Need help with New salary and how to save

[Floriafi]

In one week I will be starting my first salary job and I am not sure what I should do with the money I will be saving. After taxes I will bring home about $2,700 a month. I have committed to setting aside at least the "normal" 10% so we are looking at $270 a month in a regular savings account. My question is, should I use that money to buy a car, put a down payment on a house etc., or is this method of saving only for retirement?

I have about $1,000 in debt
My monthly bills sit at around $900 max
No car (but I need one)
I rent my home
25 years old

[sblatner]

Congratulations on your new job!

I would

Pay off your debt.

Save 8 months emergency fund.

Figure out if you have a 401k option and if so, contribute up to the match. If not, set up a Roth IRA.

Save for a car/house whichever you need first.

If your expenses are $900 but you are making $2700 after taxes, what will you do with the difference?

[Floriafi]

Congratulations on your new job!

I would

Pay off your debt.

Save 8 months emergency fund.

Figure out if you have a 401k option and if so, contribute up to the match. If not, set up a Roth IRA.

Save for a car/house whichever you need first.

If your expenses are $900 but you are making $2700 after taxes, what will you do with the difference?

Thank you for the feed back and everything. Of my 1800 left over I plan to save 300. I will use the 1500 left over on food and fun (traveling) and I will purchase some new clothes etc

[snafu]

Congratulations on the new job. It's smart to plan spending from the very first pay to set a pattern going forward. I know it sound odd to set up for retirement at the very start but it's really about capturing free money from your employer of any matching funds. 2nd, even before a car, it's critical to create an Emergency Fund because life throws curve balls things go wrong and you need to *Be Prepared. It will take a few months to build up and ordinary, easy to access, linked to checking - savings account. 1st target one month's net pay and build from there.

It takes quite awhile to work out a professional/work wardrobe that fits and flatters you for every event. I don't know how you feel about gently used clothes but you wil be able to afford quality clothes if you're willing to check out the best consignment shops in your city. I suggest making a plan that starts with your most flattering colors and adding items to build a wardrobe [also known as Capsule wardrobe, best described on-line]. Rely on inexpensive accessories to stay trendy and have fun.

Buying a car is high on your list. I hope you can look at this major purchase with an eye to practicality and remember a car loses an incredible amount of value in the first three years. The rule of thumb for car purchase is *don't finance for more than three years*, that's 36 months. Do some research to work out which makes and models have potential to meet your needs. Look at Consumers magazine, Lemon-Aid [used] Cars and Kelly's Blue/Black book to arm yourself with facts and ignore salesmen's pitch. There are lots of excellent deals from private sellers so long as you do the work, check out the VIN and CARFAX.

Wishing you the very best

[bigdaddybus]

I suggest you come up with a budget. Like what Dave Ramsey teaches, I am a firm believer in telling your money where to go. It really helps reach financial goals.

Here is an example:
monthly bills:
1. housing, utilities, food, transportation, etc: $900 or 33% of income (using number you provided)
2. retirement savings $405 or 15% of income (If you start at 15% and maintain for your working career you will be WAY ahead of most everyone!)
3. emergency fund savings $270 or 10% of income (until you reach 6 months of savings)
4. debt repayment $270 or 10% of income (I would split between emergency fund and car fund after debt is paid off)
5. entertainment, new clothes, etc (money you blow on whatever) $270 or 10% of income (before my wife and I went on a budget we blew alot of money on needless stuff)
6. car fund $594 or 22% of money (if a car is important to you, you should put your effort into saving to buy one or a large down payment)

Congrats on the new job! If you learn now to avoid debt while making far more than your monthly expenses, you should set yourself up for a wise financial future. Another thing my wife and I agree on is not to have housing cost (PITI or rent) more than 20% of your income. It is wonderful not to live house poor!

[Floriafi]

I suggest you come up with a budget. Like what Dave Ramsey teaches, I am a firm believer in telling your money where to go. It really helps reach financial goals.

Here is an example:
monthly bills:
1. housing, utilities, food, transportation, etc: $900 or 33% of income (using number you provided)
2. retirement savings $405 or 15% of income (If you start at 15% and maintain for your working career you will be WAY ahead of most everyone!)
3. emergency fund savings $270 or 10% of income (until you reach 6 months of savings)
4. debt repayment $270 or 10% of income (I would split between emergency fund and car fund after debt is paid off)
5. entertainment, new clothes, etc (money you blow on whatever) $270 or 10% of income (before my wife and I went on a budget we blew alot of money on needless stuff)
6. car fund $594 or 22% of money (if a car is important to you, you should put your effort into saving to buy one or a large down payment)

Congrats on the new job! If you learn now to avoid debt while making far more than your monthly expenses, you should set yourself up for a wise financial future. Another thing my wife and I agree on is not to have housing cost (PITI or rent) more than 20% of your income. It is wonderful not to live house poor!

Thank you very much for the information. One concern I have is squeezing my food budget in with that 33%. I am very involved in a lot of sporting activities and working out so it requires me to eat more and I also try to go for organic foods and healthier food in general witch can cost a little more. I also spend $100-$200 on supplements every month

[bigdaddybus]

NP, just find what works for you.

Here is a sample of an old monthly budget for my family of 6. I spent 9.31% of my money on FOOD!


housing (pmt, insurance, taxes) 17.83%
additional principal on mortgage 2.92%
daycare Cori 3.48%
daycare Cooper 3.31%
food (O2E, groceries, school lunch) 9.31%
utilities (including cell) 4.70%
medical 3.06%
Auto and fuel 2.35%
insurance(life, auto) 2.31%
clothing 2.55%
gymnastics 1.88%
misc 6.58%
giving 10.00%
Roth IRA's 8.63%
401K's 2.71%
college 7.00%
top off savings accounts (if needed) or in investments 6.68%
emergency fund 0.00%
car fund 4.70%

[autoxer]

Does the new job offer any retirement plan like a 401k?

Your savings plan should include the different things you are saving for. Different goals require different strategies. Retirement savings can be in a tax advantaged account with an asset allocation strategy for long term. Short term goals like a car and house downpayment should be in a safer investment like a money market, so market fluctuations don't affect the principal.

You are in a good position without much debt to service. If you knocked that out in the first month, then you could commit to saving much more than 10% going forward! Set up some automatic transfers, so that you aren't tempted by a high balance.

[bigdaddybus]

It looks too complicated. Are you really following your own advice?

Yes, but I admit that I've been using spreadsheets for years so its easy for me. If you follow a zero based budget you must account for 100% of you income. All those precentages = 100%. I just didnt share the $ numbers.

When my wife and I started doing a zero based budget we were shocked to see that MISC and FOOD were huge expenses. We were blowing way too much of our money on food and things we really didnt feel were that important. We have since cut them back which allows us more income to spend in other categories.(the ones we complained we never seemed to have money for!)

We use an envelope system for food, clothing, & misc. As well as seperate accounts (savings, brokerage) for the car fund, college savings, kids christmas, retirement savings, etc.

I also have a prioritized list of things we want to spend our extra savings above the emergency fund, health savings fund, vacation fund, etc. (new front door, recover the deck, upgrade fridge, etc).

Accounting for every dollar seems rediculous at first, but its easy once you get used to it and it has helped us tremendously towards achiving our goals quicker.

I personally think it is fine for a person to spend $250 a month at Starbucks (or whatever they like), as long as its included in a budget and they know where the money is going....and what they might be giving up by the spending.