Help me budget!

April 6, 2008 6:25 PM

Given that I have no bills to pay, what percentage of my wages should I save and how much should I take as spending money?

I'm a college student about to be home for the summer, and I'm in a unique sort of situation. Due to circumstances I won't go into (beyond saying that my family isn't rich), college tuition isn't a concern and I really don't have any other bills to pay. However, I do need to be saving money to get a start after college, which is why I'm asking this.

I've managed to get a pretty good summer job; I'll get paid $10 an hour and I can work anywhere between 20-40 hours a week--the hours I work are completely up to me. For the purposes of this question, let's assume I work 25 hours a week.

My question is, in your opinions, how much of this should I save and how much should I take as discretionary money? I understand the importance of a budget in that it enables you to not feel bad about spending money if you've planned for it, and I'd like to figure out a budgeting plan that lets me have a bit of spending money while still saving for the future.

So if I work 25 hours a week, that's $250 a week or $500 every paycheck, before taxes. 10% of that will go to my church tithe, leaving $450 for me (before taxes).

What percentage of this should I save, and what percentage should I keep for short-term spending? I'm not really asking for advice on how to invest the saved money since I'll be talking to an expert in that field in a month or so, but if you have any specific ideas about what to do with the money feel free to share.

Thanks in advance!

posted by DMan to work & money (19 comments total)

Can you save all of it? How much can you save before you'll be unhappy in the present? Look at those things you spend on the be happy now... do you really need them?
posted by phrontist at 6:29 PM on April 6

Put as much as you can stand into a 401(k). Doing so now will put you in a wildly wonderful position at retirement.
posted by kindall at 6:33 PM on April 6

What percentage of this should I save, and what percentage should I keep for short-term spending?

It totally depends on what your priorities are. The answer could be anything from 0 to 100 percent.
posted by mpls2 at 6:34 PM on April 6

i would save as much as you can. start investing as early as you can. really.
posted by thinkingwoman at 6:42 PM on April 6

ESPECIALLY if your family isn't rich and you won't have, say, the cushion of an inheritance later in life.
posted by thinkingwoman at 6:42 PM on April 6

It's always best to save as much as you can. You're in college and it's summer, so you ought to have have fun, but you can still save a nice bit of cash. It'll be good to start these habits early because you're really going to need them soon. Without knowing what's in your future, it's hard to say how hard you should try to save. But since you never know, do make a solid effort.

I think the way to approach this is to set a savings goal. Come up with a nice round number for the amount of cash you'd like to have at the end of the summer, divide that by the number of weeks, and build a weekly savings/spending budget based on that. See how much that would leave you for social//travel/shopping/whatever money. Adjust as needed until you've got a reasonable balance.

Be sure to stick to your savings goal and track your progress. Borrow from next week if something unexpected comes up, but be sure to cut back something the following week to get back on track.
posted by kookoobirdz at 6:45 PM on April 6

As much as you can stand, and err on the side of more. Every time it gets up to $2000 (exact number may vary), put $1000 of it into something useful but which will eventually let you get it out, like term deposits or investment funds. Put it into different things each time until you've got at least five going, and keep track of how well they are doing, and what other methods of investing are around. When the one currently doing worst comes due, split it into the rest (if you can). You'll need to fiddle with your nest egg sizes from time to time, and how many baskets you have them in; there is no guaranteed investing method.

Read whatever you can get hold of by Warren Buffett on the subject of looking for good investments.
posted by aeschenkarnos at 6:47 PM on April 6

Spend the least you possibly can.
posted by winston at 6:48 PM on April 6

Save as much as you can bear. When you're in some dead-end job that you hate going into it'll be nice to be able to look at your bank balance and your monthly expenses and tell them to stuff it.
posted by krisjohn at 7:10 PM on April 6

The rubric that I've heard and liked is 50% for essentials, 30% for fun money, and 20% for savings. If you don't have to pay for any essentials, how about taking 30% of your money for fun money and 70% for savings? That should be $100 a paycheck or so for fun, which seems adequate to me. On the other hand, if you feel deprived, even saving $300 or $400 a month will be well worth it.

If I were you, I would put half in a retirement account and half in savings for medium-term expenses (buying a car, putting a deposit down on an apartment, buying a house, moving cross-country...) and for emergencies.
posted by Jeanne at 7:11 PM on April 6

Don't squander it, but don't forget to have fun, too.

I like kookoobirdz's approach of having a savings goal. I'd add to that, do you need money throughout the year while back in college? I'd recommend having two savings goals - one short-term to give you a bit of spending money for the school year, and one long-term for a down-payment on a mortgage, or getting started on retirement savings, or spending a semester in Prague, or whatever it is you have in mind.
posted by joannemerriam at 7:12 PM on April 6

I graduated from college two years ago. Here's a breakdown of the expenses I had moving out of my college apartment and into the real world:

-Moving expenses, which included boxes and a UHaul, about $200 (it could be much higher if you have to move cross country).
-Apartment, first and last month's rent, $2400. You may be required to have a security deposit also, which will likely be about a month's rent.
-Furniture. I had absolutely nothing, so I need, well, everything. Bed, couch, desk, some bookshelves were what I started with. It was about $1500, I think.
-Buying a car? You'll need down payment money. 10-20% of the full price of the car.
-First month's utility payments. Even if you start work the day after you graduate, you probably won't get a paycheck for 3-4 weeks after your first day. $200-300
-First month's food and entertainment budget.

