While college is meant to prepare you for adulthood, the professional world comes with its own lessons, which you likely weren’t prepared for in school. Grappling with the complexity of student loans, 401(k)s, taxes and insurance is daunting, and can quickly cloud post-grad achievements like landing a job and renting an apartment. If you’re feeling like college didn’t prepare you for the “real world,” don’t worry – many people feel the same way as you.
As an HR professional at a public, fast-growing tech company, I recognize that today’s workforce blends personal lives and work lives together in many ways, whether it be working remotely or eating breakfast or dinner at the office. Caring about the personal wellbeing of employees has never been more important, and that includes being a resource on tools you need to succeed. I’ve spoken with numerous recent graduates about the parts of adulthood that cause the biggest headaches. Here’s a collection of commonly-asked questions and tips for how to approach each. Armed with this information, you’ll feel more prepared for the hurdles that the professional world throws at you.
Student loans, and how to repay them
Generally, within six months of graduation, you’ll begin receiving notices to start paying off your student loans. No matter the amount, looking at how much you owe is overwhelming and paying off that number can seem impossible. It’s tempting to send that notification straight to the spam folder, but resist the urge; the worst thing to do is ignore your debt. Missed payments result in excess fees and can both lower your credit score and raise the interest rates on your loan; if you’re paying off a federal student loan, you can even go into default and be forced to pay off the entire amount in full.
Be proactive, and tackle your loans with vigor. It’s typically best to start by paying back as much money as you can afford, as soon as you can. If you can only spare the minimum amount, that’s fine. If you need to extend your repayment plan, that’s usually okay too. Just make sure that as you enter the workforce and earn more money, you monitor your debt and have a plan to manage it. You may want to put that extra income towards your loans, increase your payment amounts and expedite the process. If you have multiple loans, debt consolidation may be a good option to explore. Depending on your financial situation it can decrease your interest rates and organize your payments.
The important thing is to know what you owe and have a plan; making a dent towards your loans early usually helps. Think long-term and avoid the debilitating repercussions that debt can inflict.
The 411 on 401(k)s
A simple Google search of “401(k)” makes you wish you’d never looked it up to begin with. Pages of search results flaunt headlines like “You should have double your salary saved in your 401(k) by age 30.” You’ve just started your first job; should you really be thinking about retirement?
The answer, surprising as it may seem, is yes! Saving money now will help you enjoy your future, and with compound interest, the earlier you start, the more you can save. Fortunately, your employer may help you out along the way. When you start a job you will most likely have the opportunity to contribute to a 401(k), a retirement savings plan that’s sponsored by your employer. If your employer offers 401(k) matching, the company will put a percentage of its own money into your retirement savings account, based on how much you’ve independently contributed. That’s free money.
One of the potential advantages of a 401(k) is that your contributions are made pre-tax, and typically only taxed when you withdraw the funds (usually after you’ve retired). When you reach the IRS age limit, currently around age 59, you’re allowed to take funds out of your 401(k) without penalty. If you withdraw money earlier, however, you’ll likely get hit with a penalty fee and the distribution is subject to taxes. Some employer 401(k) plans offer Roth contribution options which can allow you to set aside contributions on an after-tax basis.
You don’t need to sink all of your income into your 401(k), in fact, it’s not possible. According to the IRS, the annual contribution limit for 2019 is $19,000. Contributing something, even a small amount, is usually a good idea. You can always add more as you go, and if you can manage, try to hit the minimum amount required for your employer to match your contribution. With every pay bump, reevaluate if you’re able to increase the amount of your income that goes towards your 401(k), aside from the natural increase that comes with the pay increase. Keep a close eye on the enrollment process as well; oftentimes employers will auto-enroll you for the following year.
401(k) savings options are complicated. A financial advisor is a valuable resource to help you navigate your 401(k) contribution options.
Picking the right health insurance
What kind of health insurance is best for a single, healthy 20-something? HMO, PPO, HDHP, HSA, FSA; there are a multitude of options (and acronyms), and the easiest ways to make a choice is generally to evaluate your short-term plans, and base your decision on your health, upcoming needs and family situation.
If you’re young and healthy, you’ll likely visit the doctor once a year for a preventive check-up. A good option may be to choose an insurance plan with a high deductible, like an HDHP, which gives you the autonomy to choose different in-network physicians depending on your specific needs. It can usually be used in tandem with a health savings account, or HSA, which allows you to use tax-free money to pay for medical expenses and may roll over year after year.
If you need to have a procedure in the near future, such as Lasik eye surgery, consider contributing to a flexible spending account, also known as an FSA. Like HSAs, an FSA allows you to use tax-free money for certain healthcare costs but is ironically less flexible; there is a limit to how much you can contribute, and depending on your employer’s plan, you could lose any remaining money you’ve set aside after a year. If you’re planning for a procedure, consider what it will cost so you can contribute accordingly.
If you’re planning on getting married or starting a family, consider their health conditions along with your own as you pick a plan. If you’re under the age of 26 then you might be able to stay on your parents’ insurance, but compare the cost; your employer-sponsored healthcare might be cheaper.
Mastering your taxes
When you’re just starting out in the workforce, the answer to tackling your taxes may be beautifully simple: you can probably find an online tool that will handle most of the heavy lifting for you. If you haven’t changed states between jobs or received equity from your employer, taxes are usually pretty straightforward and easy for a tool to decipher.
Not sure what a W9 form is, or how to fill it out? Hoping to get one of those fun tax return checks you’ve been hearing about? Consider the handful of quick and inexpensive options that navigate tax laws and forms with ease, walking you through each step of the process and saving your information for future use.
Once you’ve changed jobs, received equity from your company or gotten married, taxes can become more complicated. That may be a good time to turn to a professional to help you with the leg work.
Bonus: taking advantage of equity awards
If equity benefits came with your job offer, you’ll want to understand them so you can get the most from this benefit. There are a few ways to do so.
If your company is already public, it may offer an employee stock purchase plan, or ESPP, which enables you to buy company stock through payroll deductions for a discounted price. This “discounted” stock allows you to buy more for less and can be a part of your plan to build savings for the future.
Public companies may also grant you restricted stock units (RSUs) as part of your total rewards package. Once the RSUs vest, you generally own shares in the company. If you work for a company that’s pre-IPO, you might be granted stock options as part of your benefits instead. Stock options give you the right to buy a specific number of company shares at a specific price (called the exercise price or strike price). Options can also be a way you benefit from the performance and growth of the company, which can (hopefully) pay off. Whether you’re granted stock options or RSUs, you’ll want to understand the vesting schedule, as you may be required to stay with the company in order for the options or RSUs to vest. Owning shares of a company’s stock means you own a part of the company itself, so you can potentially benefit from your own hard work.
Talk with your HR representative to make sure you understand which approaches are available, and the benefits that each present. There’s no one-size-fits-all option, so you’ll need to figure out the path that’s right for you.
Navigating adulthood can seem daunting, but coming from someone who’s worked with talented people from all types of ages and backgrounds, I can tell you that each person’s journey is different and that’s a good thing. Best of all, you’re not alone – your company will have teams of people just like me available as a resource to back you up.