Advice for people starting their first salaried jobs?
June 19, 2011 6:06 PM   Subscribe

Advice for people starting their first salaried jobs?

I'm a New Yorker fresh out of college about to start my job in nearby Queens (entry-level). I haven't seen the compensation package yet but I know I'm going to be making 40-45k. This is a lot of money and I do want to be smart about it.

I live at home right now and have only my personal expenses to worry about but have every intention of moving out in the next year. My dad my be able to find me a place in Manhattan in a small 3-4 unit building that will have very deeply discounted or free rent, so long as I take over some light maintenance duties.

But that isn't a given.

So, my general question revolves around how I should go about divvying my expenses responsibly - things like a 401k, an emergency budget, etc. Stuff like is great but I'd like to know what I should be putting money towards.

If I do get a signing bonus I'm contemplating using it to wipe out about $2k in credit card debt I've currently got (have about half that in cash), and maybe investing the rest in stocks or something?

Any advice you have would be greatly appreciated.
posted by inTikiwetrust to Work & Money (21 answers total) 31 users marked this as a favorite
Previously with several responses from me.

I like 60-40 (as referenced in the linked post) because it's easy to get your head around, and you don't end up with lots of categories. If you will have little to no housing expenses you can change percentages.
posted by jgirl at 6:17 PM on June 19, 2011

This has been covered pretty thoroughly on askme before. I would suggest you look around. Pay off your credit card debt, max out your 401k, start a roth IRA and max it out every year, save up 6 months of living expenses and then enjoy yourself.
posted by TheBones at 6:18 PM on June 19, 2011 [1 favorite]

Definitely pay off the credit card debt and sign up for 401k immediately. If you're enrolled in the 401k from the beginning, you will never miss the money. Do at least 10%.
posted by something something at 6:20 PM on June 19, 2011

Note: this is Australian advice and does not factor in stuff like 401k and health insurance.

What I've always done is make sure I have enough money to live each pay cycle (be it weekly, fortnightly, or, god forbid, monthly). "Living" includes food, electricity, rent, and transport. These are the four things you need to stay alive, stay comfortable, and hold down a job, because you get to go move from your warm home to your place of employment with a full belly in both directions (in a roundabout way). If you have a pet or pets, keeping them comfortable is included in your "living" expenses. If you have medication or need to go to the doctor regularly, this is also "living". Keeping your work clothes clean and in good repair is also a prerequisite for staying employed. Gender-appropriate grooming should also be a consideration.

Also, since you are, it would appear, moving out for the first time, remember you will need things like cutlery, crockery, and at minimum a surface upon which or a device in which food may be heated. Happily, this stuff can be mainly had for free from friends and relatives who are only too glad to get rid of stuff and help you out, or very cheaply at a thrift shop. Remember also that you will require, at a minimum, a piece of furniture on which you may sleep.

Next up are bills. You want to first pay those bills that will keep you out of trouble. This includes stuff like credit card and car repayments, and paying off student debt, if you have it. Pay what you can afford and try to drive these down as hard and as fast as possible. Having debt under control eliminates, based on my calculations, approximately 63% of stress in a person's life.

The rest goes on everything else. "Everything else" includes, but is not limited to: nice things for yourself and others; takeout; internet; cable television; mobile phone; booze; cigarettes; books; magazines; DVDs; games; music; "investments".

If you can't afford a keep-out-of-trouble bill, call the people and tell them RIGHT AWAY. Most places are lenient.

Best of luck!
posted by tumid dahlia at 6:22 PM on June 19, 2011

401k right now. Figure out how much money you need each month, find out how much your company will match, and put in as much as you can. When you get raises, pump it up another percent or two.

Use the signing bonus to eliminate your credit debt, but (IMO) not at the expense of your emergency savings. As long as you're paying enough on the $2000 to keep the balance going down every month and not drowning in the interest, I think it's probably wise to have a fund for "oh god my car is on fire" or "wow that is a lot of blood and I should go to the ER".

