nouveau richer
September 27, 2005 10:18 PM   Subscribe

I'm just out of college with an average paying tech job and I don't know what to do with all this money.

I don't go on spending sprees, being poor in school stopped me from a lot of impulse buys, but I'm scared I might waste my newly earned salary on stuff that I don't need. What's the best way to start saving? What did you get that you (did and didn't) regret?
posted by anonymous to Work & Money (41 answers total) 2 users marked this as a favorite
Out of debt: student loans, credit cards, car loans, etc.
That was the best feeling. Do that first.

Gave my dad $5000.
(His only income is social security.)
That was good. Weird, but good.

Electronic gadgets.
Not so much. The next year I seemed to need all new ones - staying current electronically is worse than crack.
posted by Methylviolet at 10:36 PM on September 27, 2005

Start a regular savings plan, i.e. $100, $250 or $500 a month into a mutual fund or something. Will add upp well over time.
posted by dagny at 10:37 PM on September 27, 2005

Put 10% of what comes in in a savings account. Make sure you know what costs you're going to have that month: food, car, insurance, rent, bla di bla. Put that in a separate paying account each month. Now you're left with money you can spend without getting in trouble. Identify the stuff that makes you happier in life. Is it good food, movies, music, sports? Then primarily spend your money in that area. 's easy!
posted by Skyanth at 10:39 PM on September 27, 2005

Drop 5% of your salary (hell, as much as your employeer will match) into your 401K.
posted by SweetJesus at 11:01 PM on September 27, 2005

Don't splurge on a car.
posted by scarabic at 11:08 PM on September 27, 2005

What did you get that you (did and didn't) regret?

A new Acura CL with a 72 month loan that drains me for 300+ a month in 93 octane. I drive a lot, and it's nice, but I'm probably spending $900 a month on the car payment, insurance and gas combined.

Buy used.
posted by SweetJesus at 11:08 PM on September 27, 2005

As MethylViolet said, pay off your debt. Establish your budget. Set up payments to max out your retirement savings contribution. Save up 6 months worth of salary and put it into staggered three-month GICs/CDs, so you have one maturing every month. Create a savings account for vacation, gifts, insurance and other predictable expenses. Create another account for savings toward a downpayment for a home.

Also, if you don't already have one, apply for a line of credit -- some banks combine this with a low interest credit card. Charge something really small every month and pay it off. Then you will have established credit at a lower interest rate.

Plus what Skyanth said.
posted by acoutu at 11:11 PM on September 27, 2005

Most of my co-workers started their jobs as single men out of college or tech school. They start making decent money, especially in periods with heavy overtime, and start buying toys, new cars, trips, etc. Within 5 years, many of them are married with 1.5 children and worrying about their payments.

I think a good theory I have come up with from this observation is to think of purchases as if my income had to be divided up among 4 people instead of just myself. Like do I need a $1,000 TV, or would I rather have a $200 TV and $800 extra to buy diapers with in three years.

Along the same lines, I have always heard that it is a good idea to have 3 months of living expenses in accessible funds at any time. In the last month I have been in between two catastrophic hurricanes and have seen people loose most or all their belongings. I'm starting to think having 6 months living expenses available is a good idea.

The other ideas above are also generally good. Do a lot of what ifs to find the right combination of savings/retirement/taxes for your situation.
posted by Yorrick at 11:15 PM on September 27, 2005

Ditto paying off loans and maxing out the 401k.

After that, I put the lion's share of the extra cash into a savings account, and, boy, has it come in handy in the year and a half since I got laid off. I've been able to travel and relax and not worry about getting another job right away.

One of the keys was direct depositing to two different accounts. After a few months at the job, I figured out the right ratio so that I could pay the bills but the surplus would go into an account I never touched. Never seeing a big checking balance helped me not spend it.
posted by aneel at 11:19 PM on September 27, 2005

Donate to a charity. There are plenty that could use your help. Or start your own foundation, if you'd like to take a more active part in giving.
posted by gramcracker at 11:19 PM on September 27, 2005

Save. Choose a comfortable percentage to go into a savings account (I take all of my monthly bills and expenses, add 10% - that goes into my checking. The rest goes into savings). If you have direct deposit, have that percentage automatically deposited into savings every pay period. Investigate solid investments. Have some fun, but tuck something away. If there's anything I learned from the dotcom bust, it's always having a backup financial strategy.

