Author Topic: New Grad Requesting Budget Advice  (Read 5086 times)

mmta1234

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New Grad Requesting Budget Advice
« on: November 12, 2014, 02:16:19 PM »
I grew up poor, receiving zero education on personal finance. I have an offer for a position that pays more money than I have ever had and I would like to get a firm handle on my finances.

I am 23 y.o. and set to graduate university next May with BS Computer Science. I have accepted a job offer where my net salary is $42k as a Software Developer in the Midwest and this will increase considerably over the next 3 years. I know that it will increase because this is a Fortune 100 company with structured performance reviews at regular intervals that allow for increases.

My only source of debt is a student loan balance of $17k and I want to pay it off as soon as possible. I’m in the process of saving $5k for a used car that I will drive into the ground. I do have plans to max out my 401k and Roth IRA in the future but I want to build a 3-month emergency fund (~$5000) first.

Finally, here are my expenses: My girlfriend (2 years) and I will rent an apartment not too far from our respective jobs and evenly split the following expenses: Apartment, Food, Utilities, Cable/Internet and Entertainment. So, for example, we each put in $500/month for a total rent of $1000/month.

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Expense: Per Month/Per Year
Student Loan: 500/6,000 (total loan balance = $17,000)
Food: 200/2,400
Entertainment: 150/1,800
Utilities: 150/1,800 (gas, electric)
Cable/Internet: 30/360
Apartment (includes water): 500/6,000
401k: 190/2280 (contribute enough to get company match)
Vacation: 200/2,400
Gas: 170/2,040 (workplaces are very close, so we share commute)
Car Repairs: (used car) 125/1,500
Phone: 70/840 (my employer might give me a work phone, so I may not need this)
Gym: 30/360
Car Insurance: (new driver, < 1 yr) 200/2,400
Total expenses: ~ $2,545/$30,530
Remaining: ~12k
---------------------------------------------------

If I receive my year-end performance bonus (~ $3,750 net), then I will put all of it towards my student loan. Also, since I have 7k unaccounted for (after e-fund), I may put a few thousand more towards the student loan.

Is this a good approach? Could I use my money more wisely in certain areas? Am I over/undershooting any expenses? Any advice is appreciated.
« Last Edit: November 12, 2014, 02:24:31 PM by mmta1234 »

ragnathor

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Re: New Grad Requesting Budget Advice
« Reply #1 on: November 12, 2014, 02:45:14 PM »
This looks like a solid plan. You are starting right when you're getting out of school, and this will pay off big down the road.

What is your student loan interest rate? If it is less than 5%, you may consider paying less an contributing more to 401k.

I would take a look at different cell phone providers. You can pay $25-50 on Republic Wireless or Tmobile for unlimited talk/text and 1gb+ of data.

$200 car insurance seems steep even for a new driver for a used car. Take a look at what you need insured and get quotes from multiple agents. Some give discounts for advanced degree, etc. We pay $80/month for 2 cars, 20k and 60k miles (but both 5+ years driving experience).

GizmoTX

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Re: New Grad Requesting Budget Advice
« Reply #2 on: November 12, 2014, 02:49:51 PM »
Congratulations on already having a job & career lined up!

A few more expenses to consider:
Clothing. I know software is informal, but you may need some business wear.
Furniture. Do you already have this? Rent furnished? Basic cooking equipment?
Renters insurance. Apartments in my state require liability coverage up front. Check the contents limit for replacement or depreciated reimbursement.
Moving. Will your employer pay part or all?
Your gas allowance seems high for living close to work.

Do you have a credit card? If not, get one now if your credit score allows or when you start work. You want a zero fee card with cash back rewards to start. Your credit limit is your emergency fund while you build up a safety net savings account. Put some small recurring charges on it to drive activity & build your credit score. ALWAYS pay it off in full every month.

As you get raises, put the additional amount directly to savings so it never shows up in your checking account. After you pay off your SL, invest your savings in no-load index funds to begin with.

