how responsible you are
- Pay your balance in full and on time – set up automatic payments to avoid missing due dates
Related: How To Build Credit the Right Way
5. Open a Retirement Account
Is it ever too early to think about retirement? Nope! In fact, opening a retirement account as soon as you get your first job is one of the best decisions you can make.
A retirement account is a specialized savings account that you add to while you’re working and withdraw from when you retire.
The sooner you open a retirement account, the longer your money has to mature and earn interest (and interest on that interest).
How much interest you earn depends on the type of retirement account you open. The two most common types of retirement accounts are 401(k)s and IRAs.
The main difference between a 401(k) and an IRA is that your employer opens a 401(k) on your behalf but you open an IRA yourself. Some employers will match your 401(k) contributions up to a certain percentage each year. 401(k)s are common for full-time employees on payroll and IRAs are more common among self-employed folks.
If your employer doesn’t offer 401(k) options, you can open an IRA yourself pretty easily.
So after you open an account, now what? Your bank can manage your retirement accounts for you or you can hire a third-party advisor to take over.
There are a lot of ways to go about getting help managing and optimizing your retirement accounts, but one of the best options for beginners is a robo-advisor.
A robo-advisor is an automated platform that uses an algorithm to help advise your investments. Blooom and Betterment are two of our favorites.
Related: How To Figure Out What Retirement Account To Open First
Blooom
Like other “robo-advisers,” blooom uses AI to optimize your retirement accounts.
To get started, you give blooom information about how much risk you’re willing to take with your investments and when you hope to retire. Maybe retirement is the last thing on your mind now that you’ve started a new job, but it shouldn’t be.
With blooom, there’s no pressure to know what you’re doing with your retirement accounts. The platform will make recommendations to make your 401(k) or IRA more profitable, rebalance your investments, and save more by avoiding hidden fees. They’ll even suggest an investment strategy for you and help you set goals.
Blooom can help manage both employee-sponsored 401(k)s and Roth IRAs at an incredibly low rate.
Start investing with blooom or read our blooom review.
Betterment
Betterment is another great choice. This robo-advisor can help you pick the right retirement accounts for your needs from a list of options. If your go-to retirement account is an IRA, Betterment can help you choose between traditional IRAs, Roth IRAs, and SEP IRAs.
To get started, all you’ll need to do is answer a few questions, and Betterment will build and manage an investment portfolio for you that aligns with your retirement goals. Then, they’ll handle rebalancing and managing your investments too according to your goals. Plus, Betterment offers tax-smart tools to help ensure your investments are always working efficiently.
Start investing with Betterment or read our Betterment review.
6. Sign Up for Health Insurance
Most medium- to large-sized employers offer health insurance and automatically deduct your premiums from your paycheck. Sometimes your company’s health insurance is optional and sometimes it’s required. Usually, you can save when you get health insurance through your work because employers can negotiate better benefits and premiums from providers.
Once you opt in, you’ll receive a benefits package detailing everything your insurance covers. Take the time to read through this carefully because understanding the benefits and perks of your plan can seriously pay off.
For example, one common perk of employer-sponsored health insurance is free or subsidized gym memberships, which can save you hundreds annually. You might also be able to save on everyday health items you buy anyway.
Choosing Health Insurance
If your employer doesn’t offer health insurance benefits, you’ll probably want to get some health insurance on your own to protect yourself from medical debt. Policygenius can help you choose the right provider for you.
Policygenius aggregates insurance quotes for any type of insurance you may need, ranging from auto insurance to life insurance to pet insurance. Basically, it does the hard work of comparison shopping for you.
The site saves you time and money by showing you only the best health insurance offers based on your answers to a few basic questions about what you’re looking for. Your privacy is protected and your personal details are not shared with any companies until you sign up.
Get insurance through Policygenius or read our Policygenius review.
Related: How To Pick a Health Insurance Plan
Summary
Becoming happy and well-off isn’t a matter of making money, but managing it. Making these six smart money moves when you get your first job shouldn’t take you more than a few hours and a few hundred bucks, and will accelerate you on your path to financial freedom.
Focus on doing these things – and doing them right – soon after you get that first paycheck.
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