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Entering the workforce: spend and save wisely

In a special “Money for Women” series, Jean Chatzky suggests some ways to manage your new salary, keeping your future in mind.

Every person has financial turning points in their lives, the result of life events such as marriage and having children. This week in a special “Money for Women” series, “Today” financial editor Jean Chatzky looks at these milestones and suggests some of the smart moves you can make to move forward in good financial shape.

Monday: Entering the workforce
Tuesday: Marriage and money
Wednesday: Having a baby
Thursday: Buying a home
Friday: Retirement

Through the week you'll learn that there's an all-encompassing truth about passing financial milestones: Planning (even a little bit) makes going through them much, much easier.

On Your Own
This year, some 2.5 million young adults graduated from high school or college and headed out 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 think that gives 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.) 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 the 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 ones, 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 earnings, is that it's a great habit to have in later years. And 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 a typical 18 percent interest rate, 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 a) calling the credit card company and asking for a reduction in your interest rate, or b) 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 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, increase 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.

Consolidate your student loans. If you are just coming out of college (or are, in fact, still in college) with a portfolio of student loans, you'll want to think about consolidating them … NOW! Rates are going up by almost 2 percentage points July 1. By consolidating in the next few days, you'll be able to lock in your rate in the 2.7 to 3.7 percent range which will — research shows — save the average borrower about $2,100 in interest over the life of a 10-year loan. If you're paying over 20 years, it will save you even more. But don't wait. And, unfortunately, if you've consolidated previously, you can't do it again.

Participate in your 401(k) About 40 percent of working Americans age 21 to 30 have no retirement savings, according to a 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), renter’s 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.

TOMORROW: A guide to tying the knot — and merging your finances.