One of the best books to start with is Personal Finance for Dummies, by Eric Tyson.
« Last Edit: November 12, 2014, 02:57:06 PM by GizmoTX »

MDM

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Re: New Grad Requesting Budget Advice
« Reply #3 on: November 12, 2014, 02:56:49 PM »
mmta1234, welcome to the forums.

As already mentioned, your actual expenses may differ from your estimates.  That's not necessarily a problem, just something to be aware of.  Once you start working, track your expenses (Quicken, Mint, YNAB, Excel, whatever) so you see where the money really goes and adjust accordingly.

You may also do yourself a favor by starting with gross income and considering taxes along with everything else as expenses.  That allows you to see the effect of 401k and tIRA contributions on your overall cash flow.  See http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/ (entire thread and links therein) for more info.

Good luck!

seattlecyclone

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Re: New Grad Requesting Budget Advice
« Reply #4 on: November 12, 2014, 03:06:40 PM »
Your budget looks pretty lean, though you could probably cut some from gas and entertainment if you needed a way to save even more.

I would probably max out the 401(k) before paying extra to the student loans. You can't go back later to max out last year's 401(k) limit if you instead used your money for loan repayment, and your loan balance is quite manageable as it is. You're graduating in the spring so you only get half the year to contribute to the 401(k). Try contributing as much as possible to your 401(k) during that half year and then start to attack the loans more during your first full year on the job.

You might want to look at the income side of the equation. New computer science graduates who are willing to work on one of the coasts can easily expect twice the salary you've been offered in the Midwest. I made the move from the Midwest out to Seattle myself because the salary differences were more than enough to make up for the higher housing costs. That, and I really like it out here. It almost never snows in the winter and the summer heat is much less extreme. Just something to consider if you are willing to change locations and want to get to FI even faster...

mmta1234

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Re: New Grad Requesting Budget Advice
« Reply #5 on: November 12, 2014, 03:11:58 PM »
mmta1234, welcome to the forums.

As already mentioned, your actual expenses may differ from your estimates.  That's not necessarily a problem, just something to be aware of.  Once you start working, track your expenses (Quicken, Mint, YNAB, Excel, whatever) so you see where the money really goes and adjust accordingly.

You may also do yourself a favor by starting with gross income and considering taxes along with everything else as expenses.  That allows you to see the effect of 401k and tIRA contributions on your overall cash flow.  See http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/ (entire thread and links therein) for more info.

Good luck!

Thanks for the warm welcome.

I already keep track of my expenses in a spreadsheet and will adjust them as I get in the groove of life.
« Last Edit: November 12, 2014, 05:47:43 PM by mmta1234 »

mmta1234

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Re: New Grad Requesting Budget Advice
« Reply #6 on: November 12, 2014, 03:18:47 PM »
Your budget looks pretty lean, though you could probably cut some from gas and entertainment if you needed a way to save even more.

I would probably max out the 401(k) before paying extra to the student loans. You can't go back later to max out last year's 401(k) limit if you instead used your money for loan repayment, and your loan balance is quite manageable as it is. You're graduating in the spring so you only get half the year to contribute to the 401(k). Try contributing as much as possible to your 401(k) during that half year and then start to attack the loans more during your first full year on the job.

You might want to look at the income side of the equation. New computer science graduates who are willing to work on one of the coasts can easily expect twice the salary you've been offered in the Midwest. I made the move from the Midwest out to Seattle myself because the salary differences were more than enough to make up for the higher housing costs. That, and I really like it out here. It almost never snows in the winter and the summer heat is much less extreme. Just something to consider if you are willing to change locations and want to get to FI even faster...

I've looked over my budget 20+ times and the idea of investing more heavily into 401k rather than quickly paying down SL never occurred to me. You're right - I start early June so I will only have 6-months worth of 401k contributions. I don't know much about the 401k schedule (when the 'investment year' begins and ends) but that will change soon. You have given me a lot to think about on this end - I need to go crunch some numbers.

Also, I have given great thought to moving West and am very aware of the extravagant salaries. For the time being, I will stay in the Midwest.

mmta1234

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Re: New Grad Requesting Budget Advice
« Reply #7 on: November 12, 2014, 03:23:09 PM »
Congratulations on already having a job & career lined up!

