(Bloomberg) — If you are one of the lucky grads switching fromfull-time student to full-time employee this graduation season,congratulations. You have made a significant investment inyourself, 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 track soon will save you from pitfallsand bad habits that could derail your net worth down the line. Youworked hard to earn that new salary—here are five tips to make itwork 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 employercontributions.

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 money you owe that incurs higher costs than you canexpect to earn on your investments. For example, if you're paying16 percent interest on your credit card and have a certificate ofdeposit at the bank yielding a low return (it will surely beless than 16 percent), you are not earning enough on yourinvestment to cover your interest expense.

Now, what about student loans? That depends—studentloan debt that is privately financed with high interest ratesshould be paid off quickly. You can justify spreading out thepayments for federally subsidized debt while building up your cashfund or making 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 money in case of an emergency, but having a largecash reserve gives you more financial freedom in otherareas—including the flexibility to self-insure against non-catastrophic losses (i.e., losses that can be covered with yourcash fund).

For example, I don’t carry collision insurance on my car, and Inever pay for travel insurance because neither one is acatastrophic loss for me.

So I self-insure against these losses and internalize the highprofits the insurance companies earn on these policies. But if youdon’t have the cash fund, you don’t have the financial flexibilityto self-insure.

4. Put your salary in context

Before you accept a job offer, it’s important tounderstand how your cost of living and purchasing power affect yourincome. Let’s say your new salary is around $100,000. In New YorkCity, that salary gets reduced to around $63,000 after taxes(federal, state, city, and FICA).

Consider the cost of living (relative to the average cost ofliving in the country), and it is more like $29,000. In contrast,look at Wichita Falls, Tex., where after taxes, that salary ismore like $73,000. After factoring in a cost of living that’s belowthe national average, the salary raises to $84,000.

That doesn’t mean you should necessarily take the offer inWichita Falls over New York City (you may build your human capitalmore through developing connections in New York City) but knowinghow taxes and location affect your finances allows you to see the bigpicture before making major life decisions about where to work andwhere 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 of investing in risky assets suchas stocks and bonds because they are more diversified and havelow management fees.

Additionally, take advantage of all tax-shelteredinvesting options, such as a 401(k) or 401(3)b, I Bonds, IRAs, andSEP IRAs. After all, it’s easier to build your wealth when youaren't paying taxes on it.

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