June 16, 2014 at 12:32 pm #182306
I recently received the following question:
“I just started a federal job as a GS-7 and trying to figure out how to get my financial life in shape. I have $30,000 in student loans but also know I should be contributing to my retirement – just not sure how. Any tips?”
What’s your #1 financial tip for a new hire?
June 17, 2014 at 1:50 pm #182350
Max out TSP contributions. It is one of the best pension supplements available. Allocate contributions aggressively. Federal Pension and SS are conservative components of retirement savings. TSP should be for growth.
June 18, 2014 at 11:34 am #182348
I agree with Peter, but in interviewing new employees, I know that this is not feasible, especially if they are saddled with student loans. I would say that as you get pay increases (e.g. annual increases, step increases, or promotions), invest a portion of this increase into your TSP. For instance, if we receive a 3% pay increase (don’t laugh), invest 1% of that increase into your TSP.
Also, I would live with my parents as long as I could to avoid paying rent/mortgage and to try to avoid purchasing a vehicle. These are two big expenses over which you can exercise some control.
June 18, 2014 at 12:29 pm #182346
If student loans are a serious drag, young professionals should consider joining the National Guard or Reserve. Federal agencies are required to allow unpaid leave for the training required and the student loan repayment provisions are very generous. Also the extra pay can be very useful and if they stick with it, the retirement benefits supplement FERS very nicely. They may even be able to qualify for training in a military specialty which complements their civilian profession and helps build their resume.
June 18, 2014 at 5:39 pm #182344
Priyanka R. OzaParticipant
Based on your loans and interest rate, work with a financial counselor to work on a 5-10 year repayment plan. In terms of retirement, I keep my monthly contributions at 3%. I save a little bit on the side and decided to put away a portion of it for retirement/investments by the end of each year. I would take care of student loans before I focus too much on retirement. Especially if you are under 30.
June 18, 2014 at 5:54 pm #182342
Here is a common example from the net (but well documented) demonstrating why young professionals need to focus on retirement early:
Smart Saver — Smart Saver starts saving $3,000 every year, starting at age 20. After 10 years, her $30,000 total contributions are worth $47,000 (at an annual growth rate of 8%). At age 30, Smart Saver stops saving and makes no further contributions. She just lets the money grow at an 8% annual rate of return for the next 30 years, until age 60. At age 60, the $47,000 will have grown to $472,000.
Late Saver– Her sister, Late Saver, waits until age 30 before she starts saving $3,000 a year. Unlike her Smart Saver sister who stopped saving after 10 years, she doesn’t stop saving. She saves every year for 30 years, from ages 30 until she is 60. At age 60, her account is worth only $367,000.
By deferring her savings program for 10 years, Late Saver never catches up to Smart Saver. Late Saver saved three times as long and three times as much. Yet, her account is worth less than 80% of what Smart Saver has at age 60 – all because she waited 10 years to start saving.
Also, by starting savings early, the young professional adjusts to a slightly lower standard of living. Everyone promises themselves they will start saving after the next promotion, but too often become addicted to the little luxuries that add up fast and are hard to give up when it is time to start saving.
June 19, 2014 at 2:01 pm #182340
The power of compound interest is amazing
June 20, 2014 at 1:53 pm #182338
In order to do that though, you do have to leave your profession. and yes they put a hold on your position, but it isnt necessarily going to be in the same location you previosly worked in. I looked into that myself and it was not feasible for me to that. But, as a federal agent with NRCS I do recieve federal loan forgivness, in which after 10 years, which would equal 120 payments all loans are forgiven.
June 20, 2014 at 1:53 pm #182336
Terry, that is easier said than done. i am currently a GS7 but i live 12 hours from home. there is no way for me to do that and put money aside for TSP and Balance student loans, while paying a note on a vehicle and my girlfriend living with me. the pay starting out is not good at all to support TSP at the moment. I can only hope that we will see a raise in our pay checks.Yes putting money into the TSP and into the right accounts to invest and gain growth is very important, but it is very unmanagable when starting out. maybe as a 9, new hires can start putting money into the TSP and paying off their debt to school, the easiest way is make sure you have a good vehicle that doesnt require much maintanence, paid off, and affordable on fuel. Then you can start looking at spreading the money around. especially if you live a great distance from home.
