Once again, a busy graduation season has come to an end. We enjoyed seeing the many different caps and gowns filling the streets of Manhattan in May and June. To those who have recently graduated… Congratulations! Your hard work has paid off and you are taking a step into adulthood. For many, this is a time for personal growth as starting a first job, finding an apartment, and possibly living alone for the first time all present new challenges. Here at Bridgewater, we asked a couple of our younger colleagues what they wished they had known before starting their first jobs. Here’s what they learned.
Earned Income
For some of our colleagues, their first paycheck was a rude awakening as they had not previously experienced the unavoidable reality of taxes. They were surprised to see the amount deposited into their bank account was less than what they expected.
When you receive your first paycheck, take a close look at your pay stub. One thing to note is the difference between gross pay and net pay. Gross pay refers to the total amount earned before any taxes or deductions are taken into account. Simply put, it is your salary divided by the number of pay periods. Net pay, on the other hand, is what remains after considering taxes and deductions. It is the money that actually ends up in your wallet. Depending on where you live, you may also be subject to an additional local tax on top of the state and federal taxes. For example, those who live in New York City are subject to a local city tax, which reduces your take-home pay.
Savings
Once you begin working, our colleagues recommend that you start setting aside a small amount of money from each paycheck into an emergency or “rainy day fund”. No matter how carefully you plan, there will always be unexpected emergencies.
It’s a good idea to aim to save 3 – 6 months’ worth of expenses in your emergency fund. While this may be a bit of effort when you first start working, it’s a good best practice for life in general. Deciding what type of account to open for your emergency fund is another question. If you have a brokerage account, you may want to place these funds in a high yielding money market fund or short-term treasuries. High yield savings accounts, which typically earn more interest than a standard savings account, are another option. It is important to note that interest rates on money market funds or high yield savings accounts can change monthly due to movements in the economy. On a final note, your emergency fund should be held in an account that’s easily accessible, as it should be readily available for unexpected events.
Benefits – Health Insurance
On your first day on the job, you will be asked to select a health insurance plan offered by your employer. However, our young colleagues suggest that if you have the option to stay on your parents’ plan until the age of 26, it is a good idea to consider this option as it is often the most cost-effective route.
If you are not eligible for coverage under your parents’ plan, a high deductible health plan through your employer is a good alternative, if available. A major benefit of these plans is access to a Health Savings Account or an HSA. An HSA is a tax-advantaged savings account that is used to pay for qualified medical expenses tax free. The only drawback of an HSA is the relatively low annual contribution limit, which the IRS updates annually. The best way to use an HSA is to invest the money in the account, and allow it to grow over time. When the balances are more substantial it will be available to cover medical expenses.
Benefits – Retirement Plans
When it comes to choosing a retirement plan, there are usually two available options. Many of our colleagues wondered what was the difference between the two and which plan was a better fit for them.
The most common workplace retirement plans are a traditional 401k and a Roth 401k. The primary difference between the two is how contributions and withdrawals are taxed. Traditional 401k contributions are made with pre-tax dollars; therefore, your withdrawals in retirement will be taxable. On the other hand, a Roth 401k is funded with after-tax dollars, meaning you pay taxes now so that your withdrawals in retirement are tax-free. It is also important to consider your employer’s matching contribution and the vesting schedule in place. Companies may make a matching contribution to your plan that is based on a percentage of your salary, but their contributions are subject to a vesting schedule. The vesting schedule itemizes what percentage of employer contributions you are allowed to bring with you if you decide to leave the company. It is usually based on your tenure with the company.
In addition to workplace retirement accounts, you may also want to consider opening a Roth IRA. If financially feasible, this is a good way to boost your retirement savings. The Roth IRA acts similarly to a Roth 401k with some exceptions. The Roth IRA is subject to a lower contribution and income limit, which is updated by the IRS annually. For the 2025 tax year, the max annual contribution is $7,000, and single filers whose income is below $150,000 are able to contribute.
Expenses
While not the most glamorous part of adulthood, our young colleagues unanimously agreed that managing your expenses wisely is a key part of building a strong financial foundation. Creating a budget will help you know where your money is going each month. This can help you make intentional decisions on where to save and where to splurge based on your habits.
One of the most important ways to manage your expenses is to stay on top of your credit card use and to make sure you pay it off every month. If you haven’t read it yet, our credit card guide is a good place to start learning about best ways to manage credit cards. While being financially responsible is important, it’s also okay to enjoy life and celebrate your accomplishments. So don’t be afraid to have fun, but just don’t break the bank while doing so.
While these are all great tips from our Bridgewater colleagues, life doesn’t always go as planned. It’s important to remember that you have the flexibility to grow, evolve, and even change jobs if your first one isn’t the right fit. However, no matter where your path takes you, know that your Bridgewater team is always here to help if you have any questions or just want a sounding board.