Insights

3 Smart Money Moves for the Recently Employed

If you’ve recently been employed — whether it’s your first job post-graduation or a new job — one of the things you should begin doing is getting your financial plan in place.
Your goal should be securing your future, and there are some things you can do now to ensure that happens. Here are three smart money moves for the recently employed.
Image source: Getty Images

1. Let your employer 401(k) match be your baseline
A 401(k) plan is one of the greatest tools for saving and investing for retirement. Outside of making contributions pre-tax and lowering your taxable income, one of the greatest perks you can have is an employer match. Often, employers will match up to a certain percentage of your contributions. Whatever your employer is willing to match should be the absolute least you contribute.
If your employer matches 3%, your bare minimum should be 3%; if it’s 5%, your minimum should be 5%; whatever the case, you should never contribute any less than what your employer is willing to match. Otherwise, you are essentially leaving free money on the table because an employer match is a guaranteed way to get 100% returns on whatever the amount is.
If you make $100,000 annually and your employer matches 5% of your contributions, that’s an extra $5,000 per year if you at least contribute that much. The 401(k) contribution limit is $20,500 ($27,000 if you’re 50 or older), so it’s unlikely you’ll get that amount matched unless you’re close to the top 1% of earners, but an employer match can account for a lot of money in your account. 
2. Use a Roth IRA if you’re eligible
One of the main drawbacks of a Roth IRA is the income limit for contribution eligibility. If you’re single and earn less than $129,000, you can contribute the full $6,000 ($7,000 if you’re 50 or older). If you’re married and filing jointly, you can contribute the full amount if your income is less than $204,000. If your income is $144,000 or higher ($214,000 or higher if married and filing jointly), you’re not eligible to contribute at all. 
It can’t be overstated how beneficial it is to be able to have your investments compound tax-free. If you put $6,000 into an S&P 500 fund in a Roth IRA that returned 10% annually for 30 years, you would have over $104,000 without contributing another dime. If that happened in a regular brokerage account, you’d owe taxes on that amount when you sold your stocks. But since it’s in a Roth IRA, the full amount would be yours. Take advantage of the benefits while you can.
3. Set up automatic transfers
You can never go wrong by doing things that make your life easier. In investing, one of the ways to ease your load is to take some of the work out of it. That’s why it helps to have money automatically transferred into your investing account, whether it’s a brokerage or an IRA.
If you have an automatic transfer set up, not only does it take away a step for you, but it also becomes easier to get used to living without that money because you don’t have it for long in your bank account.
If you have the means, you should aim to at least max out the allowed IRA contributions. For example, if your plan is to max out your Roth IRA, you might have it set to automatically transfer $250 every two weeks from your paychecks. Or, if you get paid once per month, you could have it set to transfer $500 each time. How often you do it isn’t too important; what’s important is that you’re investing and working toward your future financial security.
The Motley Fool has a disclosure policy. –

If you’ve recently been employed — whether it’s your first job post-graduation or a new job — one of the things you should begin doing is getting your financial plan in place.

Your goal should be securing your future, and there are some things you can do now to ensure that happens. Here are three smart money moves for the recently employed.

Image source: Getty Images

1. Let your employer 401(k) match be your baseline

A 401(k) plan is one of the greatest tools for saving and investing for retirement. Outside of making contributions pre-tax and lowering your taxable income, one of the greatest perks you can have is an employer match. Often, employers will match up to a certain percentage of your contributions. Whatever your employer is willing to match should be the absolute least you contribute.

If your employer matches 3%, your bare minimum should be 3%; if it’s 5%, your minimum should be 5%; whatever the case, you should never contribute any less than what your employer is willing to match. Otherwise, you are essentially leaving free money on the table because an employer match is a guaranteed way to get 100% returns on whatever the amount is.

If you make $100,000 annually and your employer matches 5% of your contributions, that’s an extra $5,000 per year if you at least contribute that much. The 401(k) contribution limit is $20,500 ($27,000 if you’re 50 or older), so it’s unlikely you’ll get that amount matched unless you’re close to the top 1% of earners, but an employer match can account for a lot of money in your account. 

2. Use a Roth IRA if you’re eligible

One of the main drawbacks of a Roth IRA is the income limit for contribution eligibility. If you’re single and earn less than $129,000, you can contribute the full $6,000 ($7,000 if you’re 50 or older). If you’re married and filing jointly, you can contribute the full amount if your income is less than $204,000. If your income is $144,000 or higher ($214,000 or higher if married and filing jointly), you’re not eligible to contribute at all. 

It can’t be overstated how beneficial it is to be able to have your investments compound tax-free. If you put $6,000 into an S&P 500 fund in a Roth IRA that returned 10% annually for 30 years, you would have over $104,000 without contributing another dime. If that happened in a regular brokerage account, you’d owe taxes on that amount when you sold your stocks. But since it’s in a Roth IRA, the full amount would be yours. Take advantage of the benefits while you can.

3. Set up automatic transfers

You can never go wrong by doing things that make your life easier. In investing, one of the ways to ease your load is to take some of the work out of it. That’s why it helps to have money automatically transferred into your investing account, whether it’s a brokerage or an IRA.

If you have an automatic transfer set up, not only does it take away a step for you, but it also becomes easier to get used to living without that money because you don’t have it for long in your bank account.

If you have the means, you should aim to at least max out the allowed IRA contributions. For example, if your plan is to max out your Roth IRA, you might have it set to automatically transfer $250 every two weeks from your paychecks. Or, if you get paid once per month, you could have it set to transfer $500 each time. How often you do it isn’t too important; what’s important is that you’re investing and working toward your future financial security.

The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info