Walking through the park last month, I saw college seniors posing for graduation photos; caps in the air, big smiles, and their entire future ahead of them. It reminded me what an exciting time this is, and how much there is to learn as they step into the working world.
For many of us, paychecks, benefits, and budgeting are second nature. But for new grads, it’s all brand new. If you have a recent graduate in your life, now is the perfect time to pass along some financial basics. That first job and steady salary can feel like the start of financial freedom but, understanding what’s in that paycheck is key.
Your earned income, including salary, bonuses, and commissions, is subject to federal income tax. Many states also impose their own income taxes as well.
These taxes are withheld from each paycheck, so you’re paying as you earn rather than in a lump sum next April. When you file your tax return, usually due by April 15th, you will reconcile how much tax was withheld with how much you actually owe. If too much was taken out, you’ll get a refund. If too little, you’ll need to pay the difference.
Remember that episode of Friends when Rachel Green asked, “Who is this FICA guy and why is he getting all my money?”1 It’s a common question and a fair one.
FICA stands for the Federal Insurance Contributions Act which funds Social Security and Medicare. For 2025, 6.2% of your earned income (up to $176,100) goes to Social Security, and 1.45% of all earned income funds Medicare.2
If your employer offers health insurance, they may cover part of the cost, with your share typically deducted from your paycheck pre-tax. You may also have access to accounts like a Flexible Spending Account (FSA) or Health Savings Account (HSA), which let you set aside money for qualified health expenses without paying taxes on it.
Vision and dental benefits are typically separate from your main health plan, but their premiums are often deducted from your paycheck before taxes as well.
If your employer offers a retirement plan like a 401(k) (common in the private sector)3 or 403(b) (often used by schools and nonprofits)4, contribute as early as you can, even a small amount. Contributions can be made pre-tax which lowers your taxable income now, or after-tax through a Roth option, where withdrawals in retirement are tax-free. Either way, the earlier you start, the more time your money has to grow.
A good first step is listing all your must-pay expenses: rent, utilities, groceries, student loans, etc. Once those are covered, decide how much you want to spend on non-essentials like dining out, entertainment, or shopping, and stick to it.
Using a budgeting app or tracking your spending manually can help you stay on course. The key is to be realistic, consistent, and adjust as needed.
The best way to build savings is to pay yourself first, meaning set money aside for savings before spending on anything else. Set up an automatic transfer from each paycheck to a savings account, preferably one that earns interest, like a high-yield savings account.
Aim to build an emergency fund with three to six months' worth of essential expenses. Once you’ve built that cushion, you can start thinking about longer-term goals and consider investing through an IRA, Roth IRA, or brokerage account.
The basics haven’t changed: spend less than you earn, save for a rainy day, pay your taxes, and yes, eat your vegetables. But also, read about personal finance, follow a podcast, or talk to people you trust.
If you’re looking for professional help, look for a fiduciary advisor, someone who is legally required to act in your best interest.
And for the parents and grandparents forwarding this along: your Apella Advisor is always happy to spend some time helping your young adult start off on the right foot.
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Disclosures:
Apella Capital, LLC (“Apella”), DBA Apella Wealth is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Please note the material is provided for educational and background use only. Moreover, you should not assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice.
No current or future client should assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice. As with any investment strategy, there is the possibility of profitability as well as loss.
Apella Wealth does not provide tax or legal advice and nothing either stated or implied here should be inferred as providing such advice.