How much can a fresh graduate expect to save a year?
Let's say one makes an 80k salary, and working in the San Francisco Bay Area. How would expenses for a year look like? Including taxes, rent, food, clothes, entertainment, etc.
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In SF, not much with normal spending. Depends on your lifestyle though. If you don't live somewhere hip and don't go out and have fun, you could save ~$20k.
Depends on a lot of factors mainly around your lifestyle and where you want to live. 80k after all in taxes is probably around 55k or so. Are you planning on living in the city? If so rent in SF is extremely high. I would say you're going to pay at least $1500 including utilities, if not more. I live in the area and know some recent grads who recently found housing in the city. All are in multiple bedroom places, and the cheapest people are paying is $1600 without utilities. Lets assume 20k minimum for housing, which is around 1500 a month. So now you're at 35k.
From there its really up to you. Food/ general costs of things are expensive in the bay area. If you' re not getting free food from your tech company I'd probably estimate $800 or so a month for food, which includes eating out. Obviously it would differ if you're content to pack every meal, but thats pretty hard to keep up, especially if you're working hard. Thats another 10k, so now you're at 25k.
Basically now it comes down to your lifestyle. Do you have a car? Add in that payment/ paying for parking. Monthly cell phone bills, buying yourself clothes, hobbies, etc all factor in.
Basically I'm making a little less than you, and I'm hoping to max out my employee 401k match as well as put away some money into an additional 401k. I'm estimating I'll put away 8k or so, but keep in mind, I go out on the weekends a fair amount and have a few hobbies that cost money.
Cost of living is pretty high in SF, but if you get roommates you can cut the cost of living substantially. Its hard to give you an estimate without knowing your lifestyle. I know a guy who lived in his car in Silicon Valley and basically saved 80% of his after tax income. Extreme example, but I figure if you are frugal (like me) you can save a decent amount (10k - 30k).
Thanks for the responses! And wow tax is a lot...
I'm pretty frugal but I'd still want to live comfortably...let's say $1500 for rent, $500 for food, $500 for entertainment, clothes, etc, $100 for transportation, $150 for phone, insurance, etc. $2750/month. Sounds doable?
Rent is the largest expense, if you are going to work 10+ hours a day, then living in somewhere close to financial district will cost you 1500~2000 at least (of course with roommates). But if you have a normal 8 hour job, and don't care about 1 hour commute, living in east bay or south SF area can save you a little with better living condition
You won't know until you can accurately judge expenses. Then, put it all in an Excel spreadsheet, calculate a budget, and stick to it. I withdraw a cash amt every two weeks to cover food, gas, and so on and so forth. It's realistic to save 10k-30k as per the above poster with proper budgeting. Just have to decide how abstemious you want to be.
I'm sure as a financial professional you can construct a spread sheet that models your monthly cashflow against your monthly expenses showing you how much you can save each month.
I'm sure as a financial professional you can construct a spread sheet that models your monthly cashflow against your monthly expenses showing you how much you can save each month.
Yeah I can definitely build a spreadsheet once I actually start, thanks for the suggestion. I'm more interested to know from people who've lived in that area if my preliminary budget is reasonable..
You're close, but you're underestimating your expenses a little (I lived in the Bay Area before).
Assuming your car is paid off (no loan or lease payments), count on $200/month in gas and insurance.
TV/Internet and cell phone should be around $200/month ($100 each)
Rent at $1,500 is doable.
Groceries/takeout at $500 is fine.
Entertainment (restaurants, drinks, etc.) at $500 is doable, although you may want to budget more.
Then add a $100 per month cushion that would be spread across any of these expenses.
So that adds up to around $3,000 per month being frugal (and no car payments other than gas/insurance) for ongoing expenses. You're not going to be living large, but you won't be a monk either.
What you want to budget for as well is travel (you will be visiting family, even at least once a year, right?), other one-off unexpected expenses (last minute trip to Vegas), and less frequent things you may buy here and there like more expensive items of clothing or electronics that won't be covered by the $500 monthly entertainment expenses.
