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?
Donna Freedman says
It’s a VERY tight budget for a young person who may want to go and do.
By getting creative about his expenses he can siphon off extra money for the fun stuff. For example, by using coupons and rebates he can cut his toiletries bill and maybe his food bill fairly significantly, freeing up extra dollars for entertainment.
I assume he’s living at home right now, since you mention saving for an apartment/car? Unless he gets a raise it looks like he won’t be able to afford living on his own…roommates, maybe?
A little scary to see what people are expected to live on — and some of them have student loans. Gulp.
This is great! I’m going to share it with my son. I’m unclear about the $30 for food. Is that just snacks? I figure he still lives at home and his room and board are still paid for by mom and dad.
If your brother can stick to that budget that’s great! He must still live at home because , I don’t know anyone who can live on that amount of money and have their own apartment.
Also who covers his health and dental insurance? His work or your parents? I did not see any mention of monthly exspenses to cover those items. Did you mean to include this in Misc. If so, then that number is way too low… If at some point soon he would need to pay for that, his budget would really need to be adjusted.
Plus where do you guys live? $50.00 for a monthly bus pass seems very cheap! You certainly could not do that in the New York/NJ area where I live…
@Julie All good questions. Yes, my little brother lives at home. So the apartment savings line is so he can work towards moving out and getting his own place. He’ll need to save up first and last month’s rent, plus maybe a deposit on top of that. His health insurance is included as a benefit. I’m not sure what his co-pay is, but that would come out of Misc. The $50 is his WEEKLY transportation costs, a huge portion of his budget. All these numbers are weekly, not monthly.
There’s not room in there for a cell phone….
As a fairly recent college graduate, this made me want to start thinking about getting a Roth IRA. I already have a 403b through my employer but I feel like I should either have both or contribute a little more.
@Sandy I can’t encourage you enough to open up a traditional or ROTH Ira. They are great savings tools with tax advantages. Even if you don’t max out each year, it is still worth it!
6.5 seems high.
You’re going to be a great mom!
@meital Thanks Meital. I’d love to be a mom someday!
When my youngest son was still in college, he lived at home (no room/board to pay). He worked part-time to cover personal living expenses (my husband and I paid all his college expenses: tuition, books, etc.), and that included car insurance, upkeep, social activities, and such. After he graduated, he continued to live at home until he’d saved enough to get his own apartment, but we did charge him a small room/board fee to cover food, etc. Once he moved out, he’d learned to be self-sufficient and independent, and, except for one bad period when the tech market tanked in Phoenix, where he was living, has stayed independent to this day. He just moved to CO for a relocation of his job. Now he’s learning to adjust to a totally new environment. He continues to save on a regular basis.
Ashton Wood says
Hey, Thanks for sharing such a wonderful tips. The best part is when you ask your children to save money to buy a car they will do it but if you will ask then just to save i think that will be tough for them.