But honestly, once you have your savings and your 401k going, and you've figured out your monthly expenses, make sure to set aside some "fun money" for yourself. I know people who make good money, but are so obsessed with saving it, they never spend it on themselves. You landed a sweet job! Treat yourself to something nice every now and then.
posted by specialagentwebb at 6:27 PM on June 19, 2011

Sounds like you're doing great so far.

Ditto start the 401K match ASAP - that's a no-brainer.

If possible, save 6 month's living expenses (that's 6 months paying your own way, not 6 months in the situation you're at now).

You know, if you just stay out of debt except for maybe owning a place to live and save in the 401K, at your age it's almost impossible to go wrong. If you need motivation maybe figure out how much you'd have to save to retire if you waited to start when you're 40.

My big piece of advice that's non-obvious until you get screwed around by life a bit - shit happens. That's my objection to having 30 million budget captions for every little thing. It's impossible to know how much you'll need to spend for home repairs in the next six months. Just generally have a principle of saving and not spending every nickel you make, and you'll have the cushion when stuff goes wrong.
posted by randomkeystrike at 6:30 PM on June 19, 2011 [1 favorite]

Read Your Money or Your Life.

A lot of people, perhaps even most people, try to live as well as they can on what they make, and that generally means they live up to the hilt of their income and inevitably overspend. I suggest you instead aim to live as simply as you comfortably can, in order to leave a margin for savings. As a general rule, you should be trying to save a portion of your income every month. Set up a budget and stick to it.

Learn to tell the difference between a want and a need: the needs get budgeted for, while the wants are carefully chosen and saved for.

You will need a LOT of stuff to furnish your place, but though you should try to get decent quality stuff it doesn't all have to be new. Reserve some money for the basics (a bed, a couch, table and chairs, basic kitchen supplies, linens and towels) and then add the other stuff gradually, a few items a month. Hit thrift stores and Craig's List and relatives with full garages for some of the things. You'll be surprised at how much nice stuff is out there for little or nothing.

And it's nice to read a question like this, about someone who's in such a good position and being smart about how he starts out. Good luck!
posted by orange swan at 6:45 PM on June 19, 2011 [4 favorites]

The one thing young people have going for them is time. Generally, over the last 1/2 of the 20th century, their time and the principle of compound interest have been enough to justify suggestions that they try to save 5 to 10% of income, and barring major personal catastrophe, if they only made 5 to 6% returns on their savings/investments, they'd be OK. If they made 7 to 10%, which was possible for the smart and aggressive through much of that period, they'd be retirement kings and queens.

I'm not so sure that's going to be true, for young people going to work, now. For one thing, I think growth is going to be slow in the U.S. economy for some time, a la the "lost decade" Japan experienced in the '90s, and for essentially the same reason: the U.S. is not being materially more aggressive than the Japanese were to revalue the losses in the real estate market. Accordingly, we're in a period of slow, sputtering economic performance, and will be, I believe, until some basic problems in the current economy are flushed out of the system. You'll do well to clear 2 or 3% on normal savings/investments over the next 8 to 10 years, and inflation will eat much of that.

So, I think that to do well later in life, young people starting out today are going to have to be more frugal than their parents were, by far. Earning the same, or even less on an inflation adjusted basis, early in their careers they are going to have spend less and save more than their parents ever did. And I think that some insurance products that protected their parents at historically low costs, like life insurance and home insurance, are going to be more expensive, on average, for young people, than they were for their parents. Health insurance costs remain a big unknown for young people, relative to their parents, but what I think they are going to discover about health care is that, simply due to advances in medicine and their own improved expectations, they'll be spending more on health care, by far, than their parents did, and I suspect that only some of that increased spending will likely be covered under any kind of insurance. But on average, they'll be living longer, and may be working longer, too. However, it's still an actuarial game as to whether their improved health and longer working careers will pay off in better, longer retirements, or whether they'll be able to afford the standard of living in retirement that they could while working.

