Money, budgeting questions

I am currently a college student paying my own way (mostly - I am covered on insurance and cell phone bills). I have been tracking my expenses for a while now to get a good idea of how much I spend each month so that I can set up a budget. I am now ready to create a budget but I would like some outside input.

Luckily tuition is not an issue, as the school is helping me with that one.

Currently, this is what I spend my monthly income on (I cannot switch living places at the current time so that is a fixed expense, even if it is high):

Rent - 36.25%

Food - 12.5%

Gas - 7.5%

So that leaves me with 43.75% of my paycheck to spend/save. My question to the forum is: what percent should I set aside for 1) savings, 2) an emergency fund, 3) personal care (haircuts, toothpaste & shampoo if I run out, etc), and 4) spending money for myself?

Thanks in advance for any responses. I am new to this and trying to learn, while also avoiding unnecessary money-related stress.

3) 0% this will also allow for you to save on social life related expenses. Save 23.75% percent with 20% going to trackday rubber, brake pads and tracktime.

Is beer included in that 12.5%? If not then I would have to add at least another 15% for that

Somebody a lot smarter than me will be along shortly

You listed gas, so I presume you have a vehicle. Are you 100% responsible for it, or only for fuel?

Since you're still young, don't worry about retirement just yet. Get a good savings balance built up to cover all the unexpected expenses that are bound to happen at the least opportune time. Unless your employer has a great retirement plan that a.) you're eligible for, and b.) you'll be able to transfer the whole balance after you graduate and/or take a different job.

Beyond that, you're doing 1000% better than most people - of any age - so congratulations!

Yes worry about retirement right now. Get an IRA started, preferably a Roth considering your current income level, and start contributing to it regularly. Whether that is $20 a month or $200 or $600, start now. Time is on your side, use it to your advantage.

Your first priority though should be getting together about 3 months worth of emergancy funds--rent and food and gas. Then slowly keep contributing to it, but at a much slower rate.

Frankly though, you're way ahead. My budgeting is "I'm putting away XXX per paycheck to retirement, and rent is XXX. Anything else after that is for food, fun, beer, etc", and even that is way ahead of most of my colleagues.

You're doing great! Much smarter than I was.

Try 20% to 25% to emergency fund and build that up for the unplanned expenses.

Use the balance for funding 3 and 4.

If the emergency fund gets big, you can move that to savings after school.

You're thinking about it, which as others have said puts you ahead of the game.

I disagree that you shouldn't worry about retiring because you're young. As someone who did just that, I wish I had started worrying earlier. I hope to retire in 10 years from now - and if I had started 10 years earlier than I did, I'd be way better off.

Out of that remaining 43%, I would put 10% minimum into a retirement account, especially if you can get one through your employer, where they match some amount. That's just free money, and you'll never miss the 10% if it is taken off the top, and it will add up over time. Then I would put another 10% into a savings account. This is the emergency fund / general savings account that covers unexpected costs. Build that up until you can afford a couple months' worth of being unemployed, at a minimum, and forget about it. Once you have that safety net, then you can start to use the extra savings for more fun stuff, but never fail to keep putting that money away if you can. As long as you have 2-3 months expenses in the emergency fund, you may want to think about cutting back to 5%, and putting the other 5% into the retirement account.

That still leaves you almost 25% of your income as "disposable". Hope this helps!

Another thing my father did was put half of every raise into retirement. So if he got a $5,000 raise, he would put an extra $2500/year into retirement savings, and the remainder into the general fund. My wife and I each have our percentage of retirement deduction increase 1% every year. Right now we're at 18-19%, and it will keep increasing automatically until it maxes out at 25%.

Clearly on the right track by even making a budget, ahead of the majority of US population. I agree with the suggestion to start a Roth, after having a cash emergency fund, even if it is only a little money, to keep that thought process in your planning. Compounding is super powerful. Roth gives ability to pull contributions if needed in a crunch.

Slight tangent, I find mint.com and the associated iphone/android app to be great for budgeting, tracking, and auditing. And it's free. Particularly useful if you budget with a significant other.

And stay away from debt.

First off, thank you all for the great advice and support. Unfortunately, my company does not have a retirement plan (at least that I qualify for, I'm an intern) and my other source of income is doing side jobs for my friends. I guess I meant retirement when I said savings, because that is money I do not plan to touch anytime soon. As for my automotive expenses, gas and replacement parts/service (emergency fund) are all I pay for, as well as Autocross entries (spending money) in the summer. I am fortunate to have my insurance covered for that.

What I am gathering is that I should contribute 25% of my income over the next few months to an emergency fund until I have enough to live off for 3 months, and then reduce that to about 15% and put 10% in savings/retirement? Or flip the 10 and 15? This would leave me with 18.75% for 3 (yes I need this to even have a social life) and 4. Does that sound reasonable? It sounds pretty good to me and it will be comforting to know I have a retirement/savings as well as an emergency fund if things go south.

In reply to Nick_Comstock:

Unfortunately that does not include beer or I would be drinking beer for 2 out of 3 meals. Sadly, beer is under item 4, seeing as if I must live without it I can.

Also, I love the comments about moving some extra emergency funds to my savings after I am out of school and have a steady job going. I had not even thought about that.

I really appreciate all the help. I like to try and learn from those who had to learn the hard way before I do.

