As we can see above with a salary of 40k pre-tax, there will be little wiggle room, and some of my estimates are on the conservative side. $800 for rent is around the average price for a 1/1, to help make room in the budget I would suggest getting a roommate and obtaining a 2 bedroom apartment. One MAJOR expense that could not be included in the budget due to lack of funds is student loan payment. You might ask how could I not calculate this into the budget when it’s a major part of post college life. The simple answer, the money simply is not there! This fact can be seen by the number of defaults and late payments made monthly on student loans, the best way to avoid this is keep student loans as low as possible. Overall the budget is not horrible since there is room for savings and contributions to a 401k, and we have to remember this is just the first job, there will be growth in salary to allow for better living. Don't worry!
For the past few weeks I have been discussing how to save, ways to reduce spending, and the ideal amount you should spend per category to maximize your effort. This week I will take it a step further and create a mock budget using a few of the tactics. We will start with 40k Pre-tax, the reasoning behind that number is what a recent college graduate can expect to make +/- 5k depending on his/her career choice. $40k is a reasonable amount of money for a new college grad, but we will quickly see how taxes and bills take that money away and leave little room for enjoyment.
As we can see above with a salary of 40k pre-tax, there will be little wiggle room, and some of my estimates are on the conservative side. $800 for rent is around the average price for a 1/1, to help make room in the budget I would suggest getting a roommate and obtaining a 2 bedroom apartment. One MAJOR expense that could not be included in the budget due to lack of funds is student loan payment. You might ask how could I not calculate this into the budget when it’s a major part of post college life. The simple answer, the money simply is not there! This fact can be seen by the number of defaults and late payments made monthly on student loans, the best way to avoid this is keep student loans as low as possible. Overall the budget is not horrible since there is room for savings and contributions to a 401k, and we have to remember this is just the first job, there will be growth in salary to allow for better living. Don't worry!
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Keeping with the current trend of saving and budgeting, do we understand what it means to save? I know a lot of people live “check to check” and think saving is impossible, but with hard work it is not. There is a saying, “the best way to double your money is to fold it over and put it back in your pocket”, this simply means just because, there is money in your pocket, does NOT mean it has to be spent. This comes in with attempting to “Keep up with the Jones” which is a problem that a lot of Americans have. If their neighbor has a new car, they feel like the older model car they are driving is not adequate, even though it goes from Point A to Point B with no issues. Let’s not forget the 3D TV that you felt like it was a must you buy, even though you have nothing to watch in 3D and really do not like it much. So for fun let’s see how much money you are throwing away by purchasing a new car instead of keeping your current car. With a little research I found the average price of a new car is ~25K average monthly car payment is ~$300-$350, and interest rate of 4-6%, I will use these numbers to show how much money is spent over 6 years that could have been better used to help secure your future and make a stable foundation for your family. A: the total amount you will have spent after interest is added. Total amount of that “$25K” car is almost $32k and this does not even begin to include the cost of insurance for a new car, could be an extra $100 a month.
Dividing the $31,944 by 72 (12 months X 6 years), we see that the monthly payment would be $443.67. If someone claims to be living “check to check", but wants to take on this amount of debt with little to no savings, they should now see it's best to NOT get the new car, but to deposit that amount of a car payment into some type of savings account. It will pay off in the long run. As well all know in 2015, technology is king! Companies go from small start-ups to being worth billions (think snapchat). They all attempt to make our life easier or to be more connected with everyone and anything that's around us. There have been apps created to make keeping track of your finances easier and leaves you little room to not be able to manage your budget, I will discuss 2 types.
1. Bank/Investing Apps: This one is pretty straight forward; these are apps that were created by your bank to give you instant access to your account. Typically they allow transfers, bill payment, and viewing of your online bill; great convenience! Investing apps offer some of the same benefits that bank apps provide, it gives you “on the go” control of your money and allows you to quickly make changes as needed without being at a desktop computer. Apps such as E-trade give you the power to buy and sell stocks right from your phone, a fairly new app called Acorns is not taking the market. Acorns connects to your bank account (Disclaimer: You should personally check out any app before connecting it to your account, after all it is YOUR money.) and “micro Invests” into the stock market. When you make a purchase, it rounds the amount up to the nearest dollar. Once you have accumulated $5 in the app, Acorns invests into a mutual fund, allowing you to be in the market with very little effort. This is perfect for people who want to invest with little thought and should not be a huge burden to your budget.
2. Budgeting Apps: We all know the struggles of sticking to a budget, you write one down on a piece of paper or make an excel sheet (see 1st finance post) and somehow forget it all. The app that I use to help manage my money is titled "Mint", it connects to your bank account and categorizes purchases and monitors how close you are getting to the budget that you input. When you become close to the limit it will send an email making you aware and it also sends out weekly reports of spending, very beneficial.
So last week’s post was pretty simple since it was week one, it was how to set up an effective budget that should be easy to maintain with a little effort. This week I am taking the training wheels off and diving into a subject I received a question about, what’s the difference between a traditional 401k and a Roth 401k. So let us begin…. I would first like to welcome you to the ManCave HQ! Your one stop shop for all things MANly! Being as this is the finance page, I will not bore you with what will be covered on this page, so let's get to it! I will start by giving a few quick tips on how to build a simple, sustainable budget. A budget does not just have long term retirement goals, but how to save for that trip 6 months from now that you are looking forward to! Below are three quick tips to starting that budget, and keeping it!
1. Keep it simple! - Break down your proposed budget into broad categories and attempt to not exceed predefined percentages per category. Those percentages vary from person to person, but I will give examples. - Housing should not exceed 20-30% of net income. -Utilities 5-10% -food 10-15% -Savings 10% -Donations/gift giving 5-10% -Entertainment 3-5% -Transportation (car payments, gas) 10-15% -Debt 10-15% (you want this number as low as possible!) When creating budget make sure totals do not exceed 100%. 2. Remember spreadsheets are your friend! Making a budget on a program like Microsoft excel is quite simple. They have templates already built which allow you to play around and see where there is room to improve. Creating a budget by hand is alright, but how easy is it to lose a piece of paper? Also, you can only erase so much before it becomes illegible, these problems don't exist on the computer. 3. Make saving automatic - If this list was in order this would be number 1! The primary reasons people do not save enough is they put it as an afterthought! If it helps to save, label it as a "bill" and include it in your budget. Those who say, "I will put what's left over," never have anything left over! In the economic climate we live in, most don't have any money left over, and if they do I am sure a way to spend it will pop up. |
-Finance
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