How much should I save my first year in the workplace?
December 8, 2010 1:41 AM   Subscribe

What is a suitable savings goal for a recent university graduate?

I am a recent University graduate (BA Hons) living in Melbourne. I have just landed my first job out of uni . I have a small amount of debt, around $1000, which I plan to pay off by selling my car as I can easily commute no longer need it to get myself to work or uni and rarely use it otherwise. I live at home and my parents kindly do not charge board. My starting salary is $51,500 per year, and my estimated taxation including HECS-HELP (student loan) repayment is around $11,000 per year. My fixed monthly costs are around $200 - mobile phone ($30 per month), public transport ($70 per month), sports (~$80 per month). So with an after-tax income around $40,000 per year, what should my long-term savings goal be? I was considering around $15,000-$20,000. Does this seem about right?
posted by rigby99 to Work & Money (11 answers total) 3 users marked this as a favorite
 
Since you don't pay rent you should easily be able to save $20,000. If you're getting down into the $15,000 range you'd have to be really buying a lot of crap all the time.
posted by beerbajay at 2:09 AM on December 8, 2010


With an after tax income of $40k and $2.4k expenses, you should be easily able to save $25k a year, that would still give you $1k 'fun money' every month which is a lot.

Honestly, unless its costing you a lot of money to keep, I wouldn't sell the car. You'll be able to pay off your debt after you get your first pay-check and wont have to give up the freedom/flexibility having a car gives you.
posted by missmagenta at 2:20 AM on December 8, 2010


The car is still costing him in registration and insurance though, and he's not using it for work. And if he's in his early twenties then the insurance won't be cheap. Do they have those communal car services where you live, rigby?

I've got no other input other than to say, you're in a good position right now. Make the most of it.
posted by AmbroseChapel at 3:51 AM on December 8, 2010


Response by poster: Not sure what a communal car service is, to be honest. In a pinch I can always borrow a family member's car. The reason I want to get rid of the car is partly environmental and mostly because it's such an easy commute (less than half an hour most days) via public transport, it seems a waste keeping a car that sits at home all day.

20K is my goal.
posted by rigby99 at 4:49 AM on December 8, 2010


The thing that doesn't "seem about right" to me is this: I think you should re-calculate your monthly expenses to include paying some kind of rent to your parents, unless you're from a cultural background where that sort of thing Just Is Not Done. Even if they've kindly not asked for it, you're clearly in a position where you can afford to be self-supporting. It'd be different if you had no job or a crappy job, but choosing to maximize your personal savings while allowing them to bear a portion of your living expenses strikes me as self-centered. If you "kindly" gave them $500/mo to cover rent, utilities, food, etc., you'd still have enough left over to save a substantial amount of money. It's not just a question about whether your parents "need" your money--it's a question of basic adult responsibilities and reciprocation.
posted by SomeTrickPony at 5:00 AM on December 8, 2010 [2 favorites]


Your plan leaves about a $1,500 a month unaccounted for. Your budget doesn't include food and dining, which is something to consider. Or gifts to family and friends. And rent to parents is probably a good idea, if you ever wish to live on your own. Budgets have a habit of growing, and if you don't have money allocated to rent already, moving out looks that much harder.

You've got the right idea of living frugally and saving early, while doing so is simple, but I think its important for you to identify what you're saving for. There's many goals, and if you don't think about it, you may end up with illiquid retirement funds and no emergency funds. Some common goals:
1. "Emergency funds." I think they'd be more popular if we called them opportunity funds. Have enough money saved up and in liquid accounts that you can pick up and move to a new job, recover from a disaster, or loss of a job. Having money saved up also allows you to time big purchases with big discounts if you don't have massive access to credit or if rates are too high. Rule of thumb is six months but some financial advisors have been retroactively recommending longer.
2. (Early) Retirement. You likely know about this one, but maybe not how much you need. If this is the goal, you should look at how varying savings levels vary retirement date. At your level of saving I think the answer is very quickly.
3. Home ownership. Another popular goal. Don't know much about Australian real estate, purchase methods, or rent vs buy incentives.
4. Grad schools. For most of these, my opinion is you shouldn't pay for them. But in some professional schools that might not be an option.
5. Start your own business. It's much easier to get this off the ground if you don't have to take out business loans from day one.
6. Raising children. Kids cost, so having some money built up can make the busy years easier.
7. Whatever it is you want. It's your money after all.
posted by pwnguin at 6:35 AM on December 8, 2010


By "communal car service" I meant things like http://www.flexicar.com.au/ or http://www.goget.com.au/. You join the service and pick up a car when you need one and drop it off again.
posted by AmbroseChapel at 2:16 PM on December 8, 2010


I have about the same income and expenses as you and managed to save around $15k without even trying, splurging and buying myself random things as I please, and even buying myself a couple round-trip trans-pacific flights a year. I am not sure about what Australia has in terms of retirement/pension, but if you have a way of getting a private retirement account, I would suggest you do it and try to fund it at least 5-10k.

I have the problem that once money enters into "savings" I am loath to spend it even though spending it won't really hurt me in any way (it won't put me into debt or anything, or leave me without enough money to cover my expenses and and any emergency that may happen). If you're that kind of person, I would suggest, if possible, finding a way to have a second savings account to save up for big fun things, like a 2-week whirlwind Japan trip or a shiny electronic device you've always wanted but can't convince yourself that you really need (awesome DSLR and lenses, iPad, really nice watch).
posted by that girl at 6:05 PM on December 8, 2010


Response by poster: @ SomeTrickPony and pwnguin: I guess the cultural background that I am from in which paying rent to parents is "just not done" is that my father is a financial planner. He believes that money paid in rent is money wasted, and would prefer that I save my money rather than give it to him as board. I help out a lot around the home and with my siblings (family taxi-driver through high school) so I think they believe this makes a positive, non-financial contribution to the running of the house.

@ that girl: my problem with saving money when I was a student was that I spent too much on junk and stuff I clearly didn't need. Now that I'm in the 'real world' I want to cut that out. I'm going to be budgeting tightly and conservatively to meet that goal.

Thanks everyone for your input!!
posted by rigby99 at 9:41 PM on December 8, 2010


The best way to minimize spending money on crap is to keep track of everything you spend money on for a month or two. Then you will go "AUGH I AM SPENDING SO MUCH MONEY ON CRAP!" and you cut back.

You need to budget yourself at least a little fun money though, or else you feel guilty if you ever want anything at all. $100 a month or so is probably good.
posted by that girl at 4:06 AM on December 9, 2010


If dad's a financial planner, he may have some good ideas.

I'd suggest setting up your savings plans as an autodeposit from your pay. It's much easier to save when you don't have to think about it. Call your HR team to arrange.

Saving money is much easier if you know what you want to do with it. Want to save for a house deposit? First Home Owner savings accounts can give you a free $850 per $5000 saved. Getting an early start on retirement? If you didn't earn much during uni, you may be eligible for the superannuation co-contribution - up to another $1500 of government money for $1000 in super. I also salary sacrifice into super so I don't have to pay my full tax rate on it.

Other good avenues for savings are paying off debts. Include HECS - it only indexes with CPA, but you'll get a (20%?) discount for lump sums. As for savings, cannex.com.au gives good breakdowns of good returns on term deposits and savings accounts.
posted by quercus23 at 2:49 AM on December 14, 2010


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