Money Mistakes to Avoid When Starting a New Job

Congratulations! You landed your first job out of college and you are now an employed adult!

You can now go out and take yourself on a little shopping spree at the mall, upgrade your living situation, and buy that Apple Watch you’ve been eyeing …

JUST KIDDING!

Here at Frugal Financiers, we want to make sure you get the most out of your benefits, take-home pay, and avoid costly money mistakes.

The early days of your first job can be overwhelming.

Between setting up your paperwork, desk and finding the bathroom, getting your finances in order may not be a priority.

Follow the steps below to make sure you get the most out of your new job.

Money Mistake #1: Choosing the Wrong Health Insurance Plan

This will likely be one of the first things your employer will expect you to sign off on.

Let’s start with some basics on how insurance works in the United States.

The three basic things you want to look at are the premium, the deductible, and your copay.

• The premium is what you pay every month. You’ll see it coming out of your paycheck.
• The deductible is the total amount you pay annually before your health insurance kicks in to cover your costs.
• The copay is the payment you make along with the insurance before you pay to reach your deductible limit.

These three things fluctuate between plans depending on what you value the most.

You can get a high premium, low deductible, low copay plan if you think you might have a lot of health care needs.

You might consider this if you are pregnant or have a small child that requires a lot of doctor visits.

Typically, people don’t spend much time deciding on these plans, but this is something that can affect your finances.

For example, if you choose a high premium plan, you may end up never using the level of coverage your are paying for each paycheck.

But, if you choose a high deductible plan, you want to make sure that if something major occurs, you are able to pay the high deductible before the insurance starts making those payments.

If you don’t get a choice between different insurers for these categories, don’t worry too much about this.

Keep the information they provide you and lookout for withdrawals in your paycheck over the coming weeks.

Typically for Vision and Dental plans, your employer will offer only one option.

If you are between plans, the advice for medical insurance is a great blueprint as it is a similar payment structure.

At the end of the day, the more you pay for insurance usually means the more health care services you will receive for free or at a reduced cost.

Mistake #2: Not Taking Advantage of 401(k) Employer Matching

If your company offers a 401(k) plan with an employer match, take advantage of it!

Your contribution is made with pre-tax dollars and you won’t pay federal tax on this money until you withdraw it at retirement age.

If you haven’t already, check out our post on the benefits of a 401(k) plan.

Most companies also have what is called an “employer contribution” or “matching” up to a certain percentage of your salary.

For example, your employer provides up to a 6% match, meaning they will match your contributions dollar for dollar up to 6% of your salary.

Annually, you are contributing 12% of our salary to our retirement plan. 6% from your pocket and 6% from your employer.

In cases like this, you almost always should invest up to the match limit.

It is basically free money going into your retirement account.

Sure, it requires you to save some of your earned money, but it results in your employer paying you extra money.

For more information about the benefits of a 401(k) plan, check out our post. 

Money Mistake #3: Not Taking Advantage of Transportation Plans

Depending on where you live, your employer may help you pay for transportation.

If you live in a big city with public transportation, some companies will pay for your monthly pass from your pre-tax dollars.

This might also be applicable to parking passes. If you need to park in a structure that requires monthly payment, see if your employer covers the cost.

Final Thoughts

This is such an exciting time for you and we are glad you stopped by to read our advice.

This might be your first “professional” job and while you are learning the basics of your job, these important financial factors may be overlooked.

These are the financial topics you should consider in your first job:

• Medical, Vision and Dental Insurance: do your homework so you don’t get insurance coverage that you won’t end up using.
• 401(k) Matching: do not wait to sign up for this! Basically free money from your boss that is funding your future retirement.
• Traditional/Roth IRA: set up a separate retirement fund and treat yo future self to some money.
• Transportation: ask your HR representative if there are transportation reimbursements for driving or monthly transportation passes.