The Art of managing and growing money

Most people have competing financial obligations—from paying rent and saving for retirement to paying back student loans and, yes, having a life. Making ends meet on a starting starting salary can feel like emptying an Olympic-sized pool with a tablespoon. But you are not alone.

That’s why it’s so important to understand the basics of managing—and growing—your hard-earned money. Here are four must-know steps to help you get off to a strong start.

1. With a Grown-up Paycheck Comes Grown-up Taxes

Many expenses compete for your paycheck. Taxes usually hit first, and, as we all know, there’s no avoiding them. So, arm yourself.

Income and payroll taxes. Before you even get your hands on your paycheck, taxes come out. Your employer will generally withhold a portion of each paycheck to cover state and federal income tax. Also siphoned out of your pay are FICA taxes, which fund Social Security and Medicare. Visit for more on deductions and withholdings.

When you complete your yearly tax return, you’ll learn that you either overpaid or underpaid your total taxes due for the year. Depending on the outcome, you’ll either get a refund from the IRS or need to send them a check. If you owed taxes or get a big refund this year, use IRS Form W-4 to adjust your withholding for next time.

Self-employment tax. If you work for yourself—perhaps as a freelancer or business owner—you must pay self-employment tax, which covers FICA. You also may need to file estimated taxes quarterly with the IRS and your state treasurer. For more information, visit the IRS Self-Employment Tax page.

Standard versus itemized deductions. Most taxpayers can deduct a set amount from their taxable income on their tax returns. It’s called the “standard deduction,” and for tax year 2016 it’s $6,300 for individuals and $12,600 for married couples who file taxes jointly. Alternatively, you may choose to itemize your deductions—most people choose to itemize if doing so leads to a bigger deduction than the standard deduction. Common deductions include mortgage interest, state and local taxes, charitable contributions, and the business use of your car.

Student loan interest. Even if you choose the standard deduction, you may still be able to deduct the interest you paid on any student loans. You may be eligible for the deduction even if your parents make your payments. For more information, read IRS publication 970, Tax Benefits for Education.

Investment tax. If you own any stocks, bonds, or other investments, you may need to report interest, dividends, and capital gains and losses when you file your tax return. For more information, see IRS Publication 550, Investment Income and Expenses.

Filing your income tax return. Filing is typically pretty easy, even for first-timers. The key is to stay organized. Early each year, you’ll receive your W-2 forms (listing any employment income you earned during the previous year) and 1099 forms (which include income from self-employment and investment income). Depending on your situation, there may be more forms to collect. For instance, if you paid more than $600 in interest on a student loan, you would get Form 1098-E from the lender. Create a simple system for collecting and categorizing these and any other supporting documents.

If you have all the necessary documents on hand when tax season rolls around, it should be easy to enter information into the appropriate forms—either on paper or by using an online tax software program. If you want someone to help you and you don’t mind paying a fee, you can take all your paperwork to a tax professional. Or, visit for free online federal tax-filing options.

No matter how you do your taxes, it’s smart to start early to avoid last-minute stress.

2. Save for Your Future Self

One of the most important things you can do for your financial future is start saving and investing early. The earlier you start, the more time you have for your investments to grow. Aiming to save at least 15% of your income a year can help keep you on track to a comfortable retirement.1 Don’t panic: That 15% includes employer contributions, if you’re lucky enough to get one.

If your employer offers a retirement plan, like a 401(k) or 403(b), make sure you’re signed up. For 2016, you can contribute up to $18,000, excluding any match from your employer. Make sure you contribute enough to at least get the entire match. It can make a tremendous difference.

For example, Elaine earns $50,000 a year and her employer match is, dollar for dollar, up to 6%. To save 15% of her salary, or $7,500, she would need to contribute only 9%, or $4,500. That’s because her employer would be contributing the other 6%, or $3,000, for her.

Not everyone has a 401(k) or similar plan. If you’re in that boat, consider opening your own tax-advantaged account, like an IRA. For 2016, you can contribute up to $5,500 to an IRA, if you qualify.2

With a traditional IRA or 401(k), you can get an income tax deduction and your money can grow tax free until you withdraw it at retirement. With a Roth IRA or 401(k), you pay taxes up front, but the money can grow and be withdrawn at retirement without paying income taxes.

3. Deal With Debt, and Build Good Credit

It’s not unusual for college students to graduate with significant student loan debt, or even credit card debt. If you’re in this situation, and if you have a match in your 401(k) or 403(b), consider contributing enough to get the match first, then with the rest of your savings pay down high-interest debt.

If you’ve avoided taking on high-interest-rate debt so far, take care not to fall into it now. You can do that by adding up all your monthly expenses—easy if you pay your bills online—and then comparing them with your monthly take-home pay.

Begin paying student loans. Some federal student loans allow a brief grace period following graduation, during which no payments are due. Once that period is up, however, you’ll need to begin payments unless you qualify for a deferment because of unemployment or health problems. Federal loans offer several repayment options, including an income-based option that may enable you to meet the minimum payment—even if your first post-college job does not offer a substantial salary.

Build your credit score. Building good credit can help you qualify for low-interest loans, secure an apartment, qualify for a mortgage, and create the life you want to live. The most important element credit agencies consider when figuring your credit score is your payment record. So whatever you do, don’t ignore the payment-due letters you receive for your student loans, credit card debt, or other liabilities.

If you have trouble making your minimum payments, call your creditors and explain your situation. The company might be able to work out a payment plan that you can live with. Try not to miss payments or fall behind, otherwise your credit score could suffer. That could make borrowing more difficult and expensive in the future.

4. Develop a Plan for Your Money

If you use a debit card or credit card, it’s easy to track your spending. You can roughly estimate the way you’ll spend money in the future based on your past spending patterns.

It also makes it easy to prioritize goals and reduce unnecessary purchases if you realize you’re spending an inordinate amount on things you may not really care about in the long run.

Create an emergency fund. At some point, you’re likely to have an urgent need for cash, whether your car breaks down, you get laid off, or you need to move for a new job. In all cases, you need a cash cushion to fall back on. During your first post-college year, aim to gradually build at least three months’ worth of living expenses in an easily accessible account, and touch it only when absolutely necessary. Depending on your finances and lifestyle, saving at least three to six months’ worth of expenses may be prudent.

It’s always tempting to put off saving until later. The trouble is, later may never come—and for many people, saving never gets easy. But there are ways to make it routine. If you have direct deposit, arrange for your bank or brokerage to direct a portion of each paycheck into an account designated for saving. You might not feel the difference—and you’ll start building a stash for a rainy day.

It’s worth it.
Graduating from college and entering the working world changes everything. You get a new lifestyle and a new relationship with your money. It’s an exciting time, and you have the tools and knowledge to potentially build a great financial life. Get the basics right and you’re well on your way.

Put your money to work for you; you may be pleasantly surprised by what it does.

Take the Next Step

One way to gauge whether your spending and saving plan is on track is with our Reign in your financial life with the 50/20/30 budget formula.

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