Moreover, I think that the economy that does emerge from this period is going to be a lot more fluid, with a lot more pressure on workers, than any their parents knew. The world is "flatter" now, and except for jobs that are inherently local service or construction jobs, few kinds of work won't be competitive in a world market. Companies and capital will continue to move fluidly, not only to where they can get highest return, but where they can get increased safety, and government cooperation to guarantee profits. It'll be tougher to advance in corporate hierarchies, and tougher to start new ventures, for today's young people than it was for their parents, and they will likely change jobs more frequently, for less reward, than their parents did. Moreover, they'll probably experience longer periods of unemployment or underemployment throughout their careers than their parents did.

All in all, I'm glad not to be starting out today, and I wish those who are all the best. I think you should do everything you can to keep your expenses down, and your savings rate as high as possible, while you have the means of doing so. Be careful with your investments; although the young are usually urged to be more aggressive in terms of taking on risk than older people, I think all successful investors in the next 10 years have to be more concerned with safety and capital preservation than was generally true through much of the last century.
posted by paulsc at 7:04 PM on June 19, 2011 [3 favorites]

A lot of people, perhaps even most people, try to live as well as they can on what they make, and that generally means they live up to the hilt of their income and inevitably overspend.

This goes especially for recent grads intoxicated by what seems like an incredible amount of income, after years as a penniless student.

It's fairly typical for people aflush with graduate incomes to nevertheless reach their late 20s & realise that they still have no savings or investments, having blown their salary for years on fashion, holidays, nights out on the town, consumer gadgets, and/or fancier-than-strictly-required vehicles.

So, try to steer clear of that trap if you can. Just because you can buy something doesn't mean you should. You'll end up trying to keep up with the maxed-out-credit-card Joneses if you're not careful.
posted by UbuRoivas at 7:07 PM on June 19, 2011 [2 favorites]

I'm going to disagree with what other people have said about saving emergency fund before paying off your credit card. Pay off the credit card immediately, even if it leaves you with no savings. (Then save that emergency fund). I'm assuming your signing bonus is about $2000, but even if it's more, the following logic still holds.

Let's say you decide you need $2000 as an emergency fund for if your car catches fire or you have to go to the ER, or whatever.

Scenario 1. you don't pay off your credit card bill, and you put $2000 in your emergency fund. A couple of months later, you have an emergency. You can pay for it out of your fund, but meanwhile you lost the money you had to pay in credit card fees and interest.

Scenario 2. you pay off your $2000 credit card bill and have $0 emergency fund. A couple of months go by (during which you pay NO credit card interest, woohoo!). Then you have an emergency. You take on $2000 credit card debt to cover your emergency. Now you owe $2000 on your credit card, but at least you had a couple of months debt free.

Let's say you decide you need $20,000 as an emergency fund, so you can pay your rent for a few months if you lose your income.

Scenario 1. You don't pay off your credit card bill, and you put your $2000 signing bonus in your emergency fund. A couple of months later, you have a $20,000 emergency. Most likely you do not have enough in your fund to cover it. Meanwhile, you were still having to pay interest on your credit card, and you will have ongoing payments on that even during your emergency.

Scenario 2. You pay off your credit card bill, and a couple of months later you have a $20,000 emergency. Probably you don't have enough money in your fund to cover it. But at least you don't have to worry about how to cover credit card charges and interest; you probably saved a little money over the past couple of months since you didn't have credit card payments to make during that time; AND you might have a better credit score and therefore access to a loan that might help you out now.
posted by lollusc at 7:10 PM on June 19, 2011 [3 favorites]

Congrats on the new job! I found the "Get Rich Slowly" blog really helpful to me in devising a saving plan and sound financial fundamentals -- I would read the back posts and some of the "greatest hits" for advice. Good luck!
posted by caoimhe at 7:12 PM on June 19, 2011

First thing is to get your money-consumption habits right.

