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Entering the work force? You gotta be savvy

Wow, a paycheck! Many graduates lose their financial grip once they get a real job. Jean Chatzky has tips on keeping it together.

Jenny Posen is looking at the world of financial independence and, frankly, she's terrified.

Posen, who hails from White Plains, N.Y., is 20. She'll be a senior at George Washington University and she's got real work experience on her resume, including this year's internship in the men's buying department at Burberry. Seems like she's poised to get the sort of job she wants in fashion PR. Still, she says, "Pretty much everything about this scares me. I'm nervous I won't be able to find a job in New York. I'm nervous about making enough money to live on my own. I know this sounds funny, but I didn't realize I would be graduating college so quickly."

Jenny Posen's not the only one. This year, some 2.5 million young adults will head — for the first time — into the working world. It's not easy to balance the challenges of succeeding at your first full-time job with the challenges of managing your salary, but if you make an effort early on to establish a few good habits, it will pay off for years to come. Here's what you need to do:

Live on what you're making (or less). The first thing you need to understand is what you're bringing home. You can't just take that $30,000 starting salary and figure it will give you $2,500 to spend each month. You lose 25 percent of that to federal taxes and, depending where you live, another 0 to 6 percent of that to state taxes. (Ballparking it, that means you take home $1,750 monthly.)

That's how much you have to spend on food, shelter, clothing, your car, insurance, credit card payments, student loan payments and — oh, yes — having fun with your friends.

So before you spend a single dime, sit down in front of your computer or with pencil and paper and devise a budget for yourself. If you're going to spend $800 a month on an apartment with a roommate, and another $299 on a car, that gives you just $650 for everything else. Can you do it? If not, maybe you need to think about finding a smaller, less expensive apartment or — if your parents are up for it — living at home for a few months in order to stockpile some cash. (You won't be the only one; U.S. Census figures show that 60 percent of grads are moving home, compared to 57 percent last year.) The nice thing about training yourself to live on your net income rather than your gross early on is that it's a great habit to have in later years. If you end up with a tax refund you can put it toward one of the other items on the list.

Pay down your credit card debt. The average college graduate today comes out of school with close to $4,000 in credit card debt. At 18 percent, just carrying that debt (not making any progress in paying it off) costs you $720 a year. To get out of this debt quickly, first lower your interest rates as much as you can by either 1) calling the credit card company and asking for a reduction in your interest rate, or 2) taking advantage of one of the balance transfer offers that land in your mailbox at a cheaper rate — look for a low rate that will last at least a year. Then, make it your business to pay more than the minimum.

Summer, studies show, is the time most people fall off the wagon as far as their big debt reduction goals go (maybe it's the heat playing on their brains). The key, new research shows, is to make your goals manageable. So start by paying $25 more than the minimum. When that doesn't hurt, up it to $50, then $75, then $100, until you feel the weight of what you're trying to do. Setting goals you can actually achieve will inspire you to stay on track.

Participate in your 401(k). About 40 percent of working Americans age 21 to 30 have no retirement savings, according to a recent MetLife survey. That's a shame, because the best asset you have when it comes to saving for your future is time, and you've never had more of it than you do today. If and when you get a job, chances are your employer will offer a retirement plan like a 401(k) and offer you matching dollars for participating. Get into that plan as soon as you are able — even if you can only contribute 2 percent of your salary. Then, as with the credit card debt, once you feel steady on your feet, increase your contributions a percentage point at a time until you're putting in a full 10 percent.

When you leave that first job (and it will probably be only a couple of years until you do) make sure not to pull that money out of the plan (huge mistake!) but roll it over into an IRA where it will be able to continue to grow, tax free. If you don't have a plan at work, open a Roth IRA at your bank or a local brokerage firm and kick in $25 to $50 a month to start. Then, when you feel you can handle it, increase your contribution to $100 or more.

Get insurance: health, renter’s, disability. There's nothing like a setback to knock the wind out of your new financial sails. You may not have much in terms of wealth or belongings, but you want to protect the little you have. That means making sure you have health insurance (one medium-sized illness can cost you every dollar you've saved and saddle you with bills for years), renters insurance (it's cheap, and if you're robbed you'll be glad you spent the $150) and, if you can swing it, disability insurance to give you an income in case you're ill or injured.

Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," is now in bookstores. Copyright ©2005. For more information, go to her Web site, .