I think that's everything I needed to buy in the first month I was out of school. I had about three weeks between graduation and my first day of real work, so consider that down time - it'll probably be nice to have some money to do stuff with. So, ballpark - save about five to six thousand dollars for after graduation. It might sound like a lot, but not having to worry if you can afford to eat is a huge load off your mind.

My first day of work I had two hundred dollars to my name. I burned up my entire life savings getting established, so... don't do that if you can.
posted by backseatpilot at 7:23 PM on April 6 [2 favorites]

Save as much as you can. You will very likely encounter periods in the future where you will not be able to save much, if at all (for example, you are out of college and you need to buy health insurance on top of paying for a place to live, food, and having to relocate to find a job, etc.) These times happen to everyone. When it happens, knowing you've got a good chunk of change in the bank will make life a lot easier.

Think about how much you need for gas money, if you have a car. Then add 50%, since prices are rising and you never know if you're going to have a busy week of driving. That's your gas budget. Then think of what you're going to need for food. Add 25% as a safety margin. Continue with things down the line, and budget accordingly. But do make sure you leave yourself at least a little fun money. After all, this is life, and you should enjoy yourself.
posted by azpenguin at 9:03 PM on April 6

It seems likely that the US is heading into a difficult recession. Under those circumstances, it's wise to save as much as you can, and keep your savings pretty liquid. Investing your savings in the meantime might be sensible, if you can find a stable-looking investment, but until you have at least a few months' living expenses saved up, it would be foolish to put your savings into a 401(k).
posted by Coventry at 9:16 AM on April 7

If I were in your situation (and as a college student who DOES have to pay full tuition out of pocket, I wish I were) I'd save at least $400 of that. It'd give you $100 every month spend, which is a fair bit. The rest either goes into a high-interest savings account or a 401, depending on whether or not you'll need the money on short notice.

Alternatively, I'd set a fairly high savings goal each month, say $1000. And if I wanted money to spend after I hit that goal, I'd just pick up more shifts. That alleviates my guilt and allows me to not worry when I'm having fun. YMMV.
posted by Phire at 4:07 PM on April 7 [1 favorite]

Well, thanks for the tips guys, obviously the continuing theme is to save as much as possible and I'm taking that to heart.

Phire, you specifically commented on the tuition thing--you're right, I'm in a very lucky situation and I do realize that and want to capitalize on it. Someone recently told me that not many college students leave college with much money, and I need to take the opportunity to do so.

So I've sort of combined the ideas presented here and come up with a solution. Some of you mentioned a savings goal, which I liked the idea of. But I think instead of that I'm going to set a spending goal. I already have enough money in my bank account to where I can go to a movie or something if I want to, so "little things" aren't a big deal. But since I want to get something meaningful from my working, I'm going to plan on buying something that will cost $400-500. Then I'll save the rest. I think that will fulfill my desire to see some results from my labor, while at the same time saving for the future.

I also plan on investing my money as wisely as possible so that I will have a "nest egg" when I graduate. I'll take the money I earn this summer and invest it, diversifying as much as possible to lower my risk in the recession we're experiencing right now. I'll also be adding to these savings over the next few years; I'll work every summer and probably during a few of the college semesters when I'm not as busy. My personal goal at the moment is to have $10,000 saved up when I graduate. That should be enough to get me started and not be left with nothing.

So thanks for all of the advice, I really appreciate it. You guys have given me a slightly different perspective on this than what I had before. If any of you (or anyone else!) have anything to add, please feel free to do so.
posted by DMan at 6:59 PM on April 7

Keep in mind that money you make this year and assets held in your name will be considered when calculating your financial aid award next year, and thus your expected family contribution will go up. Students are expected to contribute a much higher percentage of their income and assets to their education than their parents are. I would talk to a financial aid counselor at your school and find out what percentage of your own earnings and savings they will expect you to pay towards your college expenses next year.

IIRC, money in a Roth IRA will not be counted as an asset when calculating your expected family contribution, but you can withdraw the amount you contributed (but not any earnings) early without penalty at any time, and you can withdraw the earnings penalty-free (but must pay income tax) to pay for school. So a Roth IRA might be a good place to stick your savings. You can invest your Roth IRA funds in a variety of things -- you don't have to put any in stocks if you don't want to -- so if you think you will be taking the money out again soon or are worried about the economy then you probably want to invest it in something very conservative. If later you decide to leave it in as retirement savings, you can shift it to something more long-term growth-oriented like stocks.

Disclaimer: I am not an accountant or financial planner.
posted by Jacqueline at 10:10 PM on April 7

Thanks Jacqueline--but since the only money I'm receiving from college is an academic scholarship, I don't think this is going to be much of an issue.
posted by DMan at 8:05 AM on April 8

Yay! Then I would save lots, and start researching dress code requirements for your future career. If you have to buy a lot of suits that will be expensive.
posted by Jacqueline at 3:14 PM on April 8