Author Topic: How much to spend on expenses?  (Read 2513 times)

hgrimberg01

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How much to spend on expenses?
« on: May 16, 2019, 10:42:05 AM »
I am 27 year old male in well-paid profession living in Manhattan. I live in Manhattan because I am 20 minutes away from work and let's be honest, there probably isn't a better place to spend your twenties in.


Between rent and expenses, I spend about 80% post-tax of my first paycheck, save the rest as well as the second paycheck.

It's important to note that I have exactly $0 in debt. I invest my leftovers.

All in all, I spend $1500 on non-rent things. The single biggest expense I have is dining and entertainment.  Does anybody have any strategies to reduce this amount? Is living off $500 a month in NYC impossible




MoneyOnTrees

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Re: How much to spend on expenses?
« Reply #1 on: May 16, 2019, 12:08:39 PM »
Hi hgrimberg01,

A few follow-up questions about your situation:

1. I'm assuming you are paid twice monthly at a set salary (i.e. no variable comp)?
2. Are you contributing anything to a pre-tax retirement account (e.g. 401K)?
3. Where are you putting/investing your post-tax savings (i.e. the post-tax amount you aren't using on expenses)?
4. Do you currently set up and maintain a personal budget?
5. Do you currently have any type of emergency fund savings?




« Last Edit: May 16, 2019, 12:11:46 PM by MoneyOnTrees »
My personal finance blog: MoneyOnTrees.co (.co is not a typo)

Sam

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Re: How much to spend on expenses?
« Reply #2 on: May 16, 2019, 03:10:39 PM »
 I agree that Manhattan is the best place to live life in one’s 20s! I had an amazing time from age 22 to 25.

 The problem was, There was so much temptation to spend money stepping outside my apartment.
 

Are you able to max out your 401(k)? If not, that’s the first up. The second step is to try to invest about 20% of your cash flow after your 401(k). Do that for 10 years, and you will be golden.

See: https://www.financialsamurai.com/achieving-financial-independence-on-a-modest-income/
Regards,

Sam

hgrimberg01

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Re: How much to spend on expenses?
« Reply #3 on: May 17, 2019, 01:05:01 PM »
@MoneyOnTrees

1. I'm assuming you are paid twice monthly at a set salary (i.e. no variable comp)?
Most of it is indeed a set salary but I do get a annual performance bonus of about 15% of my base in February (or prorated thereof).  Taxes cut the gross amount in half so I save the other half.
2. Are you contributing anything to a pre-tax retirement account (e.g. 401K)?
I split my 401k contributions evenly into post and pre-tax. I have maxed out my contribution every year in every job that had one.
3. Where are you putting/investing your post-tax savings (i.e. the post-tax amount you aren't using on expenses)?
A few hundred dollars go toward my emergency fund. The rest is put mostly into a variety of self-managed index fund ETFs, split 40/60 large-cap growth and value respectively (the cheap stuff from Vanguard and Schwab). I reserve 5%-10% on purely speculative bets (e.g. buying individual stocks).
4. Do you currently set up and maintain a personal budget?
For the most part yes. I say for the most part because it's easier said than done. Typically, I spend 80% of my first paycheck and save the remaining 20% and the entire second paycheck.
5. Do you currently have any type of emergency fund savings?
I have enough cash in checking/saving accounts for 6 months of expenses assuming my lifestyle won't change. Whenever it goes beyond the 6 month mark, I cut the excess off and invest it.

I am looking at buying a home in the near future, so a mortgage will really force me to tighten my belt.

@Sam
I try to aggressively save and invest 50% of what I see on my paycheck.

KentBnntt

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Re: How much to spend on expenses?
« Reply #4 on: June 13, 2019, 05:32:52 AM »
I understand that when you’re young, saving money can seem like an impossible task, but it is possible. I see you are familiar with some personal finance basics since you know your weak spots, so it just remained to make some changes in your habits.

