Help starting saving

[Sir Casm]

Hi,
I am a New User; I just graduated from college and landed a job.
Here’s my Position.
1. I am 25 and Single
2. I make $4000+/m pre tax ( Haven’t got my first pay check so I am not sure how much tax I will pay)
3. I have $1200 in credit card debt. Everything else is paid off.
4. My monthly expense is $1200 (house rent, utilities and groceries)
5. $500 for fun( Cloths, outing, games, clubs)
My problem is I do not have a car and I need one. I have on $25 in my saving account which scares me like hell. I am not sure how much to put towards car how much to saving. Should I worry about saving or is it too soon?

[bjl584]

Well,
Since you have no cash and you need a car, you will need to take out a loan. No problem. Just stick to this rule of thumb.

Take out a loan for no more than 36 months and make sure the payment is not more than 10% of your monthly takehome.

[bjl584]

And,
It's never too soon to think about saving.

Does your new job offer a 401K? If so, start contributing as soon as possible at least to the company match.

For the rest,
I'd wipe out that credit card debt ASAP. With a gross income of 4K a month you should be able to wipe it out in 2 months max.

Then, you need to start putting away cash in an Emergency Fund (6 months worth of living expenses in the event of an emergency.)

Once funded, start to save up for a replacement car. That way, you can pay cash for a car next time around.

[Hector]

how do you commute to work now?

[BMEPhDinCO]

Originally Posted by Sir Casm

Hi,
I am a New User; I just graduated from college and landed a job.
Here’s my Position.
1. I am 25 and Single
2. I make $4000+/m pre tax ( Haven’t got my first pay check so I am not sure how much tax I will pay)
3. I have $1200 in credit card debt. Everything else is paid off.
4. My monthly expense is $1200 (house rent, utilities and groceries)
5. $500 for fun( Cloths, outing, games, clubs)
My problem is I do not have a car and I need one. I have on $25 in my saving account which scares me like hell. I am not sure how much to put towards car how much to saving. Should I worry about saving or is it too soon?

First, congrats on finding a job!

Let's estimate around $3,200 after taxes (~20%) - but then you should hopefully be able to sign up for health insurance ($130 a month est), 401k (6% = $240), disability, etc ($30) so take home pay should be $2,800

Now, you said your monthly living expenses are $1,200

That leaves you $1,600. So, the first month, only use $300 for fun, pay off the CC ($1,200), and put $100 aside into an emergency fund.

Second month, use $400 for fun, put $900 into the EF (yay, you've hit the $1,000 minimum), and $300 into a car fund.

Third month, use $450 for fun, put $450 into EF (moving toward 3 months), and put $700 into car fund.

Fourth month, same as above

Fifth month, same as above

Sixth month, same as above - at the end of this month, you should have $2,800 (or one month's take-home pay) in your EF, you should have almost $2,500 for a car saved - this is almost a 20% downpayment on a good used car ($12-15k range).

So that's my advice - cut back your fun for a bit to $300-450 instead of $500 and in 6 months, you can have a great downpayment for a car and a good emergency fund. Don't get a car that costs more than $280 a month and you can then put $300 a month towards the car, and build up the EF. Within a year, you should be in great shape for the EF/savings and then you should be socking everything towards your RothIRA for retirement.

[Sir Casm]

Originally Posted by Hector

how do you commute to work now?

I do not have a car so i rented an apt like less than a mile from my workplace and I walk. After snow i am not sure walking will be such a good Idea.

[bjl584]

Originally Posted by Sir Casm

I do not have a car so i rented an apt like less than a mile from my workplace and I walk. After snow i am not sure walking will be such a good Idea.

That's an interesting position to be in. If you can handle walking to work during the winter months, you could in theory save up cash and buy a car outright without a loan at all. But, if the snow and slush is too much, then as I said before, you will have to finance. Just follow the rule of thumb I stated earlier.

[riverwed070707]

Being a mile from work gives you an advantage. What about paying a coworker a reasonable amount to give you a ride while you save up cash so you don't have to take out a loan? Or even taking the bus or something? Getting a car for a 1 mile commute almost seems like a waste.

[Sir Casm]

Originally Posted by BMEPhDinCO

First, congrats on finding a job!

Let's estimate around $3,200 after taxes (~20%) - but then you should hopefully be able to sign up for health insurance ($130 a month est), 401k (6% = $240), disability, etc ($30) so take home pay should be $2,800.

Thanks, It will take 6 months mor me to get a car not cool. I know on this website this may be a dumb thing to say but i am not sure what 401K is and I am pritty sure I do not pay towards it.

