Early-Career Financial Tips That Could Change Your Life

We're not normally into bombastic BuzzFeed headlines, but we figured that this week, we'd let it all hang out. That's because we can speak from personal experience that today's topic really can change the trajectory of your financial future. 

You've almost certainly heard that making money-smart choices and even sacrifices when you're in early adulthood can make a world of difference. 

In fact, you probably heard it from us. 

But we should stress that the benefits of these choices don't pertain just to what feel like intangible savings goals decades down the road once you're retired. Within just a few years, those choices can provide you with financial breathing room, psychological relief, and even more career flexibility.

So today, we'll talk about some early-career decisions you can make that could alter your financial trajectory. (And while these tips are aimed at the young'uns, most people can still get some benefit from them, too.)

It Pays to Get a Head Start

You're never too old to start adopting smart financial and investing practices, but generally speaking, the earlier you can begin, the more you can benefit. That's largely true for two reasons:

1. The older you are, the more likely it is that you'll have to break longstanding bad habits to instill new good habits.
2. Compound growth/interest. The longer you have to put your money to work, the greater the power of compounding.

But you really can't put money advice to work until you have real money to work with. That tends to be when you get your first "real" job, whether that's out of college, trade school, or high school.

That's why our conversation partner for this week—Stephen Dunbar, Executive Vice President at Equitable Advisors—says the first five years after graduation are often the most financially consequential.

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Of course, early-career folks don't always make the best long-term decisions, for several reasons. Managing a budget is new, the salary is likely entry-level, needs are many, and for those with the discretionary income to spend, there's always the temptation to put that newfound purchasing power to entertaining use.

Making things even more difficult? The traditional transition of resources isn't happening like it used to. "You've got people in their 70s and early 80s who are hoarding political power, economic power, financial power," Dunbar says. "So, young people / early-career people are not getting access to things [that provide a financial boost] early in their career. It's more on them to set themselves up for the future than it may have historically been."

That said, squeezing a little tighter earlier in life—and in some cases, just paying a little more attention to your options—can remove some of the bricks off your future self's shoulders, sometimes much sooner than you'd expect.

How Early-Career Professionals Can Give Themselves a Financial Edge

This week, we sat down with Dunbar to discuss vital financial advice for new graduates and other people who are just getting their careers rolling.

Young and the Invested: So, why don't you get us started with the most common financial mistake you see from people just getting started in the job market?

Dunbar: I've graduated. I've got that job. I'm making a decent wage. The first mistake I make is lifestyle creep. 

I'm thinking about one person I work with: She's an early-career physician, [she] suffered to get through undergrad med-school residency. The first thing [people in a similar situation] do when they start making that big income is they commit to a 60-month payment to celebrate—an expensive car or something along those lines.

Young and the Invested Tip: If you're paying off student debt, you might be eligible for some relief in the form of the Student Loan Interest Deduction.

I always say to them: "You deserve it. You've earned it. But buy something you can do in a single payment. Buy a watch. Take a vacation. Don't commit to a mortgage." 

That's lifestyle creep: Slightly bigger home than I need, slightly bigger car than I need, slightly bigger upgrade in my lifestyle as far as what I do for entertainment. Where I could've done something that I could write a check for and it's over with, I instead end up piling up debt because the number is so big.

Young and the Invested: Just given student loans and all of the other financial responsibilities recent grads have to tackle, I figured the first mistake to come to mind would have been related to debt. But I guess we backed into it!

Dunbar: Yes. If I could get on a soapbox, it would be to say, "pay the debt off as fast as possible." Because that single behavioral shift will pay dividends for decades. 

If I am aggressive about paying off that debt—and I'll tell you specifically how I think people can do that, because I don't want to throw something out that becomes this unattainable goal, then it's just more guilt and shame around my finances—three things will happen: 

1. First, because I will have so much more that I can save [later on], my ability to save more and the compounding growth on those savings will more than make up for the aggressive payoff of the debt early in my career.
2. Secondly, if I get that debt paid off early, my mental health will be so much better. People underestimate the emotional and mental strain that being in debt puts on us. I've seen people who are making tons of money, but because they haven't managed the debt, they feel imprisoned in their situation; they can't make the choices they'd like to make.
3. Third, and certainly equally important, I will have the freedom to then pursue work in whatever form I want. I don't have to stay at this law firm if I hate it so much, and I'm working 90 hours a week. I could go work at a nonprofit. I could move overseas and be located internationally. I just get the freedom to make some choices.

