The Class of 2026 has graduated.
Congratulations!
Successful college and university students across America are now packing their caps and gowns into cardboard boxes to gather dust in their parents’ garage—a quiet but profound rite of passage.
Now it’s time to consider the inherent excitement and uncertainty of the future, and how to parlay your hard academic work into a rewarding foray into professional development and adulthood.
For many recent graduates, this is an opportunity 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 Advisors, we asked a couple of our younger colleagues what they wished they had known before starting their first jobs and developing a true appreciation for the value of money.
Here’s what they, and we, learned.
Gross Pay vs. Net Pay: Overcoming Your First Paycheck Shock
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 disappointed to see the amount deposited into their bank account was less than what they expected. Many twenty-somethings quickly learn that navigating the impact of taxes is an important part of adult life.
When you receive your first paycheck, deciphering your pay stub is critical to managing your finances. A key number 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 accessible money that ends up in your bank account. 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.
Building an Emergency Fund: How to Prepare for Life’s Unexpected Costs
Graduation season is filled with inspiring commencement speeches offering timeless insights for the road ahead. While many of these addresses focus on the pursuit of one’s ambitions, there is a more grounded truth that is highly relevant to young people just beginning their financial journeys: consistency and learning to live below your means matter far more than the size of your first paycheck.
A foundational step to practicing that discipline is building a safety net by setting aside a realistic portion of money from each paycheck into an emergency or “rainy day fund.” No matter how carefully you plan, there will always be unexpected events.
It’s a good idea to aim to save 3 to 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 wise best practice for life in general. Even small amounts add up over time, and they help build beneficial life-long budgeting habits.
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 is readily available in case of unforeseen developments.
Choosing Your Healthcare Path: Staying on a Parent’s Plan vs. Going Solo
During your first day on the job, you will be asked to select a health insurance plan offered by your employer. This decision can be intimidating and confusing for even veteran employees. However, our young colleagues suggest that if you have the option to stay on your parents’ plan until the age of 26, this route can be the most efficient and cost-effective path.
If you are not eligible for coverage under your parents’ plan, a High Deductible Health Plan (HDHP) through your employer is a solid alternative. A major perk of these plans is gaining access to a Health Savings Account (HSA).
An HSA is a powerful, tax-advantaged tool designed to help you manage healthcare costs, offering a unique set of benefits:
- Triple Tax Advantage: Contributions are made with pre-tax dollars (lowering your taxable income), the money grows entirely tax-free, and withdrawals are 100% tax-free when used for qualified medical expenses.
- Long-Term Investment Growth: Unlike a Flexible Spending Account (FSA), HSA funds are not “use it or lose it” at the end of the year. The best strategy is to invest the money within the account and let it compound over time, building a substantial safety net for future medical expenses.
- Annual Limits: The only drawback is that the IRS sets strict annual contribution limits, which change slightly from year to year, so it is important to check the current cap when setting up your automatic payroll deductions.
Traditional vs. Roth: Maximizing Your 401(k) and Employer Match
When it comes to choosing a retirement plan, there are typically two options available to employees. Our younger colleagues had questions regarding the differences between the two plans, and which selection was a better fit for them personally.
The most common workplace retirement plans are a traditional 401(k) and a Roth 401(k). The primary difference between the two is how contributions and withdrawals are taxed. Traditional 401(k) contributions are made with pre-tax dollars; therefore, your withdrawals in retirement will be taxable. On the other hand, a Roth 401(k) 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 take advantage of your employer’s matching contribution—which is essentially free money. However, keep an eye on their vesting schedule. This schedule determines how much of the employer’s matching money you actually own and can take with you if you change jobs. Vesting is usually tied to your tenure, meaning the longer you stay with the company, the more of that matching money is yours to keep.
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 401(k) with some exceptions. The Roth IRA is subject to a lower contribution and income limit, which is updated by the IRS annually. For the 2026 tax year, the max annual contribution is $7,500 (for those under age 50). Single filers with a Modified Adjusted Gross Income (MAGI) below $153,000 can contribute the full amount. If your income falls between $153,000 and $168,000, you are eligible for a partial, reduced contribution, while those earning $168,000 or more phase out completely.
Finding Your Financial Balance: Budgeting, Smart Spending, and Family Support
While not the most glamorous part of adulthood, managing your expenses prudently is a key part of building a strong financial foundation. Creating a budget will help you track where your money goes each month, allowing you to make intentional decisions about 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. But remember, while being financially responsible matters, you’re still allowed to enjoy life. Don’t be afraid to celebrate your accomplishments and have some fun; just make sure you don’t lose your focus in the process.
While these are all great tips from our colleagues at Bridgewater Advisors, life rarely follows a straight line. It’s important for young adults to have the flexibility to change direction—and for parents to have peace of mind knowing their kids are on the right track.
Building financial security is a multigenerational journey. Whether you’re a long-time client or just starting your very first job, your Bridgewater Advisors team is always here to guide you and your family through every twist and turn.
Again, a heartfelt congratulations to the Class of 2026. We can’t wait to witness your impact on the world!