Each year, countless students graduate from college with mountains of debt and the worries that come along with it. It’s therefore encouraging to hear that job prospects are looking good for this year’s recent batch of grads.
Now if you’re wondering what your income will look like once you manage to land a job, you should know that it’ll vary depending on where you live and the position you get. But on a national level, the average starting salary for the Class of 2018 is $50,390. And if you manage to snag a role whose pay is more generous, you’ll have even more cash to work with as you navigate adult life (the real version, not the college version) for the first time.
Of course, you’ll want to make the most of whatever salary you manage to command, whether it’s at, above, or below the $50,390 mark. Here’s how to pull that off.
1. Create a budget
Managing your money for the first time can be difficult, so when you’re just starting out, it’s crucial that you follow a budget. To create one, list your various living expenses, compare that figure to what your paychecks give you, and make sure there’s enough room left over to save at least 10%. (Ideally, you should be saving 15% to 20% of your income on a regular basis, but if it’s your first year on the job, 10% is a reasonable and respectable goal.) If there isn’t, you’ll need to rethink your living situation or find ways to reduce your costs, whether it’s getting rid of your car, cutting back on leisure, or canceling cable.
2. Build emergency savings
You never know when you might lose your job, get hurt, or encounter a major expense you’re not prepared for. And that’s why emergency savings are critical. Your emergency fund should have enough money to cover three months’ worth of living expenses at a minimum, and if you can get closer to having six months of living costs in the bank, even better. The way to accomplish this goal is to set aside a small portion of your income each month, even if it means making lifestyle adjustments along the way.
3. Start funding your nest egg
It’s never too soon to start setting money aside for retirement. In fact, the more time you give yourself to save, the more opportunity you’ll have to accumulate some serious wealth in time for retirement. Once your emergency fund is complete, you should take the money you would’ve spent building it and stick it into your IRA or 401(k) instead. If you get into the habit of making regular retirement plan contributions at a young age, you’ll be more likely to uphold it throughout your career, and that could eventually spell the difference between retiring comfortably or not.
How much of a nest egg might you eventually build? Let’s imagine you graduate at 22 and it takes a year to build your emergency fund. From that point on, you put $300 a month into a retirement account. If your investments give you an average yearly 7% return during the time, which is more than doable with a stock-heavy strategy, then by the time you turn 67, you’ll be sitting on a cool $958,000. How’s that for impressive?
4. Accelerate your student loan payments
Though your student loan payments shouldn’t necessarily trump your retirement savings, if you’re paying a higher-than-average interest rate (say, because you borrowed money privately, as opposed to having taken out federal loans), it makes sense to allocate some money toward paying down that debt rather than use all of it to build your nest egg. Even if you took out federal loans, it still pays to knock them out as quickly as possible, so if you’re sitting on an extra $300 a month after paying your bills, and your emergency fund is already complete, you might choose to put $150 a month into your IRA or 401(k) and use the other $150 to pay down your debt faster. Remember, the sooner you eliminate those loans, the more you’ll save on interest — and the better you’ll feel about your financial picture on a whole.
No matter what salary you start off with, be sure to manage it wisely. That means following a budget, building a safety net, kick-starting your retirement savings efforts, and paying off the pesky student debt that enabled you to get your job in the first place. If you do, you’ll be setting yourself up for years of financial success.
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