And ditto on SweetJesus's last line. If you need a car, go used. The amount a new car depreciates the moment you drive it off of the lot is astounding. Also go with something with good mileage - you don't want your hot new tech salary gobbled by gas. I would advise against a lease - it's not an investment.

It may be a bit early, but, once you are sure you are going to spend some time in the area you are living, look into buying a condo. Again, it's an investment (and you can quite possibly wind up with a mortgage with lower payments than you would pay in rent.) A friend of mine did this about six years ago. He eventually bought a second and third and rents them out, pulling in a substantial secondary income.

I went nuts during the dotcom boom. I purchased a ton of toys. The resale value of those toys barely helped me when the boom went bust (I'm still in recovery mode!) Have fun, but think about the future - it's a LOT closer than it feels.
posted by zerokey at 11:23 PM on September 27, 2005

Definitely save.

After paying bills, but before buying toys, put aside a set amount into a savings account. I put my money in a money market acocunt; I can get to it if I need it, but it's not attached to a debit card, so I can't dip into it whenever I want.

And also the 401K. Start one of those.
posted by spinifex23 at 12:17 AM on September 28, 2005

Pay off debt, save money.

Don't buy the newest, hottest gadgets. It's an empty cycle. Refuse to pay retail. Buy good, stable used stuff, tech or not. Buy a solid used car.

Have fun with the rest, play video games, smoke some dope or drink some beers. As long as you're saving some money and getting out of debt.
posted by loquacious at 12:34 AM on September 28, 2005

Drop it in the bank or start contributing to an IRA or your 401k. Buy some bonds or diversify and buy gold. With the economy looking the way it is, you may want to put some money in a collapse-safe investment.

By all means buy some toys but budget your money wisely so you don't spend upward of 50% of your take-home pay on entertainment and toys. Get in the habit of budgeting your paychecks on; rent, living expenses, travel, entertainment, and savings.

In the past I have worked hard and saved much. It helped to put me through college without needing to hold down a job for 4 years and has helped me through several years of being without a job without sweating. I have seen people spend lots of money on fancy cars and other luxuries and not be able to support their lifestyle on their current salary.
posted by JJ86 at 12:47 AM on September 28, 2005

Invest everything you can. Put as much as possible into 401k and any type of IRA available to you, with preference toward the traditional IRA. Outside of a tax-defered account, one of the most important things you'll be looking for is tax treatment, so look for low turnover or tax-exempt status, such as an index fund or muni bonds, if your tax bracket is appropriate for them. Even with fairly conservative investment assumptions, for every year you manage to save half your pre-tax income, you should be able to bring forward your retirement date by three years. If you're going to wait, say, five years before getting married, having kids, etc, you may be able to retire at fifty when you're still young enough to enjoy it. Furthermore, there is incredible security and peace of mind in having significant savings. If your industry moves to India, you have a huge buffer to figure something else out while everyone else is stranded.
posted by cameldrv at 1:18 AM on September 28, 2005

It's all been said here, but..

Save, pay down debts, and don't buy a new car. Live simply, always live below your means, and always seek out bargains.
posted by wackybrit at 2:01 AM on September 28, 2005

Buy a really sweet bicycle.
posted by fixedgear at 2:56 AM on September 28, 2005

1) I bought a new car, but I waited until my old one was virtually undriveable. I spent a lot of time looking and I found one that I was really happy with, so I'm sure I'll have it for a while longer. I'm definitely glad I got a new one instead of another junker.
2) Like everyone else said: saving, saving, saving. I hate living in apartments and I would hate to live paycheck-to-paycheck because I spend too much on gadgets and stuff. I hope to be able to put a down payment on a house within a year. Get a CD or Treasury bonds. If your job has a good 401k plan, definitely contribute to that.
3) Sure, treat yourself occasionally. Wait at least two weeks between the first pangs of wanting something and when you buy it. Then you'll be definitely be sure before you swipe your credit card.
posted by Plutor at 5:08 AM on September 28, 2005

Save. There are times where there are no answers other than cash.