A few more expenses to consider:
Clothing. I know software is informal, but you may need some business wear.
Furniture. Do you already have this? Rent furnished? Basic cooking equipment?
Renters insurance. Apartments in my state require liability coverage up front. Check the contents limit for replacement or depreciated reimbursement.
Moving. Will your employer pay part or all?
Your gas allowance seems high for living close to work.

Do you have a credit card? If not, get one now if your credit score allows or when you start work. You want a zero fee card with cash back rewards to start. Your credit limit is your emergency fund while you build up a safety net savings account. Put some small recurring charges on it to drive activity & build your credit score. ALWAYS pay it off in full every month.

As you get raises, put the additional amount directly to savings so it never shows up in your checking account. After you pay off your SL, invest your savings in no-load index funds to begin with.

One of the best books to start with is Personal Finance for Dummies, by Eric Tyson.

Thanks for the book recommendation! I see that the book is cheap on Amazon.

Furniture and cooking equipment - my god. I've been thinking about this and I realized I don't have most of what I need to live on my own.

Señora Savings

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Re: New Grad Requesting Budget Advice
« Reply #8 on: November 12, 2014, 05:21:21 PM »
Thanks for the book recommendation! I see that the book is cheap on Amazon.

Furniture and cooking equipment - my god. I've been thinking about this and I realized I don't have most of what I need to live on my own.

Don't panic.  And remember, you don't have to buy a matching furniture set for your bedroom to prove that you're an adult.

This is what you need:

Table, 2 chairs: $250 used
Bed: $1000, new
Frying pan, and pot: $40 you can by the frying pan new
Plates, cups, silverware: $20 used, don't overdo it.  You don't need 10 matching forks.

After getting the essentials, I recommend furnishing your place slowly.  Most people spend $7000 at Ikea every time they move.  This means that they don't wait for deals and they end up with shit that they don't want because they felt like they had one weekend to pick out 75 things for their house.  Once you have the essentials, so can go slowly.

Basically don't buy anything until you have, on some occasion, thought "I wish there was an end table here that I could put my beverage on".


mmta1234

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Re: New Grad Requesting Budget Advice
« Reply #9 on: November 12, 2014, 05:29:37 PM »
Thanks for the book recommendation! I see that the book is cheap on Amazon.

Furniture and cooking equipment - my god. I've been thinking about this and I realized I don't have most of what I need to live on my own.

Don't panic.  And remember, you don't have to buy a matching furniture set for your bedroom to prove that you're an adult.

This is what you need:

Table, 2 chairs: $250 used
Bed: $1000, new
Frying pan, and pot: $40 you can by the frying pan new
Plates, cups, silverware: $20 used, don't overdo it.  You don't need 10 matching forks.

After getting the essentials, I recommend furnishing your place slowly.  Most people spend $7000 at Ikea every time they move.  This means that they don't wait for deals and they end up with shit that they don't want because they felt like they had one weekend to pick out 75 things for their house.  Once you have the essentials, so can go slowly.

Basically don't buy anything until you have, on some occasion, thought "I wish there was an end table here that I could put my beverage on".

Thanks!

It helps that I have a roommate to help financially with these things.

« Last Edit: November 12, 2014, 06:49:47 PM by mmta1234 »

GizmoTX

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Re: New Grad Requesting Budget Advice
« Reply #10 on: November 12, 2014, 07:41:15 PM »
We rented our furniture along with our apartment at first. We replaced furniture slowly, starting with the bedroom first.

Basic cooking equipment: frying pan, some pots, a good french knife, good pairing knife, cutting board, measuring cups & spoons, some mixing bowls (stainless steel), 13 x 9 pyrex baking dish, colander. A restaurant supply place is great for getting this stuff inexpensively if family & friends don't give you their extras. Oh, and half sheet trays -- better than cookie sheets, since they have a lip or edge all around. They're good for pizza, roasting vegetables, catching overflow from other baking dishes or a pie plate, & yes, cookies.
« Last Edit: November 12, 2014, 07:50:11 PM by GizmoTX »

Thedudeabides

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Re: New Grad Requesting Budget Advice
« Reply #11 on: November 15, 2014, 07:08:21 AM »
+1 to the suggestion of considering moving to the West Coast. I would at least budget some money for taking a trip to check things out.

