(Bloomberg Business) -- If you are one of the lucky gradsswitching from full-time student to full-time employee thisgraduation season, congratulations. You have made a significantinvestment in yourself, and you are seeing it pay off. You may havealready mentally spent your first paycheck, but taking amoment to plan for your financial future, as unglamorous as it maysound, is worth doing right away. Getting on the right tracksoon will save you from pitfalls and bad habits that couldderail your net worth down the line. You worked hard to earn thatnew salary—here are five tips to make it work for you.

1. Take advantage of your new benefits

You should never turn down opportunities for your employer tomatch your retirement savings—a dollar–for-dollar match is a100-percent return on your money, pretax. Make sure you have enoughcash to function but then max out your employer contributions.

2. Get rid of bad debt

The decision to take on debt depends partly on your risktolerance, because debt increases the risk to yourpersonal wealth. Regardless of how risky you're feeling, you shoulddo your best to eliminate bad debt. Bad debt is moneyyou owe that incurs higher costs than you can expect to earn onyour investments. For example, if you're paying 16 percent intereston your credit card and have a certificate of deposit at the bankyielding a low return (it will surely be less than 16percent), you are not earning enough on your investment to coveryour interest expense.

Now, what about student loans? That depends—student loan debtthat is privately financed with high interest rates should be paidoff quickly. You can justify spreading out the payments forfederally subsidized debt while building up your cash fund ormaking additional investments.

3. Build your cash fund

There’s no universal agreement on how much cash to stash away,but half your salary is a reasonable goal. That’s a big number, soit’s something to plan for and work up to. Yes, you need moneyin case of an emergency, but having a large cash reserve gives youmore financial freedom in other areas—including the flexibility toself-insure against non- catastrophic losses (i.e., losses that canbe covered with your cash fund). For example, I don’t carrycollision insurance on my car, and I never pay for travel insurancebecause neither one is a catastrophic loss for me. So I self-insureagainst these losses and internalize the high profits the insurancecompanies earn on these policies. But if you don’t have the cashfund, you don’t have the financial flexibility toself-insure.

4. Put your salary in context

Before you accept a job offer, it’s important to understand howyour cost of living and purchasing power affect your income. Let’ssay your new salary is around $100,000. In New York City, thatsalary gets reduced to around $63,000 after taxes (federal,state, city, and FICA). Consider the cost of living (relative tothe average cost of living in the country), and it is more like$29,000. In contrast, look at Wichita Falls, Tex., where aftertaxes, that salary is more like $73,000. After factoring in acost of living that’s below the national average, the salary raisesto $84,000. That doesn’t mean you should necessarily take the offerin Wichita Falls over New York City (you may build your humancapital more through developing connections in New York City) butknowing how taxes and location affect your finances allows you tosee the big picture before making major life decisions about whereto work and where to live.

5. Invest intelligently

When you invest, look to a combination of treasuryinflation-protected securities (TIPS) and index funds. TIPS are theclosest thing we have in the real world to a risk-free investment,because they have virtually no default risk and are guaranteed tokeep pace with inflation. Index funds are the best means ofinvesting in risky assets such as stocks and bonds becausethey are more diversified and have low management fees.Additionally, take advantage of all tax-sheltered investingoptions, such as a 401(k) or 401(3)b, I Bonds, IRAs, and SEP IRAs.After all, it’s easier to build your wealth when you aren't payingtaxes on it.

Allan Eberhart is a professor of finance at GeorgetownUniversity’s McDonough School of Business who specializes inpersonal wealth management. He also is the director of the school’sMaster of Science in Finance program.

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