Plutor's comment about how to buy a new car is correct -- if you buy a car, buy one that you love. If you don't, you'll trade it in. That costs you money. A late model used will *always* be a better deal than a new car, though.

The main reason to put money in a 401K is employer match. Read this as "free money if I save money." If there isn't an employer match, then you might not want a 401K, esp. if the investment plans offered are crap. In which case, IRAs become a better idea. If there is a match, it's almost always a bad idea not to take advantage of it.

Given the housing bubble, buying property right now probably isn't a good idea -- but if you save your money now, when the bubble pops, you'll be in a great position to buy a nice house cheap, and with the savings in hand, you'll be able to get the loan quick and cheap.
posted by eriko at 5:23 AM on September 28, 2005

A drawerful of old gadgets is a drawerful of wasted time and money. Buy experiences, not things. Go places and meet people. Go to concerts and plays and art shows with live performers and interactive audiences, not to the same LCD movies everyone else in the world is seeing. Learn things with other people, not from "How To" books at home. Buy an instrument you can't play and buy lessons at least twice a week to learn how to play it, then join an amateur group (band, orchestra, whatever). Go dancing. If you can't dance, buy dancing lessons. Go to a new place every weekend. Fall in love -- very expensive. Live an interesting life.
posted by pracowity at 5:26 AM on September 28, 2005

Reiterating what some others have said, but the right order for things is necessities - savings - spending. Figure out how much you need for the basic, recurring costs. Food, rent, phone, insurance, etc. Figure out how much you can comfortably save every month out of what's left and set that aside immediately when your paycheque comes in. I have $400 automatically moved from my chequing account to my saving account immediately after every pay day. What's left after necessities and savings is how much you can blow on the fun stuff. Don't feel guilty about it, and don't buy on credit.
posted by jacquilynne at 6:10 AM on September 28, 2005

Buy nice shoes. It will help your dating life.

read Your Money or Your Life because you need a philosophy towards material life, not just advice. Telling someone to budget is like telling someone to floss. Decontextualized, untheorized advice is worthless (not that I don't offer it constantly).

Be Zorro. That is, cultivate a bunch of really cool skills that aren't immediately obvious until you're on a date and you whip out your Kendo sword when attacked. Not really, but you get the idea. Read Castiglione's The Courtier for advice on being the next James Bond. Really. Be the understated cool guy that people only gradually figure out is really cool. You don't want to be Chris Martin of Coldplay, pretending to be an underdog while going home to Gwyneth Paltrow.
posted by craniac at 7:00 AM on September 28, 2005

As well as saving for the long term keep some money in the bank for emergencies.

In this day and age you will be made redundant (possibly many times) and having some cash on hand to smooth out the bad times makes it a lot less sucky.
posted by schwa at 7:09 AM on September 28, 2005

Before you buy anything, think about what it will add to your life. Money is time. If you take home, say, $150 for every day's work and you want to buy something that cost $300, think about whether it's really worth two days of your life.

I won't repeat the excellent advice in this thread about saving for those big future costs, but I will add that you should only live as simply as you comfortably can. The present matters too.

Also, read Your Money or Your Life. This book or a similar one ought to be required reading for every high school senior.
posted by orange swan at 7:10 AM on September 28, 2005

Save, save, save! Put it away in a stable, interest-bearing place, and get into that habit now. You will never regret the money that you *didn't* blow on ephemeral things. I'm not in the States, so I can't suggest anything concrete, but a tax-sheltered retirement plan is a very good thing, and the sooner you start, the more you'll have. You will not regret, ever, putting that money away.

Make "paying yourself first" a habit. Put away a regular amount regularly, and making paying into a savings fund like any other monthly expense.

Don't get used to living beyond your means, get used to living a little bit below your means. (Sounds like you already have this part down. Good.) So many things we think we want are not necessary at all, but if a disaster strikes, your savings will be a life-saver.