Young and the Invested: And what about those ways of paying off that debt?

Dunbar: First, I would design my lifestyle—even though it's going to be a bit of a delay [on getting things I want]—so I can eke out more on a monthly basis to put more toward the debt.

If and when you get bonuses, prioritize debt payoff. People often use bonuses to celebrate, to upgrade their lifestyle, to buy other things. But if we prioritize debt payoff, and we do it intentionally, that's one way to [knock out the debt] sooner. 

Young and the Invested Tip: One way to keep a closer eye on the occasional monetary windfall is to check in with a budgeting app linked to your bank account.

Another thing—and this is a little silly, but it adds up—is if anyone regularly gives you gifts, I would tell them that [if they] give anything during the first five years after your graduation, to give you money to pay off your debt. Because if you get stuff, you know the drill: That stuff will end up collecting dust at some point.

But yes, the greatest opportunity is getting that debt paid off. And this is something where I practice what I preach. I'm a thousand years old, but when I graduated from law school, I got my first big job, and I focused on paying off my debt. I had my law school debt paid off five years after I graduated from law school. It changed my life, and it's why I'm such an evangelist for this.

Young and the Invested: You had also mentioned in our emails back and forth that there are some mistakes you can make before you even take a job.

Dunbar: A huge mistake I see people make is that they don't evaluate the full offer when they are looking at the opportunity to get into the workplace. Oftentimes they just focus on the number they will deposit in their bank account. And that is a missed opportunity. 

The Department of Labor says that 30% of our compensation is actually not in the cash we put in our bank account—it's in all the other goodies embedded in the plan of the employer. 

So one of the things I try to do with folks when I work with them is say, "Let me get a copy of [the job benefits] and let's dig into it and take full advantage of it, because that makes a difference for you mid- and long-term." 

When you're comparing two offers, Offer A and Offer B, even though Offer A might have more cash, it might not be as valuable because Offer B has better medical benefits, better match and contribution to the 401(k). Offer A doesn't have an HSA, but Offer B does. Those other things can be super-valuable long-term in terms of your wealth creation. So don't get fixated on the cash comp—make sure you evaluate the full offer.

Also, if you're not using an HSA [health savings account], please use an HSA. It's one of the greatest accounts we still have access to because it's triple-tax free. Money goes in deductible, grows tax-free, comes out tax-free. 

Young and the Invested Tip: One of the best features of the HSA is that you can invest your funds. Here are some of the best ways to do that.

Young and the Invested: Any other accounts that early-career professionals should be mindful of?

Dunbar: Something that's not new, but I think [is less looked-for] like the HSA, is seeing if your employer has a Roth 401(k). Tremendous value. Having access to that is huge. You're not as income tax-sensitive early in your career, and you can take advantage of the Roth side of your 401(k)—that pays dividends for decades. The biggest gap I see in people's wealth management plan is the tax-exempt bucket. Lots of tax-deferred, lots of taxable, but very little tax-exempt.

I'm gonna give you a super silly example, but you're never going to forget this as a result.

Hide-and-go-seek. We all play it as kids, right? As grown-ups, we're engaged in a game of hide-and-go-seek as it relates to income tax with the federal and state government. So the point is to find a good hiding spot. There's only three of them, really.

1. As long as you don't spend the money, they can't see it and therefore they can't tax it. That's your 401(k).
2. They can always see it and they can always tax it. That's your investment account—your Robinhood, your E*Trade, and so forth.
3. Once the money's in there, they can never see it and never tax it. That's your Roth IRA or similar things: Roth 401(k), mega-backdoor Roth conversions.

Why is this so important? Because when I get to the point of using my nest egg to cover my lifestyle expenses, I have that financial independence. If I need $100,000 to live my life, if all my money is in a 401(k), do I draw $100,000 to cover my lifestyle? No! You have to take out more because you have to pay the tax.