2ndTimer

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Re: New Grad Requesting Budget Advice
« Reply #12 on: November 15, 2014, 08:58:23 AM »
A comment from a midwesterner who wound up in the Pacific Northwest for work reasons.  It's nice here but it ain't Iowa.  I'm not the only one to say this.  When I was in grad school I met another former midwesterner who lived out here who was bemoaning the fact that all his contacts were on the West Coast and he was never likely to find a job in the Midwest again.  At the time, bedazzled by the big coastal buzz and salaries, I didn't understand.  I do now.

Grid

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Re: New Grad Requesting Budget Advice
« Reply #13 on: November 15, 2014, 11:42:48 AM »
A comment from a midwesterner who wound up in the Pacific Northwest for work reasons.  It's nice here but it ain't Iowa.  I'm not the only one to say this.  When I was in grad school I met another former midwesterner who lived out here who was bemoaning the fact that all his contacts were on the West Coast and he was never likely to find a job in the Midwest again.  At the time, bedazzled by the big coastal buzz and salaries, I didn't understand.  I do now.

Can you clarify a little more what you mean by this?  Do you mean that Iowa/The Midwest have some aspects and culture to them that you miss?

GizmoTX

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Re: New Grad Requesting Budget Advice
« Reply #14 on: November 15, 2014, 11:43:27 AM »
Along with the potential higher salary, you also need to consider an area's cost of living, including all taxes. There's a reason those salaries are higher.

DH graduated a year ahead of me in the Midwest, & interviewed around the country during his senior year for not only the salary & type of job but for quality of life & better weather. The area also had to have a good university so I could finish my degree & we could take graduate courses.

The journey to FI is as important as getting there. We picked Texas & still wouldn't live anywhere else, but the point is to find a life you love, the earlier the better.

1967mama

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Re: New Grad Requesting Budget Advice
« Reply #15 on: November 15, 2014, 06:02:11 PM »
I don't know if you've ever shopped at thrift stores before, but all the kitchen items listed above (as well as coffee tables, bedside tables, kitchen tables, etc) can be found there at 90% off the original price!

Stuff at thrift stores sometimes creeps people out since its not new -- but remember, when you eat at a restaurant, you are using cutlery that has been used 100s of times, your linens and towels in hotels have been washed and rewashed, etc.

Just a thought!

MKinVA

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Re: New Grad Requesting Budget Advice
« Reply #16 on: November 15, 2014, 06:40:05 PM »
+1 on the thrift store yard sale stuff. Don't buy anything new you can buy used. It will all look old in 6 months anyway! A tip for making it less of a mish mash. Pick a color scheme and only buy things that coordinate. The easiest color scheme in the world is blue and white. Every thing under the sun is available in blue and white...table cloths, curtains, pillows, blankets, couches, side chairs, etc. Goodwill, yard sales, craigslist, junk stores. Paint everything white. Scandinavian (white and pine furniture, blue and white, minimalist) is absolutely all the rage!

GardenFun

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Re: New Grad Requesting Budget Advice
« Reply #17 on: November 15, 2014, 06:48:41 PM »
Also ask family for any extra cooking items.  My MIL was looking for an excuse to get new pots and pans so she gave her old ones to her son, creating the perfect excuse for her to get new ones.  My own mom had at least 2 extra complete sets of bakeware, wooden utensils and silverware in the basement.  Free is the best price!

+1 for the Personal Finances by Eric Tyson.  Most libraries have it available.

mmta1234

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Re: New Grad Requesting Budget Advice
« Reply #18 on: November 15, 2014, 07:06:51 PM »
I am overtaken by all the positive response.

Please know that I am reading every single one (email notifications are activated). Thrift stores are an excellent idea!

mmta1234

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Re: New Grad Requesting Budget Advice
« Reply #19 on: November 16, 2014, 10:29:49 AM »
My SO family are hoarders so I'm sure I can snag some useful stuff.