In reply to MattGent:

That's funny, I actually just downloaded the Mint app earlier today. I plan on using it to help me with my budgeting. Thanks!

Tmc22 wrote: I am currently a college student paying my own way (mostly - I am covered on insurance and cell phone bills). I have been tracking my expenses for a while now to get a good idea of how much I spend each month so that I can set up a budget. I am now ready to create a budget but I would like some outside input. Luckily tuition is not an issue, as the school is helping me with that one. Currently, this is what I spend my monthly income on (I cannot switch living places at the current time so that is a fixed expense, even if it is high): Rent - 36.25% Food - 12.5% Gas - 7.5% So that leaves me with 43.75% of my paycheck to spend/save. My question to the forum is: what percent should I set aside for 1) savings, 2) an emergency fund, 3) personal care (haircuts, toothpaste & shampoo if I run out, etc), and 4) spending money for myself? Thanks in advance for any responses. I am new to this and trying to learn, while also avoiding unnecessary money-related stress.

My wife and I run a pretty strict budget at our house. It's allowed us to do a lot of things on one income that wouldn't be possible otherwise.

We use a "envelope" method of saving. Essentially have a small accordion file with labels on each section for the things we pay cash for (read: everything except bills and mortgage). We pull out a set amount of money on the 1st and 15th and put it in each compartment as required to cover our monthly expenses. The envelope stays at the house, and we only bring "out" what we need to cover where we're going (keeps us from "borrowing").

To answer your haircut question: I get a hair cut every 3-weeks and I go to the same spot. Instead of a percentage, assign a dollar amount for this category.

For the "personal care" section, I suggest upping your grocery budget a "bit" and using that surplus to cover these costs. Usually these supplies are bought at the same store as groceries so why not combine categories?

For your "emergency fund" and "Savings" I would combine these two categories and ONLY use this for EMERGENCIES (if you tap it once, you'll be surprised what begins to constitute an emergency...) I would suggest a direct allotment to a savings account attached to your primary checking account. With the same token though, if you're using your "savings" to buy something big (like a house) make sure you leave enough to cover "emergencies".

For the $$$ amount to go to savings versus spending, we currently have your original 43.75% - haircut - increase in grocery...

put half that in savings and spend the other half

With our budget, though, we have a few categories I didn't see on your list. Specifically "Bills", "insurance", and "automotive". I would definitely suggest estimating how much you spend on your scheduled maintenance of your vehicle, bumping it up a bit (to cover tire changes, unscheduled maintenance, etc) and setting that aside in an envelope as well. That way you don't tap your "emergency / savings" account for petty stuff.

The biggest things I've learned about budgeting:

• don't try to budget every little thing. If you zoom in too much it can get out of control, we like to keep the categories kind of broad.

• Stick to it! (that's the biggest thing really)

• Reward yourself.

Good luck man!

I'd put 10% away and have some fun while in school.

As an adult I put away 30%+ between 401k and savings, but I'm married with no kids. Which makes it much easier.

In reply to Hungary Bill:

Wow, those are some incredible points. The "envelope" method is genius. I think that is something I am definitely going to utilize. Thanks!

In reply to z31maniac:

I agree. I plan on upping the amount I put in retirement and savings after school. Like you said, 10% now would be good but not so much after I graduate and have a higher paying job. I want to make a huge impact on it before I am married and have kids, because that's probably when I'll have my most money.

1 + 2 should be the same outside of tax-sheltered savings. Make sure you aren't just dumping this into a worthless savings account. Invest.

3 + 4 should be the same

Lots of good tips in this thread, and you've already got a better outlook on it than 95+% of the population. My only advice: save as much as you can right now. Get used to living on a lower budget. Saving more, spending less = way more money down the road, or a very early retirement / financial independence.

I save very well compared to most, but looking back if I had saved the way I do now since I was in college, I'd have an easy 6 figure E36 M3load of extra $$$ on hand.

In reply to ProDarwin:

Thanks. It's good to hear encouragement from people with experience. It will motivate me to keep saving.

+1 on the envelopes. I keep one for emergency cash/savings fund and one for long term major purchase goals. It's always a nice feeling to open the drawer to an envelope full of cash and stick some more in. Visceral vs.numbers on a screen.

When I started budgeting I was in a similar life position as you and "broke my budget" sometimes (mostly to have a good time or to chase girls). Looking back, I'd have more money now, but less stories There's a balance in there somewhere. I just called those times "practice". Getting married definitely solidified the budget some (SWMBO runs a tight ship in the budget dept )

You're definitely more than a step ahead than most. If ya work through the easy times, the hard times get a lot easier.

Cheers!

In reply to Hungary Bill:

Yeah, there is definitely a balance and I think it will take a few more months of budgeting to really find that balance. I don't want to miss out on the fun times now, but I also want to look ahead to the future.

Thanks!

The envelope method doesn't have to be physical envelopes. We do similar but track money on a spreadsheet as money set aside for X and X. Microsoft money works well for this also, I get paid twice a month so I know if my electric is xxx I need to set aside xxx/2 each pay period. It is direct deposit but if I move the money to savings as it comes in its there to move back when I have to pay it. Make sense?

I'm too old to be giving a young fellow advice, but you may find Mr. Money Moustache forums of some use.

I'm counting on the fall of man and my hunter/gatherer skills to get me by. Otherwise... I'm spending all that soon-to-be-worthless-paper on track rubber and brake pads!