Every time you get paid, sock half of that away in some kind of term deposit that you won't be able to touch for at least six months, and put the other half in an accessible bank account. Then do your level best to forget about the term deposits. What you're trying to do here is adjust your expectations of how much you have available.

Yes, paying down the credit card as fast as you possibly can will save you money in the short term. But paying it off while living within the limitations of half your actual income will build spending habits that eventually save you much, much more. Get in the habit of just not taking on any expenditure that half-pay won't fund.

Decide what to do with the term deposits when they mature. By then, they should have had time to become just an abstraction in your head rather than OMG I Have So Much Money Now, and you will be able to deal with them dispassionately. The only thing you should not allow yourself to do with these is transfer them to somewhere you can immediately spend them.

Once your credit card is paid down, get rid of it. Swap it for a debit card instead, and embrace the concept of lending yourself money. If you need three and a half thousand bucks to buy that sweet used Japanese small car, borrow that amount from your long-term nest-egg and make a formal repayments plan, with a regular repayment schedule and interest, just as you would have to do for a loan from anybody else. Set the loan interest rate a couple percentage points higher than the money would be earning if you left it where it is; this will still be well under the cost for a normal personal loan, let alone what you'd be paying on a credit card. Self-loans are a win in both directions - not only are you getting a cheaper loan from you than you would from anybody else, you're making more money on lending it to you than you would have made otherwise.

When you get raises (and you will get raises) then the best thing you can do is not change your spending habits. Adjust your present (halved) income upward a little to cover inflation, and put the rest into long-term savings.

You're young, and it may initially sound to you as if following this advice is going to deprive you of all the Good Things. But in fact the Best Things are your time and your freedom, and by learning early to live simply and inexpensively while accumulating a great big nest egg, you will be buying yourself many years of both.
posted by flabdablet at 7:46 PM on June 19, 2011 [1 favorite]

IF you have the option of going "aggressive" on how you allocate your 401k money, do so. Being that you won't have access to that money for a while, it'll be ok to deal with the big fluctuations of the market.
posted by Jagz-Mario at 7:50 PM on June 19, 2011

Regarding 401(k) programs ... and this has been said before but I'll say it again ... you should contribute whatever it takes, in order to get the full employer match, if your employer offers one. E.g., if your employer offer "50c on the each dollar contributed up to 6% of salary" then you should contribute 6% of your salary to get the full match. You should do this from Day 1. Failure to do this is leaving money on the table.

However, it is my experience that most 401(k) programs seriously suck in terms of fund selection and investment performance. They are typically offered through investment banks that make their money by screwing you with very expensive funds (high-load, lots of fees, management expenses, etc.). The smaller the company, typically the crappier the program, because small companies don't have the leverage to get their employees the sort of good deals that large employees do.

So, unless you really know what you're doing, I would not recommend over-contributing to your 401(k) beyond what you need to pay in order to get the employer match.

Once you've gotten the employer match, then you can go to a brokerage of your choice (I recommend Vanguard; they're non-profit and well regarded) and open a Roth IRA. Without getting into a lot of tax-related details, the Roth is a much better deal for a young employee than a pre-tax 401(k). So I would max the Roth — currently you can only put in $5k a year — rather than putting additional money into an employer 401(k).

When you change jobs, you can generally take the money (including the employer contribution) out of the employer-chosen brokerage and funds, and roll them into your own choice of brokerage and funds, either keeping them as a pre-tax 401(k) or even converting them into a post-tax Roth (by paying taxes; this is a fairly complex transaction). Again, because I've yet to see a company-chosen 401(k) program that was better than mediocre, I'd recommend just planning on doing this as part of any future job change.
posted by Kadin2048 at 8:29 PM on June 19, 2011 [1 favorite]

Another living-within-means tip that works for me: instead of bothering with a detailed budget, I divide the things I can spend money on into categories, and delay buying things in the upper categories if my access account balance is currently in a lower one. For example, in the under-$500 category goes needs: groceries, rent, bills, car maintenance and fuel: I will always pay for those even if there's less than $500 available. In the $500-$1000 category goes clothes, newspapers, magazines, books, takeaway food and other general-convenience things. $1000-$2000 is luxuries; above $2000 is contributions to the nest-egg over and above the normal half-my-income base rate. The less vitally necessary any item is to me, the higher the spending category it goes in - even if it's a thing that actually costs very little.