Here's how it breaks down:
$80K salary (-) $25K taxes (-) $36K ongoing monthly expenses (-) $5K yearly expenses (travel, clothing, electronics, hobbies, etc) = $14K savings
So with a $80k/yr salary and the budget above, aim to save around $1,000 - $1,250 per month if you can. $1,000 should be doable, and $1,250 may mean watching your budget a little more closely.
Saving $20K on your salary in SF is going to be really tough, but $10-15K is a bit more doable.
I really think this depends on the person. I have lived in SF too and I didn't spend anywhere near this amount.
So if saving is your main goal here, then here goes:
1) Car: You don't need one when you live in SF. I didn't have one and did just fine. And having a car there will really cost you a lot, the parking charges are insane. 2) Rent: That's expensive, live with roommates and I think you can find something for $1,500 for sure, I know people who have found cheaper places than that, but depends on your comfort level/closeness to work. 3) TV/Internet: You don't need TV...seriously, do people still subscribe to cable? Do you have time to watch that crap? Anyhow, just get internet for like $40 per month, but if you live with roommates then that's gonna be much cheaper, either free or maybe $10 per month. 4) Cell phone: $100 per month...are you kidding me? I had a $30 pre-paid plan from RedPocket, worked just fine...I am on wifi most times anyhow...and work probably gives you a blackberry. 5) Groceries + Eating out: $500 per month is PLENTY in my opinion, I don't think I usually spent that much even though I bought most stuff from Wholefoods because it was close to where I lived and I was too lazy to walk further. 6) Entertainment: Sorry guys, but $500 per month on entertainment??? Really??? That's 6k a year and seems like this category does not include vacations. I spent maybe $100 per month...but probably not every month even. Find some fun things to do that are free would be my advice. 7) Clothes/Electronics/Other crap: This is mostly completely optional. Fine, if you just graduated and only have one suit, you'll have to buy a couple, but that's a one-off. I don't buy clothes on a regular basis, much less expensive ones.
Anyhow, just my two cents here, but if your goal is to save 20k a year, that sure is doable. Just don't buy into the kind of lifestyle that people seem to consider the "new normal".
And get some perspective...80k per year is more than the average household income. You are a single guy/girl, so yah, saving 20k a year no matter where you live should really not be that difficult.
Of course there is no shortage of things to waste your money on...case in point: http://www.thisiswhyimbroke.com/
There's a difference between budgeting and leading an ascetic life. @"mrharveyspecter" hit it on the head and he didn't go very deep on the subject.
I smiled for way too long when you mentioned the last minute trip to Vegas
If I were you I would aim to save 10-12 k and then spend the rest. All of this stuff sounds good in theory, but realistically you'll probably end up overspending rather than under spending. $1500 for rent is still going to be tough to find, unless you want to end up in an undesirable part of the city. I spent months searching for housing and the cheapest, no parking, 3 bed 1 bath places me and my friends could fine were around 5k a month. Rent has increased dramatically even in the past year or so.
Do you go out at all? If you even go to bars/clubs casually and buy 1-2 drinks that's 20-25 each time. Restaurants with friends will cost even more. Oh and one big thing people didn't mention...uber. Ubering around is a way of life out here and when the decision is a 3 mile walk at 3am vs a 2.5x surge pricing for uber I bet you're going to be paying for that $25 cab ride. I spent a good amount of money on uber, and that's something that is tough to factor in.
Maybe I'm just young and stupid, but in my opinion, if you're making 80k right out of school and can put 10k away after taxes then you're still doing awesome. If the difference between putting 10k away and having a blast in the city vs putting 14k away and always being a tightwad and having to check your budget constantly, then the choice is pretty obvious to me.
Thank you all so much for taking the time to provide me with these valuable insights!
I'm once again surprised by the tax rate...30% tax?? I'm not from the US so perhaps I'm just not used to this but that seems like such a high amount for this income bracket. Are there any tax refunds or anything like that?
I feel like this is obvious, but your savings should be at least 50% to a 401k. if I were you, I'd do 75% 401k and 25% cash (emergency fund if you don't have one already). the max is 17,500 so I doubt you'll hit that for a few years.
this often gets lost and people think that "savings" is opening up a schwab account and buying nuance, Amazon, and sbux on occasion. the likelihood of you being a great stock picker and working long days is slim. better to dollar cost average via a 401k for many years.