[bjl584]

Originally Posted by Sir Casm

Thanks, It will take 6 months mor me to get a car not cool. I know on this website this may be a dumb thing to say but i am not sure what 401K is and I am pritty sure I do not pay towards it.

Just go talk to your HR dept once you get onboard at your new job. They can explain it and get you set up.

[BuckyBadger]

I'd keep walking to work. My husband is lucky enough that we live less than a mile from his work, too. He walks every day, even in the winter, and we live in Wisconsin. I challenge you to find somewhere colder!!

Anyway, you're a guy, so you don't even have to worry about messing up your hair! Bundle up, wear a good hat, and get those yak-trak things you can put on your boots to keep traction.

And yeah -- you should see if your job offers a 401k and absolutely start contributing to it. If not, open a Roth IRA. Or possibly both, if you really want to set yourself to have a bright future and a nice early retirement!

What BMEPhDinCO wrote was totally spot-on! EXCELLENT advice. Going from nothing to a very nice used car in 6 months is pretty good, actually.

[Sir Casm]

Originally Posted by bjl584

That's an interesting position to be in. If you can handle walking to work during the winter months, you could in theory save up cash and buy a car outright without a loan at all. But, if the snow and slush is too much, then as I said before, you will have to finance. Just follow the rule of thumb I stated earlier.

Well i think i will have to put off buying car for now. Everyone on this thread has made such a logical point for not to buy a car now but there is a like a sweet voice a back of my head saying softly "Just go for it"

On other note I am new to snow ( I am from Texas) Is it possible to walk a mile in snow?

[BuckyBadger]

Originally Posted by Sir Casm

On other note I am new to snow ( I am from Texas) Is it possible to walk a mile in snow?

Yes. See my previous post re: Yak Tracks.

[Sir Casm]

I am an independent contractor so my company doesn’t provide any benefits not even 401K. (I think 401K counts as benefit)

[BuckyBadger]

Sorry, Yak Trax

YakTrax

We RUN on snow 'round here!

[BuckyBadger]

Originally Posted by Sir Casm

I am an independent contractor so my company doesn’t provide any benefits not even 401K. (I think 401K counts as benefit)

Then you need to get yourself started on a Roth IRA. It's a retirement account funded with your after-tax dollars. You can contribute up to $5000 a year. The money grows tax-free until retirement age and when you withdraw it you don't have to pay taxes on it because it was already taxed when you earned it.

What are you doing for health insurance as an independent contractor?

[Sir Casm]

Originally Posted by BuckyBadger

Then you need to get yourself started on a Roth IRA. It's a retirement account funded with your after-tax dollars. You can contribute up to $5000 a year. The money grows tax-free until retirement age and when you withdraw it you don't have to pay taxes on it because it was already taxed when you earned it.

What are you doing for health insurance as an independent contractor?

I am still covered under my student insurance till January end right now i am browsing the market for some good plan.

[Sir Casm]

Where can I find more info on Roth IRA?

[jteezie]

Welcome to the community.

You're in a good situation, congrats. I concur with everyone else about holding off on the car. In your situation I likely wouldn't own one either. The cost savings are fantastic. Hypocritically, I actually live rather close to work too, and I don't drive to work (savings on parking, gas, etc), but I own a cheap car because I drive long distances every so often.

Here's the bigger picture:

I recommend that you take advantage of your new situation by maintaining your college spending levels for a little while. There's too much of an urge to immediately spend money especially if a $900/wk is the biggest paycheck you've ever received. However, if you immediately get into the habit of spending money, it starts a vicious cycle. Investing the excess money when you're young and don't have needs that absorb your paycheck (i.e. car payments), will benefit you so incredibly much that you will thank all of us for suggesting that you look immediately into your 401k and Roth IRA options.

When I got my first job, I immediately put 50% of my income into my Roth 401K (you should see if you company offers a Roth 401k and pick that over a traditional 401k. The difference is with their tax treatment. Roth is much better for young people). I'm 27 now an don't worry about my retirement anymore. In contrast, the average person enters their mid 30's and starts panicking about retirement savings. At this point they are behind because there is this magical investment concept called "compound interest." The general rule is roughly that every 7-10yr head start you get on investing, you double the money you have at retirement. Also, they now have families and house payments to support, among other things. So, by starting 10 years earlier, you save yourself up to 40 years of hard work.

Good luck

[Joan.of.the.Arch]

I'd just like to mention that as an independent contractor, no taxes will be taken out of your check. It will be your responsibility to save up what you will owe in income tax, social security tax, Medicare contributions, and any state and local taxes that are normally collected from a payroll check.

There are instructions for how to do this on the IRS website and they aren't too hard to understand. The federal government will expect you to send in payments 4 times per year.