Spend a little on fun stuff. Don't deprive yourself of some pleasure, if you can afford it now. Travel and such, while you're young and energetic. I do agree with the 'use your money to buy experiences'. But building up a solid foundation of savings and the savings habit will be one of the greatest assets of your working life.

Buy a house, too.
posted by Savannah at 7:17 AM on September 28, 2005

1) Pay all debt (in descending order by interest rate)
2) Max out your 401(k)
3) Put together an "emergency fund" sufficient to cover your monthly nut for at least a few months.
4) Throw a party

In that order.
posted by I Love Tacos at 7:53 AM on September 28, 2005

The main reason to put money in a 401K is employer match. Read this as "free money if I save money." If there isn't an employer match, then you might not want a 401K, esp. if the investment plans offered are crap. In which case, IRAs become a better idea.

Wrong wrong wrong wrong WRONG WRONG WRONG! I'm sorry for being strident eriko but I see this amazingly bad reasoning all the time and it makes me nuts.

An employer match is nice but stopping at that level is INSANE. Anyone with access to a 401k should be putting money in to the full extent of their tolerance or the legal limit even if there's not a penny of match.

401k contributions are pre-tax and they come out of the HIGHEST BRACKET YOU ARE TAXED AT. Meaning that this year if our poster will earn $90,000 in taxible income s/he will pay 28% on the money between $71,950 and $90,000. By putting the legal limit of $14,000 into that 401k hir taxable income becomes $76,000.

What this means is that the $14,000 that went into that 401k did not have the 28% taken out of it. Instead of only getting the $10,080 s/he would have gotten post-tax, s/he got to keep the full $14,000. So it is flat-out impossible for that investment plan to be crap: it just yielded an INSTANT 38% RETURN ON INVESTMENT because that $14,000 only cost the invester $10,080 in out-of-pocket dollars.

A ROTH IRA on the other hand, while it happily builds interest tax-defered, was done with post-tax dollars. A traditional IRA only lets you dodge tax up to $5,000 this year AND you likely do not have access to it if you could be contributing to a 401k - you'll note the language in them regarding "access to an employer-sponsored retirement savings plan."

The 401k will always be the better deal between all the options, hands down because of the pre-tax contribution.
posted by phearlez at 7:59 AM on September 28, 2005

Everybody's told you about savings: Do it. There are always going to be good and bad times, and a penny you put away today is going to be a nickle in a few years, and even more later on.

Don't buy toys. I have literally boxes of gadets: PDAs, digcams, cellphones, accessories. I have 12 hard drives, because every time I would run out of space, I'd go buy another.

Consider taking up a hobby you killed because of money restrictions. Mine was photography, and I'm loving it right now.
posted by jedrek at 8:08 AM on September 28, 2005

Don't just save, but work out the direct deposit on your paycheck to automatically put certain amounts into your savings and investment accounts. If you have to do it manually, it's an opportunity to NOT do it in favor of something frivolous. Stick to the game plan.

Definitely keep some money in a savings account that's liquid (like an MMA). 401(k)'s are great, but if you find yourself out of work for a stretch- it WILL happen- then you'll have a little fund you can dip into.
posted by mkultra at 8:18 AM on September 28, 2005

Before you buy anything, think about what it will add to your life. Money is time.

If you have more money than free time (like myself but I can't keep away from MeFi), and your work location doesn't suck, move closer to it.

You have an objective measure of what your time is worth, namely your wages: figure out how much time you could shave off your commute by living closer.

(I wonder why this is anonymous. Maybe the OP is afraid of moochers?)
posted by Aknaton at 8:34 AM on September 28, 2005

I'll join in the refrain here: save, but also treat yourself a little.

So, you're just out of college and have a well paying job - really sock it away. Remember, this year you can put up to $14,000 into your 401K and $15,000 next year. Do it. Boom, you've got nearly $30,000 in savings, and if you've got employer matching and they perform well, you're off to becoming financially independent.