I agree with harveyspecter here. Also keep in mind that if you intend to remain on a high paying career path, with promotions and/or bonuses, the opportunity cost of saving now is fairly high. If/when you get to $200K+ a year you'll regret the enjoyment you gave up to save an incremental $10k/year in your early twenties more than you'll enjoy the additional money (which will just be stocked away in a bank account anyways).
In that same lens i have to disagree with the brofessor a little. Once you're making enough ($120 - $150K) to have 'extra' money then 401K should be your first savings priority. Right now you need your savings in easily accessible cash. $20K in a savings account will serve you much better in a pinch than $20K in your 401k. The problem with a lot of this 401K advice is that it is one-size-fits all stuff best suited to middle middle-class people in their 30s.
If I were you my goal would be to save $12 - $18K a year (literally have $1000 - $1500 pulled from your checking account automatically into a savings account once a month) in emergency cash and then enjoy life and focus on advancing your career so that $15K is ultimately chump change.
Good luck and make sure you have fun with it all!
you're actually a bit off base. the magic of compounding would tell you that the earlier you start saving, the better off you'll be. granted, if you end up making it big it will be a rounding error but the point remains. on the flipside of that, most 22 year olds aren't 100% on their own (meaning no support from mom & dad & grandparents) so I'm thinking that if I (not really me, a 22 year old) got into a horrific car accident and had to pony up cash for a hospital stay or pay my $2,000 deductible, my parents would chip in.
all of this is not to say you shouldn't save ANYTHING into an emergency fund, just not everything if you have some support. if you're putting away 20k a year, 10k an 401k and 10k in savings/mmkt is a fine balance. there are few things that 10k couldn't cover at 22 years old
if you have zero support, then yes 100% emergency fund (and if you've read my threads, you'd know I'm a huge proponent of this), but most kids on this site will have some sort of genetic safety net and therefore it'd be more appropriate to start off their nest egg early.
just out of curiosity, where did you hear what you're advising? I see your status is "prospective monkey" so I assume you're in college, is this the shit they're teaching now?
Make sure you tag me when you rip into dazedmonk, i want a front row seat for that!
LOL I should change my status so I can have some WSO credibility. I've been working for ~5 years, started out making ~$65K, got up to the $200K level, then took a pay cut for a higher risk/ higher reward job. I also lived in the Bay Area, so I think my experience is highly relevant to this question.
Re, my 401K advice:
Assume your 401K generates 7% annualized (very aggressive for a 401K). In 10 years you approximately double your money. The additional $10k is irrelevant to someone who makes $80K a year and expects reasonable career progression.
Also keep in mind that non-401K savings also compound (faster than they can in most 401K programs if you're a good investor). Assuming he gets a similar rate of return on his non-401K assets as his 401K assets, he is losing, AT MOST, ~$2500 (compounded 401K tax benefit) over a ten year period, or $250 a year, in order to preserve the optionality of being able to tap into the money whenever he wants. With 10 years of career - progression you can catch up on that money with a single month's paycheck.
I didn't assume anything about having parents to protect your downside. My parents stopped paying for anything as soon as I entered college and I have no idea what is 'typical' with respect to parental contributions. Also, if you're making $80K a year you shouldn't be using your parents as a financial plug.
TLDR: The gains from focusing your savings on a 401K are minor compared to the loss of optional in how you use your own money until you make enough money to both build your personal savings/ emergency fund and contribute to the 401K. Obviously, this changes if you have some form of 401K match.
Boring advice. Four places to put your money: sports cars, motorcycles, booze and girls. What's the George Best quote? "I spent a lot of money on booze, birds and fast cars. The rest I just squandered."
When you're 22 and in your first year out of school I'd recommend just getting the emergency fund together, especially if you can't lean on your parents if a true emergency occurs. 401(k) is great and the best place to sock money away for retirement because of the tax savings and a potential company match but getting a few bucks set aside that's easily accessible is very important. And have a little fun. Don't go out and buy bottles of Dom, but as others have stated, simply going out for a few beers in an expensive city like SF is $5-8/beer at an inexpensive place so if you want any sort of social life, which for better or worse when you're young in a city tends to congregate around bars, you'll need to budget a bit more.
