My little brother just graduated college in December and landed his first “real” job two weeks ago. When I asked him if he had a budget, he said “Don’t worry, Uncle Peter and [cousin] Sean already called me and told me to save money every month.” Living frugally really IS in my blood! Hehehe.
To help my brother follow through, I created a sample budget for him. The idea is to identify what will make saving money meaningful to him. In other words, it might be easier for him to save money to buy a car than to save money “because he should.” My brother gets paid each week, so I created this budget around that schedule. He is very fortunate not to have any school loans or personal debt.
Paycheck – $513 ($14.65/hr x 35 hours a week)
Taxes deducted – $154 (30%)
Take home pay – $359
Transportation – $50 (A monthly bus pass may be cheaper than paying $2 each fare, twice a day. The train fare is non-negotiable.)
Car or apartment savings – $50 (In one year that adds up to $3,900! My brother could put this towards buying a car or getting his own apartment.)
IRA – $96 (This allows my brother to max out his IRA at the end of the year. Contributing to his IRA in his 20s is his quickest way to become a millionaire. See below.)
Food – $30
Fun/entertainment – $20
Misc. – $113 (This includes clothes, toiletries and personal items, gifts, travel, and everything else!)
Using this Roth IRA calculator, I determined that if my brother socks away $96 each week until he’s 65, earning a conservative 6.5% annually, he’ll have $993,790 to live on very comfortably. He could likely retire on less if he wanted to or had to stop working earlier.
BankRate estimates he could save $2,000 a year for 20 years (about $38 a week) and accumulate $1,365,227 by age 65. But that assumes an annual interest rate of 10%, which is not realistic, in my opinion. If my brother waits to start his IRA until he is 40, that same money will grow to only $300,000.
Start early! Live comfortably.
Do you think this is a realistic budget for a young college grad? Am I asking my brother to save too much?