OK, with that said, go and get yourself at least one really nice thing. Go on a trip, buy yourself that 60 gig iPod, pick something out of the Levenger catalog. Don't make yourself feel like you're sacrificing. Saving is a very good thing, but it has to feel good for you to continue doing it.
posted by cptnrandy at 8:40 AM on September 28, 2005

phearlez: Yes, the money going into the 401k is pre-tax, so you appear to have more money. However, whenever you withdraw it (at retirement, or earlier if you want to be penalized), you'll pay income taxes on it then. All the gains you made on your investments are taxed.

A Roth IRA is the best deal for investment, because although your dollars go in after being taxed, they are not taxed when withdrawn. This means ALL GAINS YOU MAKE are free of tax.

You don't get a free 35% return on investment in a 401k, sorry.
posted by knave at 9:17 AM on September 28, 2005

"A Roth IRA is the best deal for retirement investment." Sorry, just wanted to clarify that.
posted by knave at 9:19 AM on September 28, 2005

Too many people are concentrating entirely on savings. Don't worry too much about savings. You will be old one day and you will be happy to have some money in the bank then, but you will only be young once and that is right now, so get out and spend your time enjoying life, even if that means saving a lot less than you could theoretically save. Better to do the parachute jumping (trip up the Amazon, up Everest, along the Chinese wall, etc.) now than to save the money you would have spent on such things.

The things to save on, as I said before, are exactly that: the things. Spend on experience but scrimp on things, scrimp on lumps of matter that don't matter. Never buy a gadget if you have a working gadget that does the same thing well enough. If you have a thousand songs on your iPod, that's enough, that's more than enough. Don't upgrade unless it breaks. If your TV works, wait for it to fail, then think about whether you really need a TV. Don't buy magazines. Don't buy books you could borrow from the library, not unless you're absolutely sure you will read it more than once, and even then, the library won't scold you if you take it out twice. Don't buy a CD if you like just one song on it; find a way to record the song. Avoid style purchases -- don't buy clothes that you would not have worn three years ago but for some reason now find compelling.

If you save just the junk money you constantly spend now, it probably will add up to hundreds of dollars a month. But spend on experience. Right now.
posted by pracowity at 10:13 AM on September 28, 2005

Do you want to be rich? Save a lot of money now, you can live comfortably and save a huge amount of money if you don't go overboard on clothes, restaurants, bars, and gadgets. Then when you get old you'll be rich and can go really overboard on houses, cars, boats, jewels, restaurants, and gadgets. Save some money but keep in mind your going to be making more money by the time you have a family. It's not common but it is easy to go overboard with saving.

Spend money on shit that you car about, I can't tell you what to care about, I know that a good camera would make me more happy than tango lessons. If you care about gadgets, buy gadgets, if you care about europe go there, if it would elate you to have lobster once a week do it. If you make the spending of money a deliberate expression of what you value you'll have spent your money more wisely than if you tried to be wise.
posted by I Foody at 10:50 AM on September 28, 2005

Remember: you're just out of college & you've suddenly got a lot of money but at this point you're not depending on it to maintain a high cost of living. Presumably your finances and time aren't already allocated anywhere beyond yourself. First: be careful not to increase your day-to-day cost of living too much (i.e. don't just eat out when hungry, instead invest in good cast iron skillets, nice knives, good ingredients, cooking classes--things that last). Second: save not only for the nebulous future of 401Ks, etc, but also for experiences. If you've always wanted to go to Bhutan, take a train up the Californian coast, learn to skydive or scuba dive, lie on the beach in Cancun, build a nice darkroom, etc, now's a good time to start planning/saving for that, and knowing that you're saving for an adventure changes the way you spend (or waste) extra money in ordinary life.
posted by soviet sleepover at 12:12 PM on September 28, 2005

Everybody's saying "save" and they're right, but it's a little more complicated than that.

0. Pay off any credit card debt and never carry a balance again, ever (there are some very particular exceptions to this rule, but it's a good habit).

1. Figure out your base monthly expenses. Set up a spreadsheet or paper ledger and record every penny that you spend for a few months. Categorize your expenses (groceries, utilities, eating out, etc). Add them up at the end of each month and figure out whether you're being a ridiculous spendthrift or reasonably prudent. Figure out where you want to cut back.

