Starting your first job can be overwhelming. There are so many decisions you need to make leading up to your first day. Then there are all the decisions you need to make during the first week, so much so that you need to know the right questions to ask to avoid making any glaring mistakes.
I remember the weeks leading up to my first day. I was moving from Pittsburgh to Baltimore to work for a huge defense contractor, and I was a mess. It was my first real job, with a real paycheck. I was putting a huge deposit down on my first apartment. I bought a new car. I was overwhelmed by the huge employee manual, and my human resources rep asked if I wanted to contribute to a 401K. A 401—what?
I had no idea what I was doing.
Fortunately, I had a friend who had done this all before and he gave me some great advice. When I look back, I'm thankful for his guidance because he helped me avoid many headaches and build up an above-average net worth. Here's what he told me.
1. Build Up Your Emergency Fund
An emergency fund is a crucial defense against financial disaster. Whether it's an accident or something needing repair, an emergency fund helps you manage the problem without you having to go into debt. (Here are a few ways to turbocharge your emergency savings.)
When you don't have a fund and your car breaks down, how will you fix it? You still need to get to work or you might get fired, which is worse than a broken-down car. If you don't have the cash, your only choice is to put the costly repair on your credit card with its double-digit interest rate. Now you have a problem made much bigger by debt. (Debt can have a significant impact on your credit as well. You can see how by viewing two of your credit scores for free on Credit.com.)
Make the choice to start an emergency fund. At a minimum, have three to six months' worth of expenses saved. Disaster will strike, so start saving today so you are ready.
2. Save for Retirement
When you start making real money, it's time to start thinking about retirement. Retirement is a long way off, but your decisions today can have a huge impact on when and if you'll be able to retire when you want.
If your employer offers a retirement plan, learn the details on how you can benefit. Many employers that offer a defined contribution plan, like a 401K, usually offer incentives for you to contribute. My first employer matched 50% of my contributions up to 4% of my salary. When I contributed 4% of my salary, they added an extra 2%.
With investments, time is your best friend and saving early is key.