The economy seems to be perking up. Many economists were surprised by the recent Labor Department report saying payrolls grew by 290,000 jobs in April. It wasn’t long ago that jobs were disappearing.
So, let’s say you’re one of the newly re-employed. What are the key steps to getting your financial house in order and being on the soundest footing possible should something go wrong in the future?
The key steps fall into three categories.
First, begin the most aggressive saving program you can afford. If your new employer offers a 401(k) or similar program, sign up. Be sure to contribute at least enough to get the maximum matching contribution offered by the company, if there is one. Many firms match on a dollar-for-dollar or 50 cents-per-dollar basis up to 5% or 6% of the employee’s gross pay. Not getting the full match is like turning down a raise.
In past years you often had to wait six months or a year before you could begin participating in a 401(k). Now, many companies enroll new employees automatically in order to increase participation. Even if your new employer does this, take a close look at the program. Chances are the automatic enrollment doesn’t make the maximum contribution allowed, so you might want to boost it.
Also, companies with auto enrollment put employees into “default” investments. Look closely to be sure they are suitable. A default that’s heavy on money-market funds or bonds is probably too conservative if you’re only in your 20s, 30s or 40s.
Many companies put employees into target-date funds that match the employee’s expected retirement date. These can be a good option, as the mix of stocks and bonds gets more conservative as the employee gets older. But take a close look anyway to be sure there’s not an alternative that may suit you better.
Second, once your paychecks start flowing, start paying off debts, beginning with high interest-rate debts like credit cards. Use the Accelerated Debt Payoff and Credit Card Payoff calculators to set priorities.