June 20, 2014 at 3:33 pm #182334
Someone may have provided “interesting” misinformation. The initial period for training in the Reserves and/or National Guard can be as short as 8 weeks on a split training option or as long as 2 years but on average is about 4 months. The federal agency you work for is required to hold a “comparable” position which in practice almost always ends up being the one you are in when you enlist. Depending on what is available in your area, a very good option is National Guard Infantry. the initial training is about 13 weeks on a One Station Unit Training (OSUT) option, short enough for your home agency to hold your job in place. There are some nice enlistment bonuses and the weekend/annual training can be a good break from the office grind. talk to more than one recruiter and shop around. Also see if you can find reservists in your office or nearby federal agencies and ask them about their experiences.
June 20, 2014 at 4:35 pm #182332
I agree with your idology, i did look into it myself but to no avail. And my position although garunteed i would stay in grade or promote, was not garunteed i would be at the same location due to availability. Or so, i was told by fellow workers and higher ups.
June 20, 2014 at 4:52 pm #182330
I wholeheartedly agree with Peter on the idea of adjusting to a slightly lower standard of living. The cost of a cable bill, or an expensive smartphone data plan, would come close (or reasonably close) to covering the 5% TSP contribution it would take for a FERS employee to maximize the agency match. For most of us, that’s by far the best (instant!) return on investment one can find. Many other levels of government and private companies typically offer some kind of match-don’t leave that free money on the table! I know it’s not easy to cut when things are already tight, but there’s usually some fluff in every budget.
An excellent book on the subject of adjusting lifestyle to improve your finances early in your career is I Will Teach You to be Rich, by Ramit Sethi. [Note: I have no vested interest other than wanting to highlight a book that helped me dig out of a deep hole.]
July 2, 2014 at 3:34 pm #182328
I also agree with the maximation of pre-tax contributions to the limit of match – though in my state government that is — don’t laugh — $20 (which is $20 more than the county where I worked, btw).
If we are going to suggest books…In the county where I used to work, a police officer started (management-supported) training and an email support group to encourage (and track) responsible money management for our Public Safety and other (less-than-highly-paid) local government workers using Dave Ramsay’s Total Money Makeover book/system. Using the seven “baby steps” the group of about 600 people has paid off more than FOUR MILLION dollars in debt! Here is the gist of it: (Disclaimer: I have no interest in the plan or the program – I’m just a subscriber like everyone else in the group…)
1. Establish a $1,000 Emergency Fund for Immediate Emergencies
2. Pay Off all Debt Using the Debt Snowball
3. Accumulate 3 to 6 Months of Expenses in Savings
4. Invest 15% of Household Income into Roth IRA’s and Pre-Tax Retirement
5. College Funding for Children
6. Pay Off Home Early
7. Build Wealth and Give
July 8, 2014 at 6:20 pm #182326
Start putting money into a Roth IRA. Even a little each check will add up through the years. Increase the amount put into savings/retirement each time you get a raise….even if it is only $10.00 each check….
Live below your means……Don’t charge what you can’t pay for at the end of the month….save for the wants.
July 9, 2014 at 1:46 pm #182324
Public Sector RetirementParticipant
Tip #1: Contribute 5% to your TSP.
Your employer will match the contributions and it will be like giving yourself a raise. Not to mention its 5% of your pre-tax income so the actual impact to your take-home pay will be negligible. Starting early also has a fantastic compounding effect. Moreover, the fact that you can also access TSP funds for a downpayment on a house, in certain circumstances (and sometimes without penalty), means that you could be giving yourself the opportunity to buy a home sooner than a lot of young adults.
The next step. Do what you can to reduce your debt (pay the highest interest accounts first). And maybe more importantly, don’t accumulate unnecessary debts.
Good luck – we hope this helps.