Young and the Invested: Anything that people should know as far as the good ol' 401(k) is concerned?

Dunbar: One of the things I say to people is, whatever number you put in your 401(k) as your deferral, set it up to automatically increase by [1 percentage point] per year until you reach the maximum. For people who are not maxing out at the start, it will happen organically, automatically, and they will never know the difference.

Young and the Invested Tip: If you’re looking for another way to put your savings on autopilot, consider these automatic savings apps.

Young and the Invested: Do any other benefits tend to fly under the radar?

Dunbar: If there's an opportunity to get stock options or RSUs [restricted stock units], that's another reason to dig into your benefits. I think about UPS many years ago. I know a bunch of UPS millionaires—just average people, not making much money, but they [became millionaires] because they got stock. There are still some companies doing that, so that's another thing worth looking into if you're out there getting a W-2.

Also, there's a young woman I'm working with in New York. We are exploring with her employer the option of working remote in another area to bring down her cost of living so we can put that toward the debt. So, New York rent? $4,000. Dallas rent? $2,100. That's another couple of thousand dollars a month toward the debt. People should really think about the potential of remote work when they think about debt payoff. If you want to get super-aggressive, if you can locate internationally, that will bring your costs further down, and you can put that toward your debt.

And employers are really improving what they make available in terms of wellness. "We're going to cover the cost of your gym." "We're going to cover so many hours a month of counseling." I think that's more of an emerging trend.

Young and the Invested Tip: Workplace benefits are a vital component of your compensation, so make sure you're prepared for when open enrollment comes around.

Young and the Invested: I know you frequently work with people in professions with higher incomes but also greater schooling requirements. Are the rules any different for them?

Dunbar: I do a lot of work with the medical community. All that means is their debt balances, post-graduation, are going to be 7x to 10x someone who is just getting a basic college degree. So everything we've talked about is just on steroids, because now you're talking about somebody who has anywhere from $350,000 to $500,000 worth of educational debt they're dealing with. 

I wouldn't say it changes the substance of what we've talked about, but it creates more urgency. The idea of not spending too much to reward yourself on the front end—more urgency around that. The debt payoff strategies—more urgency around that.

The only thing that I would say, as I've observed, that is more acute for that group that is unique to them, is the burnout. Lawyers? Suicide, alcoholism. Private practice? Really bad. We got front-row seats to what doctors dealt with when we went through COVID—the burnout that can result from having to care for people, that's unique to that group. So the pressure is on us to make sure they are financially independent as soon as possible. We're just trying to outrun the burnout clock, because it's going to happen, and we're just trying to get them to a place where they have that independence and can make adjustments if they need to before the burnout clock goes off.

The other thing I say to people who are high earners is "What are you going to do with the raise you're going to get in six months?" And they're like, "What are you talking about?" And I say, "Well, the Social Security wage base is at a level where you will exceed that. So this percentage that comes out of your check will go away somewhere around four or five months into the year. So what are you going to do to capture that and tell it where to go so it doesn't 'leak out' on things you don't have control over?" 

I show people the power of that extra percentage over a 10-year period of time with a rate of return. It's a decent amount of money.

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Young and the Invested: Any last thoughts or advice?

Dunbar: Don't focus so much on the numbers. Focus on the why and the people you're connected to, and orient your financial planning around that. It will have more staying power because you'll have the emotional energy to stick with it. And when things get difficult, you will have the ability to power through that difficulty.

I say [to clients], "Let's make a list of the people who are important to you." I take their age and those people, then accelerate those ages by five, 10, and 15 years, so they can see with the passage of time if some of those people are going to be gone, or if they'll have new births. So they orient their financial planning and decision making around those relationships. Then I ask them "What do you want to become? What do you want to have? What do you want to do over the next five, 10, and 15 years?"

What I'm trying to do is create a North Star for their financial planning. That way we're not so fixated on rates of return and alphas and betas and taxes, but we're oriented in something that's tangible and real for them. Then money becomes the servant of that one-pager, as opposed to the other way around.

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Thanks for reading along with us, and we'll see you again next week!

Riley, Kyle & Hannah

Young and the Invested

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