It can be hard for young professionals starting out today. Getting your finances in order — while paying bills, repaying student debt, and finding enough left over to save some too — can be difficult when you’re trying to do it all on an entry-level salary.
The trick is to have a plan and arm yourself with knowledge about the best ways to utilize your salary, even if it’s smaller than you’d like it to be.
Take Advantage of 401(k)s
Millennials who are also young professionals may feel like they don’t have much to work with when it comes to their entry-level salary — but keep in mind your employer compensates you in more ways than just money.
Through your company, you likely have access to a lot of great benefits. Take advantage!
Start with your 401(k) (or other company-sponsored retirement plan that your employer may offer). This is a tax-advantaged account, which means your contributions aren’t taxed. By saving money for retirement here, you’ll reduce your present tax bill.
If you feel like saving something like ten to fifteen percent of your income is too much for you to handle on an entry-level salary, start small. Try three to five percent.
At the very least, you do need to make sure you’re meeting the company match — or the percentage of your contributions that your employer will also contribute to your account. This is one incredibly easy way to essentially give yourself a three percent (or more!) raise, and one that goes straight into your nest egg.
Be sure you’re signed up for other company benefits you qualify for, as well. This may include health insurance plans, health savings accounts, stock options, discounted life or disability insurance, and more.
Open Your Own IRA
Your 20s and 30s are your prime savings years. If making use of more tax-advantaged accounts helps you to save even more, go for it. Compound interest works best for you when you give it time to do so!
After you’ve earned the employer match with a retirement plan through work, consider opening an Individual Retirement Account, or IRA. IRAs are accounts that you contribute to on your own, separately from any work-related account.
Traditional IRAs are tax-deferred, like 401(k)s. This means money that goes in this year will not be taxed when you file next April.
You can also open a Roth IRA if you feel like you can save enough without having the tax break when you file. You’ll be taxed on all your contributions up front, but you’ll be able to withdraw your money from your Roth account tax-free in the future.
Grab the Savers Credit
If you’re working with a small income but diligently saving what you can for retirement, the IRS has a way of rewarding your efforts. It’s called the Savers Credit, and it’s a tax break designed to help those with lower incomes.
Tax situations can be complicated. Don’t hesitate to search out a certified financial planner who can help you plan ahead and determine the best allocations for your money and savings — fee-only financial advisors can work with you to make the most of that entry-level salary and never try to sell you something you don’t need.
Prioritize Your Spending
One of the fastest, easiest ways to make the most of the entry-level salary of a young professional is to use it wisely. This means that you prioritize your spending so that your money is used only on things you really value.
You work hard for your money. Your spending should reflect that you respect yourself and the fruits of your labors.
To prioritize your spending, determine what you consider essential to your budget. From there, take a hard look at where the rest of your money is going. Is eating out four times a week really worth what it’s costing you? If you find a spending habit that doesn’t align with your values, eliminate it.
Your money should be spent on things that make you happy. Don’t worry about what other people determine is important to them. We each have our own priorities and values that should help to inform us as to where our money should go.
Make a Plan to Make More Money
If you’re struggling to live within your means and save money on an entry-level salary, don’t sit back and keep your fingers crossed for a raise. Be proactive instead.
Ask for more responsibility at work and prove that you’re a hard worker that wants to advance as you add value to the company. Then, when the time comes, negotiate for a higher pay that reflects all that you do for your employer.
Or start up your own side hustle. “Side hustle” is just a fancy word for part-time gig that you do in your spare time to make a little extra cash.
There are lots of ways for people with a variety of skillsets and bases of knowledge to make some extra money — or to advance from entry-level to experienced professional in their current job. Take the initiative and always be willing to make your own opportunities to make it happen.