Dining out is usually very expensive. It is possibly not very convenient for a young busy man to cook food at home, but it really helps to save a lot of money. As for entertainment, try to use more affordable ways to have fun. Search for free local events, take advantage of membership discounts offered by your company, arrange parties at home, etc.

MoneyOnTrees

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Re: How much to spend on expenses?
« Reply #5 on: June 13, 2019, 08:14:33 AM »
@hgrimberg01

My sincere apologies. I asked you several questions, you answered them, and I’ve been very slow to respond.

Overall, it sounds like you are doing a great job of saving whatever you can for retirement, building up your emergency fund, and still enjoying life. Living in a major city like NYC in your 20s is a fantastic experience. After college, I moved to DC and I’ve been here for more than 10 years. While it’s not quite as expensive as Manhattan, it’s certainly up there compared to the rest of the country. I totally empathize with trying to enjoy life without sacrificing your financial future (when you are still in the early stages of your career and income is still rising). A few thoughts/comments based on your responses above:

Retirement Contributions: Personally, I prefer to max out my pre-tax retirement contributions before considering post-tax contributions. For the 2019 tax year, that means you can contribute $19,000 to employer-sponsored pre-tax retirement accounts (e.g. traditional 401K). Your employer matches (if applicable) don't count towards that number -- that's just an added bonus. I’d be curious to hear what @Sam thinks about your current approach of splitting your pre-tax and post-tax retirement contributions.

Emergency Fund: I’m a big believer in having at least six months worth of expenses saved in an emergency account. I like to calculate six months by taking my total annual spend, dividing by 12, and then multiply by six. That ensures all types of spending are covered and it removes seasonality in your spending (e.g. taking an annual vacation). The idea is that if you lost your job tomorrow you could live the exact same lifestyle for at least six months. I suggest keeping the emergency savings in a high-yield savings account that’s separate from other accounts and I wouldn't count the checking account towards your emergency fund savings target. Having the funds in a high-yield savings account prevents the funds from being subject to market volatility while still ensuring they are liquid enough that you can access them within a few business days of needing them. The best high-yield savings accounts are currently paying 2.0%+ APY so make sure you’re money is making at least that much in interest. Personally, I’m a big fan of Ally which is what I use for my high-yield emergency fund. Marcus By Goldman Sachs is also becoming popular (haven’t tried them yet).

Personal Budgeting: It sounds lame to a lot of people, but I’m a big believer in maintaining a detailed personal budget — especially when living in an expensive city. This helps to ensure you are living within your means by tracking all of your transactions. I’m in my mid-30s, making a very good living, and still, I log and categorize every transaction I make. I do this monthly in a custom spreadsheet. This forces me to be accountable to each transaction and scrutinize transactions that might not be unnecessary moving-forward. More importantly, when I consider a transaction I think ahead to that feeling of when I have to log it later — will I be happy? This helps me truly assess whether it’s a worthwhile transaction which helps to keep spending in check. Seeing how everything adds up can be both helpful in assessing opportunities to save but also scary to see how much you might be spending. If "manual" budgeting isn't for you, there are a variety of decent apps out there to semi-automate the process.

Credit Cards: I forgot to ask about credit cards, but if used responsibility (i.e. paying off your statement in full each month, paying on time, not spending more than you otherwise would, etc.) they are a fantastic way to get more benefits and perks from your spending. If you do it right, the credit card companies basically pay you to use their card. Apologies if this is remedial, but there are a variety of credit cards specifically designed for dining/entertainment perks (AMEX and Chase have several great options depending on how much you are spending). Dining seems like a heavy spending category for you so that could be a great way for you to get some of your spendings back. My wife and I are also heavy spenders on dining/entertainment and run all of those transactions through specific credit cards to ensure we get maximum value for each purchase. We have different cards for different types of spending based on the bonus categories. The value and perks of our credit cards each year is at least several thousand dollars even after annual fees. Are you currently using any types of credit cards to optimize your spending returns? I'm happy to provide more detail here if it would be helpful.

I hope this helps. Don't hesitate to post any questions or concerns.
My personal finance blog: MoneyOnTrees.co (.co is not a typo)