When I was younger I'd basically try to live off of my salary and save my bonuses. Pretty good formula if you're paid similarly to the standard IB analyst salary+bonus.
When you are starting out do the 401k match and work towards an emergency fund. Once you have that you can decide to max out the 401k or do other stuff. Do the match as it is free money.
Thanks sooo much for the comments!!
I'll definitely look into the 401k thing and an emergency fund.
I definitely relate to the comments about not worrying too much about saving money if my salary is expected to increase quickly. I'm just thinking about putting some money aside for an MBA, is that usual practice? Or do people usually just take out loans and pay it back later with an increased salary?
A top MBA (those are the only ones I'm familiar with), will cost $150 - $200K. If you plan to do one 2 - 3 years after you start work, no amount of saving will put a serious dent in the cost so don't bother. You will have to take out loans on the expectation that you will be able to pay them off with your increased salary.
Whether or not its worth getting the MBA is another thread entirely.
To sum it all up: Save $1 - $1.5K a month, and maybe your tax refund too if you want. Make sure to enjoy your youth and focus on learning and career development more than wealth generation at this pt. I think your savings should be in a brokerage/bank account for easy access, brofessor thinks 401K - read the arguments and make up your own mind.
In my opinion I think a couple things are being missed slightly here. Just my opinion but it's something to think about.
1) thebrofessor did touch on this a few posts back regarding saving into other retirement purposed accounts but I think it deserves to be reiterated. Personally, if I were you I would not be putting all my savings into a 401k. Yes, put in enough to get the employer match but if you have savings leftover I would strongly suggest putting that into either a Roth IRA or a Roth 401k. This is especially applicable if you are thinking realistically that you could by making much more later on in your career than you are now. You should take advantage of contributing to a Roth IRA while you still can and there are two primary benefits you should be thinking about. First, if you are expecting to make much more later in your career then you're most likely going to be concerned about taxes when you retire. Many people think that they will drop to a lower tax bracket when they retire but that often isn't the case once they start drawing on retirement savings in tax-deferred accounts, such as a 401k. Using the Roth will let you take money out in retirement tax free which I think is a significant benefit far beyond what the benefit you would get from maxing out your 401k after you receive the full employer match is. Second, you will have much better control over the investments in your Roth IRA than you will in your 401k. Also, the fees on Roths are much less than typical 401k accounts. For example, you can open a Fidelity Roth IRA for free with a very low required initial deposit and most trades are $8.
2) I think you are underestimating the amount of taxes you will be paying. Sure you will most likely get some money back once you file your taxes assuming you don't claim too many exemptions but you are probably underestimating the amount of taxes that will be withheld from each paycheck. Instead of anticipating $25k a year in taxes I'd be planning closer to $28k to maybe $30k, considering you live in California. $25k out of $80k is only 31.25%. Be thinking about your federal bracket, California state income bracket (killer), social security, and medicare.
Just food for thought.
Pretty handy tax calculator: http://www.adp.com/tools-and-resources/calculators-and-tools/payroll-ca….
Thanks! I do have the usual nerdsheet that will do this for you but not for every state.
IMO don't worry about saving much your first year out of school. Everyone tres to budget their first year out of school to eek out as much as possible out of that measly $80k. However, the incremental $10k you might be able to save will degrade your quality of life. You seriously don't want to go out with your friends on the weekends? Take your girl out to dinner every now and then? Fly how for the holidays? That is what you are giving up. Spend a few years in this industry and money will be the least of your issues. Enjoy your first few years out of college. Not once have I ever heard any of the older guys on my desk say "I wish i would have saved that extra $5 g's when I was a first year analyst".
I really agree with this. I know other people are all about scraping by and saving as much as possible, and that's not a bad thing, but when you're working as hard as you do in most finance jobs it's good to be able to spend a little. Like I previously said, that's not bottles of Dom for shits and giggles, going to Morton's a few times per week or picking up every bar tab you see but relaxing a little and having some fun every once in a while, and because you work so much it's not going to be all the time, is completely worth it. And you'll get your first bonus check and wonder why you lived the life of a monk.
