Last month I had a reader ask how he could save on a small income and I posted it for Free Money Finance readers to answer -- and boy did they! I got some GREAT responses that I just HAD to share with you all. There are too many to put into one post, so here are a few and more will follow in the days to come:
I would recommend setting up an automatic $100 transfer from your checking account once a month to start and definitely live on less than you make. Simply by avoiding consumer debt and not purchasing a lot of high depreciating items you will find yourself slowly moving in the right direction.
As your pay increases, save at least half the pay raise in your 401K or other tax advantaged account. By simply increasing your savings through your salary increases and staying focused on living below your means you'll find yourself in great shape 40 years from now! Just don't get distracted!
This is great advice to me. Just getting started is about 75% of the battle and if you can establish a spend less than you earn/save regularly lifestyle at an early age (the questioner was 22), then you'll probably do well financially throughout your life.
The next comment offers a bit of everything -- saving advice, thoughts on earning more, etc. -- and jumps from here to there a bit. But it's full of nuggets of great information:
Better thrift shops often have clothes that are almost new (some I've found with tags still on). If you look for classic styles/pieces they can work well. Sell unwanted items on places like craigslist or look there for what you need to buy. Put the money you save on things you buy in savings. Corporate apartment furnishing places that sell what comes back in have nice items for about 50% of the new price. Like the last post said-don't get distracted from your goals, but don't forget to reward yourself when you reach a goal. Rewards can be free too. There are always free festivals and events to enjoy in any town without it costing anything.
And finally:
At a salary in the high 20s, you should definitely take advantage of your company's 401k up to what your company matches, and try to save a little out of each paycheck ($50 or so?) in a taxable account for emergencies.
Stay away from credit card debt and other forms of consumer debt. This can be very difficult, especially if your friends seem to have a more affluent lifestyle than you. Nonetheless, this is critical to your short-term security and your long-term financial success.
Find someone to share an apartment or rent a room at someone's house.
Learn to cook, and keep dining out to a minimum in the first year or two.
Some simply great tips. Are there any that you would add to this list?
I think the most important thing to do is to make a budget and be willing to adjust your lifestyle. Many college students don't realize that the "spending money" they have in college provided by their parents or extra loan money is considerably more disposable income than once they are out and having to pay all their own bills. If you try to maintain that lifestyle on a 20 or 30-something thousand salary, you will oftentimes get into debt. Having roommates is the #1 way (IMO) to save money on a low income out of college. It can be tempting to finally live on your own, but it is SO much more expensive, especially because you're not splitting utility bills, etc. Also doing everything you can to avoid a car payment, which is often equal to or close to your rent payment when you're young, is important, even if that means driving an old car, sharing one, or even just riding the bus or a bike for a little while.
Also, when you're young and in a new job, it's often not as demanding as jobs you will have later in life (ie: you really can only work 40 hours a week and be just fine), so now is a great time to pick up a second job to meet new people, have fun and occupy extra time, and of course, make extra cash to save. Even 10 hours a week in a retail store at $7 or $8 per hour will get you an extra $300ish per month - a lot more than your average twenty-something is putting into his/her savings account each month.
Posted by: Sara Abrons | May 07, 2007 at 04:31 PM
another idea will be to compare you salary stats with other. Salary.com is an option and also the SalaryBase project (http://www.salarybase.com)
Posted by: shelly | May 07, 2007 at 05:10 PM