Categorizing possible purchases in this way counteracts the natural tendency to buy only cheap things when cheap things are all there's enough to pay for and put off any expensive purchase until there's money available. It stops me frittering money away in dribs and drabs on unnecessary things, even if they are cheap.

The scheme would of course fail miserably the first time I found myself needing to shell out $600 for a quarterly electricity bill and $200 for car servicing with only $100 in the account. So to fix that, I've lent myself $1000 as a float. It's an interest-only loan that I pay the nest-egg $70 per year for (categorized as a bill) and I don't count it when I'm checking how much money is available - if the access account balance is $1375, I treat that as $375 for categorization purposes.

My no-budgeting budget has been working very nicely for me for over ten years now.
posted by flabdablet at 9:09 PM on June 19, 2011 [1 favorite]

By getting a good salaried job, and living in the same room I was in when I was un- and under-employed, I've just broken the oldschool 'accomodation should be less than 25% of your income' guideline, which is pretty much my personal indicator of having 'made it' (but it's either pretty hard to hit now days, or we have changed expectations on what we can 'afford' in housing, because I keep getting told I should find a less crappy apartment :P ).

As a really, really rough guideline, I've found the 50%-30%-20% plan for budgeting good -

For myself, Debt repayments and Savings is a combined 30% I figured I could shave off 5% from my 'essentials' because my rent is cheap, and the rest off my 'wants'.
Also, I make sure my wants are stuff I value, not just money I'm spending due to well, laziness. If I have to get a taxi, that's money I could have spent on an actual *treat*. In the same vein, I try and keep 'eating out' to when I'm eating with other people, so it's actually a nice experience.

If you're not paying rent at the moment, I'd suggest banking it. Some for long term savings, some for the stuff that you should slowly accumulate when living on your own (Keyword: *Slowly* accumulate! A good indicator is if you're going and buying a vacuum cleaner, get just that for the week. Buying a vacuum cleaner, dinner set, bed sheets, banana holder etc in the same trip probably means you've wasted money somewhere, and bought things that are maybe ok, but that you won't absolutely love).
posted by Elysum at 9:44 PM on June 19, 2011

Secondary conditions being say your company only vests after a certain period of time (say 3 or 5 years) so if you leave before then, you lose all the company contributions, right?

Depends on the company. Personally I have never worked at a company that didn't vest after six months or a year, although legally an employer is allowed to take up to six years before an employee is 100% vested. This applies only to the employer contributions, though; if you're 50% vested and you leave, you lose 50% of the employer contributions, but none of the employee contributions (payroll deductions). It's up to the company to determine the vesting schedule. You can be 100% vested from the moment the company starts contributing (which might not be until you've been employed for a certain period), or you can vest all at once after some time delay. Lots of room for variability, and this is definitely the sort of thing you want to ask at a job interview when you meet with the HR person.

Frankly, if a company had a six-year vesting schedule I'd probably just treat it as though it wasn't offering any retirement matching at all, in terms of my financial planning. That's stingy as hell.

And is it as easy as what Kadin2048 says above, do you just take the money into your own brokerage funds

It's easy as major financial transactions go, but not like buying a pack of gum or anything. Most brokerages (e.g. Vanguard) have "kits" that they will send on request, explaining how to do a rollover from another institution. Basically you have to call up the institution that you are leaving, and get them to close the account and issue a check or EFT directly to the receiving institution. Going from a pre-tax retirement account to a pre-tax retirement account is pretty straightforward IMO; it's when you start converting between types, like from a pre-tax 401(k) to a Roth, that things can get complicated and very expensive, tax-wise, if you screw them up. But that's really outside the scope of the original question.

