Employee of 10 years: “Hey, welcome to the office! Happy first day on the job.”
You: “Hey, thanks! You too!”
Congratulations! Your first awkward encounter in the workplace. Don’t worry, there’s an endless supply where that came from.
I suppose it depends on what type of person you are, but man, first days are terrible. On my first day, I only had four awkward encounters; and I count myself lucky. Of course, there are friends to be made and relationships to be built, but that takes time.
On the whole, my first day wasn’t nearly as bad as it could have been. I spent most of it leisurely reading in my cube, waiting for a laptop. Completely uninterrupted, I was able to finish the second half of Kafka on the Shore by Haruki Murakami!
I wouldn’t have such productive day again for many, many months.
What Can You Do?
Now, I can’t save you from the guaranteed awkward encounters in your future. But I can tell you the things I wish I had done (right) on my first days, weeks, and months on the job.
1. Enroll in the retirement plan
First things first. If your employer offers a 401(k) or 403(b), take them up on it. Right away. Most employers offer matching contributions, which means that if you contribute a portion of your salary to the plan, your employer will do the same.
For instance, a common setup is for your employer to match 50% of your first 6% contributed. So, if you contribute 6% of your salary to the 401(k), your employer will contribute an additional 3% at no additional cost to you.
Pulling a quote from Finance in a Flash — 2020 Edition: This is free money; take it! Trust me. Contributing a few percent to your 401(k) is the easiest money you will ever make.
But you don’t know the first thing about 401(k) plans or investing, you say? Doesn’t matter. Contribute at least up to your employer’s matching percentage (and more, if you can), and choose assets that match your retirement goals. For most, this means a mix of broad-based stock and bond index funds (check out My Portfolio & Fear of the 401(k) to learn about my experience).
2. Set up an Individual Retirement Account (IRA)
Unlike 401(k) plans, IRAs are individually owned. This means you’ll set up and manage them without the help of your employer. To do this, you’ll work with a brokerage firm like Vanguard, Fidelity, or Schwab.
Just Google “how to set up an IRA” and let the search engine take over. Or, if you prefer, call up one of the brokerage firms mentioned earlier, and they’ll be happy to help set up your account.
If you feel clueless, ignore the fact that you don’t know what you’re doing and set up an account anyway. It’s completely free, and any additional money you can invest now will go a long way towards your retirement goals.
3. Enroll in Health Insurance
In all likelihood, the most valuable benefit your employer offers is health insurance. (However, if you’re under 26 and happily insured by your parent’s plan, feel free to skip the next few paragraphs for the time being).
When selecting a plan, consider how much you expect to utilize services (i.e., number of doctor visits, etc.). If you’re relatively young and healthy, consider a High Deductible Health Plan (HDHP). These plans offer less coverage, but are more affordable and come paired with a Health Savings Account (HSA).
The important thing to note is that HSAs are a tax-advantaged goldmine. Both you and your employer can contribute pre-tax dollars to the account, and that money can be withdrawn tax-free for out-of-pocket medical expenses.
But wait! There’s more! Once you turn 65, HSA funds can be withdrawn for any reason—all you have to do is pay income tax, similar to a 401(k). So, either that money is never taxed at all (if used for medical expenses), or it’s taxed in the same way as your 401(k). That tax treatment can’t be beat.
On the other hand, if you have a chronic condition or otherwise find yourself at Dr. Brown’s office more times than not in a given year, you’re probably better off with a more expensive health plan with a lower deductible.
4. Select Other Benefits
Once health insurance is out of the way, look into your employer’s Long-Term Disability (LTD) options. Most will offer some base level coverage (like 50% of pre-disability pay), as well as an option to buy up (e.g., to 65% of pre-disability pay).
Whatever your employer’s offering, LTD is extremely important. If something happens to your ability to work, you need to make sure you’ll be taken care of.
Other types of insurance, like critical illness, accidental injury, and hospital indemnity are more discretionary. Pay for whatever you feel comfortable with, and just make sure that, if something does happen, your insurance—or emergency fund—will be able to cover it.
Tips & Tricks
If you start work in the middle of the year, keep in mind that retirement account and HSA contributions function on an annual basis.
What do I mean by this? Say you’re able to swing living at home for a couple more months. Just tell yourself your parents will be less nosy now that you’re an “adult.” (They won’t be). As long as your parents are cool with that, your expenses should be extremely low for the time being.
So, why not contribute as much as you possibly can to your retirement accounts and HSA? Even though you started in the middle of the year, that has no impact on annual contribution limits.
For a 401(k) in 2020, that’s $19,500. For an IRA, $6,000. And $3,550 for an HSA. If you can keep your expenses to a minimum and max out each of these accounts in your first year of work, you’ll have an enormous head start on retirement savings.
Take, for example, the $19,500 in your 401(k). At 7% interest, that $19,500 will be worth a whopping $292,000 in 40 years. Yikes!
These contributions can be particularly impactful if you’re in a very low tax bracket (given only a half year’s income) and have access to a Roth (post-tax) 401(k) or IRA!
Anything I Missed?
So, what do you think? Was your first day at work as terrible as I make it seem? Is there anything else you think the fresh high school and college graduates should know as they enter the workforce? Let me know in the comments below!
Subscribe NOW to receive a FREE budget calculator! Receive new posts straight to your inbox; and I promise, no spam :)
Want to learn about all of the essentials of personal finance in one place? Check out Finance in a Flash - 2020 Edition for everything you need to know!