2. Give yourself a target to save, and a mad-money allowance. Having money to spend for thef first time in your life is fun--enjoy it, just don't go overboard with it.

3. Talk to an investment manager (seriously, I think you could just call up Fidelity Investments or whoever and get an advisor on the line). The advisor will want to know the information you collected in step 1. At your age, you should be taking risks with your investments unless you have specific near-term goals. You'll probably wind up with a basket of four or five mutual funds.

4. Sit back and cackle maniacally as your statements swell.
posted by adamrice at 12:34 PM on September 28, 2005

I'm in the same position as you. Graduated a couple of years ago and am now working in a salaried IT position. Because I don't have a car, I save on average almost half of my net income every month (it'd be higher if I stopped living my "lavish lifestyle" and buying gadgets and trinkets like there was no tomorrow). I currently have that money in a savings account at ING Direct, though Emigrant Direct's APY is currently higher. I think once I pass the $10,000 I'll seriously have to look into investing it, but for now it's somewhat my grand vacation/grad school/car down-payment fund.

Have a little bit of fun, don't frivel it away, and research every move you make with that money.
posted by lychee at 1:43 PM on September 28, 2005

I'm sure you mean well knave but you have no business giving retirement savings advice.

Yes, the money going into the 401k is pre-tax, so you appear to have more money. However, whenever you withdraw it (at retirement, or earlier if you want to be penalized), you'll pay income taxes on it then. All the gains you made on your investments are taxed.

Yes, at retirement, almost certainly at a lower rate since you're no longer a big wage earner. Even if not, however, you cannot overlook the reality that you get to start earning on a larger initial principal sooner.

A Roth IRA is the best deal for investment, because although your dollars go in after being taxed, they are not taxed when withdrawn. This means ALL GAINS YOU MAKE are free of tax.

Let me introduce you to my little friend "compounding interest." Put that $14,000 you are allowed to put into a 401k and never make another contribution. Earn 3% per year. After 30 years you have $32,991. Put the $5,000 you are allowed into a ROTH and never make another contribution. Earn 3% per year. After 30 years you have $11,782.

Pay 35% on that 32,991 and you have $21,444.
Pay 0% on that 11,782 and you have $11,782.

When you have proper continuing contributions the difference continues to be huge and currently there's no plan to increase the IRA limits to anywhere near the 401k limits. Assuming 14,000 and 5,000 contributions every year the difference becomes $423,836.28 and $151,370.10.

Meet the market average of 11% and it's 1.8M vs 643,000.

Tell me some more how a ROTH is a better deal.

You don't get a free 35% return on investment in a 401k, sorry.

In the above scenario it cost him $10,080 in our of pocket expenditures to make that $14,000 investment. It cost him $5,000 to make the $5,000 investment. Even if he pays that 28% tax at the back end he still got to defer paying it for 30+ years and his out-of-pocket pain was less.
posted by phearlez at 9:11 AM on September 29, 2005

Toys are nice, but don't spend willy nilly on things you won't use. Ask the same questions of yourself as you would if the $400 you're thinking about spending were the only $400 you had to spend.

It's the little things that I deal with daily that I've been most happy spending on:

Replace that crappy shower head.

Buy a good kitchen knife.

Replace those ratty old towels you bought for $3 each and have been using for 4 years.

Buy nice sheets.

Eat better. Buy locally grown or organic produce. Spring for the good lunch meat instead of the stuff that gets slimy after two days, the good cuts of meat instead of the fatty bargin packs.

And, as everybody else has mentioned. Save.
posted by ThePants at 9:37 AM on September 29, 2005

phearlez, I know this thread is dead and all, but you're comparing apples and oranges. Take the same pre-tax initial investment and then compare. Don't compare $14,000 vs $5,000. Obviously if you max out your Roth IRA limit, don't stop there. Go ahead and put the other $9k into a 401k if you have it. Also, obviously if you have company matched 401k, max that out first. There are a ton of variables. However, Roth IRA is great bang-for-the-buck.
posted by knave at 6:11 PM on October 3, 2005

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