As to your question about saving for graduate school ... that's tough. I'm not sure there's any single right answer. Personally I would still max the Roth and get the maximum employer contributions from the moment you can possibly afford to do it, because the Roth is much more valuable the earlier you start investing in it. If that means taking an extra year before you go to grad school, that's that. (But I realize that might be unpalatable to a lot of people.) The obvious exception would be if the grad school in question is a really good investment in the purely financial sense; that you are absolutely certain to dramatically increase your salary as a result of going to grad school. In that case it might make sense to forgo the early Roth contributions in order to get the higher salary sooner. But the salary difference would have to be dramatic, and I think people tend to overestimate the salary implications of grad school in the current economic environment. (E.g. law schools are practically a money pit.) But then you also run into the situation where there's a maximum income threshold to the Roth; it's possible to make too much money to contribute to them at all. If you hit that income level, if you haven't invested in a Roth previously, you're left out of the benefits of them.

The part where it becomes subjective is that the payoff horizon for Roth contributions is decades down the road, in retirement. The payoff for higher education is, hopefully, only a few years. So that would have to get factored in as well, and I'm not sure anyone can really advise you on how to weigh that.
posted by Kadin2048 at 9:59 PM on June 19, 2011

Most answers focus on retirement and debt repayment. Which is great. But incomplete. You need to read up on your employer's health insurance options. "Open enrollment" is an annual window during which you can change your insurance plans. Importantly, you're allowed an exception to this as a new hire, but only for a short while, and only after a waiting period. If you can, hunt down your employer's HR website and read up on insurance options and policies.

The two major choices you'll have is HMO vs PPO, and HSA vs FSA. For young people, the default advice is usually HSAs, assuming your employer contributes the difference to between a low deductible plan and the HSA-mandatory high deductible plan to your HSA. But this advice should be weighed against your medical history, what your employer is offering and probably other things I'm forgetting past midnight. Definitely read up on those three letter acronyms and refresh your knowledge during open enrollment; a coworker of mine committed to dropping a lot of cash into an FSA only to discover that over the counter drugs weren't eligible anymore without a prescription. For him, that was like a thousand dollar mistake (but at least he doesn't have to pay taxes on it!).

Other than that, the only advice I have is to invest some time and money in productivity. Learn how to use electronic calendars and spreadsheets, because they're crucial to decision making and execution. You don't want to be forgetting bills (or meetings, appointments, and conference calls). There's a number of books and websites on the subject, some are even tuned for a particular roles like computer system administration. But you may be fine with the default advice from "Getting Things Done" and similar.
posted by pwnguin at 10:29 PM on June 19, 2011 [1 favorite]

I'd work out what you will likely be paying in rent if your dad's plan doesn't come off, and put that amount away into savings every time you get paid. If you do get the discounted rent, keep doing it after you move. Otherwise, you're likely to get used to your rent-free cashflow, and it will be much harder when you eventually have to move to paying full rent. If you're only earning $X now, living on $2X will seem luxurious; but going from $3X to $2X will be much harder later because you'll have reset your expectations.

Plus you can use the savings for first/last months rent, security deposit etc, either now or later.
posted by une_heure_pleine at 5:15 AM on June 20, 2011

If you're going to be paying rent in NYC, prepare for that $45k to seem like a much smaller number than it does now.

Elysum: "As a really, really rough guideline, I've found the 50%-30%-20% plan for budgeting good -

I love this quote from the article:
If it's so hard to keep to the 50% limit [of your post-tax income dedicated to 'necessary' expenses], why do it? Several good reasons:


It gives you balance. Limiting your overhead allows you to have money for the pleasures in life, such as dinners out and vacations, without stress. It also allows you to get out of debt and save for your future.
Don't forget to actually enjoy life, and be able to live a little. This is important! An awesome apartment sucks if you can't ever afford to leave it.
posted by schmod at 2:00 PM on June 21, 2011 [1 favorite]

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