July 9, 2014 at 3:54 pm #182322
1. Budget and live on two paychecks per month. With 26 pay periods per year, every 6 months you will get an ‘extra’ paycheck. This money should be spent on strategic financial goals: Maximize TSP, pay down debt, setup an emergency savings fund, savings for down payments on major purchases (home, auto)
2. Take full advantage of Alternative Work Schedules, Flextime, and/or Telework. These programs save you money by reducing costs associated with working: transportation, food, drycleaning, etc…
July 9, 2014 at 4:07 pm #182320
Survival tips for Guardsmen and Reservists:
1. Get to know USERRA inside and out. These are your legal rights and responsibilities.
2. Find out who in your agency’s HR handles military issues: military leave, deployments and training, post-deployment FERS buyback. This person should be able to answer your questions before you enlist.
3. If possible, select a military occupation that is compatible with your civilian career. Your supervisor will be more supportive if you can demonstrate that the skills, experience, and training you acquire on duty will be beneficial in the workplace.
4. Communicate with you boss early and in writing for any participation that will require workplace absence. They will need this to reallocate work.
5. If available, get on Flextime. This will let you work extra hours ahead of absenses to reduce the workload on coworkers and the impact on your workplace. Then use the banked hours to supplement military and personal leave while you are away.
July 9, 2014 at 11:58 pm #182318
Huge Ramit Sethi fan here!
July 11, 2014 at 1:53 pm #182316
To get the maximum in matching contributions, go for it all. It might hurt at first, but after a while you will never notice it and when you get the TSP statements! Wow.
July 11, 2014 at 2:12 pm #182314
Living below your means is probably the best advice you’ll get, although your budget may be tight as a GS-7. My two pieces of advice: prioritize your debts, and pay yourself for the future.
Assuming you have your living expenses covered (rent, internet and phone, etc.), priortize paying down whatever debt has the highest APR. Although you can’t discharge student loan debt, the APR is usually a lot more reasonable than credit cards. If you have a ton of credit card debit attack that first.
As for paying yourself, putting any money you can into a TSP or Roth IRA/Mutual fund is a good idea (others have suggested 3 to 5%). Those are long-term investments, and really pick up steam after 20 years or so because of the math behind compoudning interest.
Finally, I put 10% of my take home paycheck into a savings account. Once you have about 6 months of salary saved up, start looking to put your money into other investments: either place more into your retirement or look at something with a higher rate of return. Savings accounts are barely paying any interest at the moment, and you’ll actually lose money (in the long term) if you have too much cash on hand because of inflation.
Hope that helps!
July 11, 2014 at 2:20 pm #182312
Martha (Austin) WilsonParticipant
Good for you for recognizing that NOW is the time to begin thinking about your financial future. There are many fantastic comments and suggestions offered here, and I encourage you to explore them and see which ones seem best for you.
Many of my clients are in a similar situation as you are and are looking for a way to make all the pieces fit without feeling like they have to deprive themselves of everything to get their heads above water. Here is a link to an article I wrote for them that you might also find helpful: http://consciousleadershipblueprint.com/uncategorized/what-does-money-have-to-do-with-leadership/
Congratulations on your new job!
July 11, 2014 at 3:19 pm #182310
Hello, congrats on the beginning of your career! I would definitely say you should start a deferred compensation account. Even if you can only afford 3%, do it. Every time you receive a “step” or increment in your salary, increase the percentage. Deferred Comp. is taken before taxes, so you don’t miss that much out of your paycheck.
I work for the state, so Deferred Comp. is offered. If the Feds offer an IRA, do that.
Congrats and good luck.
July 11, 2014 at 5:01 pm #182308
To all (like myself) who have a scary amount of student loan:
I will be participating in the Public Service Student Loan Forgiveness program. To begin, you will need to download the Employment Certification form found at:
Here, you will find not only the form you’lll need, but also information about the program: what types of student loans qualify, and what the terms of the program are. Basically, with a qualifying loan and qualifying public service employment, if you make 120 on-time, monthly payments on your loan, the balance will be forgiven. You should be signed up for one of the income-based payment plans during that time to qualify. Fortunately, the payments on the income-based plans are usually less per month than the standard payments. I hope you find this useful and valuable!
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