But to the OP: ditch the car. It's a completely unnecessary expense. I don't know how old you have to be for zipcar but just use that the odd times you want to get out of the city. I can't remember which companies but there are also a few car rentals that allow under 25's to rent cars and if you do it on the weekend it's cheap. Or one of your friends will have a car and you can mooch off of him. I didn't own or lease a car until I was much older and I lived in SF, Boston, NYC and London during those times. If you have a car sell it and make that your savings. And find the cheapest place possible to live because you're not going to spend anytime there anyway. Get Internet access and netflix, hulu and the nfl package and you won't need anything else.
@"Quomodo" At this stage in the game, 10k or so is a good target for savings. Beyond that is icing on the cake, just don't saddle yourself up with a bunch of debt (credit card debt in particular) and high fixed expenses. For example, pass on the flashy car or on the car all together. Ask yourself, if I was laid off tomorrow what would that look like? With that being said, most people your age aren't even thinking about these things so you're already ahead of the game.
The only thing is that I'm not in an industry where there are huge bonuses. I'll get a bonus but no where near the 50k some people in pure finance get. I also need to pay back student loans and it seems like if I manage to save 10k a year, all of that will pretty much go to paying down student loans...seems like it'll be tough to balance all this these things on a first year salary.
Really great information on the 401k and investing my savings! Also loved the tips on how to manage my lifestyle. Thanks everyone!!
IMO, the issue with these threads is individually preference. Obviously saving and investing is optimal, but saving is basically differing spending for a later date. I personally am not concerned with intergenerational wealth creation. If horrible luxk befalls me and I have crotch fruit then I will focus on college education and maybe a $50k slug. Rest is on them.
People need to really enjoy their life, but we keep telling awkward people to do non awkward shit. Like I rage out all the time and I am way older than a fresh out of college student. Then again my utility function is heavily weighted towards alcohol and bad decisions.
6 months of living expense is ideal. Get your 401k match cause it is free money. Other than that you decide what is important. Some want lots of money, some want grain alcohol to the cerebellum. Each should decide.
I just wanted to point out that the first year, if you start after July 1st, you're unlikely to make it to the 25% federal tax bracket. CA also has a progressive income tax IIRC, so OP will also enjoy a lower income tax from the state, as well. Social Security and Medicare still carry a flat tax and you can't avoid them via 401K deferrals.
I strongly support @thebrofessor on pre-tax 401K contributions, but they make less sense your first six months on the job (besides getting the 401K match). It may also make more sense to get the match via Roth 401K contributions, too.
In the meantime, I think there is some room for some emergency savings. Even if you have family with the ability to lend, it is nice to know you can stand on your own two feet financially. And I think the relative utility in emergency savings is a lot higher when your net worth is close to $0 than it is when your net worth is $100K or $200K.
Get the match. Ideally via a Roth 401K contribution if you can. Max-out pretax contributions next year. Use the excess, while your tax rate is still
That depends on the kind of lifestyle you would like to have. Taxes and rent are fixed. Try to adjust expenses on food, clothes, entertainment, etc... However, on the rental part, if you know how to look for an affordable apartment/house/condo with a good facilities and is close to where you work, the better you can have the chance to lessen your expenses.
After the first 2 months of my work I realized that theres no point to saving for an MBA.
Lets say even if by some sort of miracle I have 30k saved by the end of my analyst program. its just a small drop in the cost of an MBA with a great consequence on the quality of life I would have for those 2 years. so might aswell be a bit more lax and spend 10-15k more over the 2 year period because if you want to go do an MBA you are gonna be fxcked through loans anyway and since you are already paying a huge amount and extra 10 grand or so doesn't really matter in the bigger picture.
1.) Where are you living? 2.) Do you have student loans? 3.) Are you factoring in any sort of a bonus?
$15K/year savings before bonus? OK, fine. After bonus, you should be doing better.
1) midtown 2) loans around $15k - hoping to pay them back within the 2 yr analyst period 3) kinda but not really
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