I can still remember the excitement I felt when I got the offer for my first “real” job. It was like I had won the lottery! Suddenly instead of being a 15-hour-a-week student worker making $10/hour, I was going to have full-time work with a full-time salary plus benefits. I was going to be rich — at least compared to what I had experienced for the last two years as I was getting my masters — and I couldn’t wait to get started.
I still remember calling my dad — bursting with pride and joy — to tell him all about it. While he was excited for me, he was quick to remind me that a significant portion of my salary would go to taxes. That tempered my elation a bit … but I still figured I could divide that large salary number by twelve, subtract a little for taxes, and get my monthly check amount. Let’s just say there were a lot of things that surprised me when I actually got that first paycheck and had to adjust my budget to this new reality.
If you’re getting your first job (or have a graduate in your life), here are a couple of key steps to keep in mind before you get started, too:
Learn how to negotiate: When I received my first job offer, I was so happy that I never even thought to research if the offer was equitable. Whether it’s your first job or your fiftieth job, this is an important piece of the process. Use glassdoor to see what the average base pay is for your role and how salaries change by location and company. Have a more specialized position? Start with the titles of others who are in your field (or a similar one). Find the offer is low? Use The Definitive Guide To Negotiating As A Woman from BossedUp to walk step by step through the negotiation process. Don’t worry ... the guide is still helpful even if you aren’t a woman!
Tip: When you’re doing your research and entering a negotiation, remember that salary isn’t the only thing that matters. Remember to look at the entire package, including health benefits, retirement benefits, vacation, and flexible work arrangements. Even if you don’t end up with a higher salary, you may be able to negotiate more in these areas.
Get to know your benefits: If this is your first job, health and retirement benefits will likely be new to you. Take the time to explore what your employer offers. Remember: not taking advantage of these is like leaving free money on the table. Some employers offer benefits that extend beyond the traditional health, retirement, and vacation package. Read through the employee handbook to see if you have employee discounts on services, student loan repayment options, tuition reimbursements, and more! I highlight some of my favorite employer benefits in this post.
Tip: As you’re getting to know your benefits — particularly health and retirement benefits — you’ll likely come across some words and concepts you haven’t seen before. Take the time to educate yourself. I really appreciate sites like NerdWallet and Investopedia that break down these challenging concepts into understandable pieces.
Understand taxes and withholdings: As I mentioned earlier, if this is your first full-time job, you might be amazed at how much is taken out in taxes. With your salary offer in mind, take a look and see what tax bracket you might fall into. This smartasset calculator makes it easy to estimate how much might be taken out for federal, state, and local taxes. One of the key things that determines how much tax is taken out is the withholding allowance you select on your W-4. There are a variety of different calculators you can use to help you calculate which withholding allowance you should select, including one directly from the IRS. Personally, I think this one from Turbo Tax is a little more user-friendly, and it’s quite thorough.
Tip: Single and working just one 9-5 job? This Financial Gym article makes it easy to understand what withholding allowance might be best for you.
Set your budget before you get your first paycheck: After you’ve estimated how much might be coming out for taxes, make a list of your necessary expenses (like rent, utilities, car payments, insurance, and student loan payments). Think through how much you want to set aside for emergencies, charitable giving, debt repayment, and other savings goals (and I strongly recommend that you set up automatic payments from your bank account to these accounts so the money comes right out when your paycheck goes in). Then, begin building in your discretionary spending (like eating out, entertainment subscriptions, or travel).
Tip: Before the money hits your wallet is a great time to decide how much you want to contribute toward your retirement savings. I realize it likely seems light years away, but starting early will help you get ahead of the game. You probably won’t even miss the money, particularly if you’ve never had a full-size paycheck before. You’ll want to start by at least meeting any employer match that’s available to you and then work toward a specific goal. Fidelity recommends putting away 15% of your income each year, including any employer match.
What advice would you share with a graduate who’s starting their first job?