21 yr old getting started

[andrewkr80]

Hello all, I'm 21 just recently moved out and looking for advice on what I can do with my budget and where I can improve. My income is variable as it revolves around tips. Income averages about $25/hr. The minimum take home I expect to see if I work all my shifts is 1200 bi-weekly. I use 2400 as my expected take home income.

I have two room mates to cut down expenses and it totals 500 a month for rent, cable, internet, and utilities. In addition to maxing my Roth IRA this year I have started to transfer 500 a month to establish an emergency fund at ING direct. I currently have $1400 in my Roth with it set to max this year. I have 3k savings and own my car outright. I have an additional 200ish left to save and am looking for somewhere to put it.

Here's a snapshot of my monthly budget in mint.com

Feb 08
Total $1,290


Mortgage & Rent $500


Roth IRA Transfer $425


Restaurants $250


Groceries $200


Cell Phone/Insurance $135


Fast Food $100


Clothing $80


Gas & Fuel $50

[KTP]

At that age, just maxing your Roth is an amazing achievement but is something that will benefit you HUGE when you get close to retirement.

At 4% real return (very reasonable over a 44 year period), each $5000 you put in today will be worth over $28,000 in REAL dollars when you retire. That is almost a year's living expenses then for saving less than 3 months of income now. And it is tax free!

I would suggest using the other $200 to build up a big emergency fund such that you never have to touch the Roth money (you can pull out your contribution without penalty, which is bad).

EDIT: Because of your income level, don't forget to look into the saver's credit when you do taxes. This could be worth up to $1000 to you because of your contributions.

Get Credit for Your Retirement Savings Contributions

If you qualify, it is like Uncle Sam is putting in $1000 and you are only having to come up with $4000....whatadeal!

[markfoo76]

Originally Posted by andrewkr80

Hello all, I'm 21 just recently moved out and looking for advice on what I can do with my budget and where I can improve. My income is variable as it revolves around tips. Income averages about $25/hr. The minimum take home I expect to see if I work all my shifts is 1200 bi-weekly. I use 2400 as my expected take home income.

I have two room mates to cut down expenses and it totals 500 a month for rent, cable, internet, and utilities. In addition to maxing my Roth IRA this year I have started to transfer 500 a month to establish an emergency fund at ING direct. I currently have $1400 in my Roth with it set to max this year. I have 3k savings and own my car outright. I have an additional 200ish left to save and am looking for somewhere to put it.

Here's a snapshot of my monthly budget in mint.com

Feb 08
Total $1,290


Mortgage & Rent $500


Roth IRA Transfer $425


Restaurants $250


Groceries $200


Cell Phone/Insurance $135


Fast Food $100


Clothing $80


Gas & Fuel $50

$250 on restaurants? Do you really need to eat out? Spend another $100 on groceries and invest the remaining $150 in an index fund to begin with.

Also, do you really need to spend $80 EVERY MONTH on clothing? You probably don't need more clothes. If you do, just another couple t-shirts might do. For winter wear, try to get some hand-me-downs.

Instead, you should spend that $80 on books every month to improve yourself. Or accumulate that amount and spend it on a really good seminar or workshop. You can't stop learning.

Cheers~

Mark

[BuckyBadger]

You're spending 43% of your total income on foot (restaurants, groceries, and fast food). It would be nice if you could decrease some of those categories

Good job on maxing a Roth, though. That'll really help you out in your future!

Do you have to pay utilities? Are you saving for any short-term goals? (Replacement car, eventual down payment on a home, travel, fun stuff?)

[irmanator]

as a mom of a 21 yr old also, I think you are doing awesome. If you have the extra 200 you could possibly add it to your emergency fund or start a car replacement fund. Cars don't last forever and they need occaisional repairs.

[andrewkr80]

Originally Posted by BuckyBadger

You're spending 43% of your total income on foot (restaurants, groceries, and fast food). It would be nice if you could decrease some of those categories

Good job on maxing a Roth, though. That'll really help you out in your future!

Do you have to pay utilities? Are you saving for any short-term goals? (Replacement car, eventual down payment on a home, travel, fun stuff?)

Utilities, cable and Internet are all included in the $500 rent figure. Also, I have just opened a few savings accounts at ING Direct to allocate my additional funds towards particular goals. I have 500 a month going to emergency fund, 200 a month going to a house down payment, 100 a month going to car maintenance / upgrade, and another 100 going to travel.

In regards to my eating out budget being so high I think the numbers are incorrect because it's based on my previous spending. A lot of times my room mates and I order food and I pay the bill pn my card and they give me cash. Also I definitely don't spend 80 every month on clothing so I know that can be cut.

Thank you all for your help!

[disneysteve]

Originally Posted by andrewkr80

A lot of times my room mates and I order food and I pay the bill pn my card and they give me cash.

That's good because the $550/month on food really jumped out at me, too. I'd work on getting real numbers so that you know what you are actually working with. Other than that, it looks like you are doing great. Congrats.

[riverwed070707]

You are doing well for your income and age.

That said, what are your plans for the future. Income based on tips leads me to assume you're working in a restaurant or similar service job. Do you go to school? Plan to? Going to learn a trade? In any scenario, I'd be socking away that extra money to help further my career so when the time comes you don't have to finance it.

[andrewkr80]

In regards to my job it is service industry I work as a card dealer in a casino. I just completed my associates degree and got this promotion at the same time. I'm currently not enrolled in school but I plan on starting my bachelors in finance after summer. The semester off allows me to get some money in the bank and continue to avoid student loans.

[andrewkr80]

Originally Posted by BuckyBadger

You're spending 43% of your total income on foot (restaurants, groceries, and fast food). It would be nice if you could decrease some of those categories

Good job on maxing a Roth, though. That'll really help you out in your future!

Do you have to pay utilities? Are you saving for any short-term goals? (Replacement car, eventual down payment on a home, travel, fun stuff?)

It's actually about 23% as my total income is based on 2400 not the 1290 I have budgeted. Although I definitely think I can bring it down I work an odd schedule that has me eating lots of meals on the go.

[snafu]

I think you're doing grand for your age even being aware of saving, retirement plans, staying out of debt for car and school. Your contributions to retirement in the early years pays off big time at draw down. I suggest you review your cell and insurance [auto & renters] semi annually to see if there are better deals for your circumstances. Most people think they'll collect insurance at coverage level but insurers only pay out 'community' book value, it's very tricky. If at all practical, take food from home, so much healthier and cheaper than the stuff from restaurants or fast food.

I suggest contacting one of the Low Fee mutual funds like Vanguard. Once you have their minimum contribution sum, start an automatic DCA [Dollar Cost Averaging] plan. You can stop contributions with a phone call or few clicks of computer. Given your age look at an Equity Index fund as you can manage the risk. [according to Warren Buffet, Bonds are the most risky just now] You can withdraw sums or change it around after a specific number of days. [please ask that specific question] You will likely find yourself tracking gains and losses nearly daily at 1st but what counts is how much you gained in 5 years.

[andrewkr80]

Thank you all for the help!! I'm very happy to be reassured that I'm taking steps in the right direction. In regards to my IRA, is already at vanguard in TR2050. I actually switched my parents over from Edward Jones to vanguard when I started reading and learning more about personal finance. Lets just say they are appalled at the ridiculous fees they were paying and are very happy with vanguard.