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February 14, 2008

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Very insightful article. I am a little interested by the fact that you left out building your credit while in,or shortly after graduating from college. As a senior in college myself, I have benefited immensely already from building credit by putting all the utilities for my apartment in my name. I recently qualified for a lower rate on a car loan because of this. Additionally, making sure that you do not open to many credit cards and that these bills are paid on time will also make post-graduate life, and ultimately purchasing a home that much easier.

This article really has little to do with college grads. It's general PF advice that circulates in these environs on a daily basis. Beyond that, it's even a bit more generic than normal.

Good article, but I would have to disagree with the comment on food savings, because this does not take consideration a person's time value. For example, if I know that it takes me a total of about an hour between shopping and preparation of food for each meal, and I only spend $5 per meal that I shop for, and my time is worth $80 per hour, I will actually save money by eating out if the meal cost is anything less that about $30. (I'm taking into account that I might wait half an hour or so for food when I eat out). Also, the type of restaurants that I like to dine at usually serve over-sized portion, so that $20 lunch actually becomes 2 or sometimes even 3 meals in one if I take it home.

Rent is probably your biggest expense, but keep it well under 20% of your take-home pay.


Who writes this stuff?

Caleb - That's assuming that you get paid hourly and work every hour of the day. If one is an exempt salaried employee, they get paid the same regardless of how many hours they work. In this situation, it would not be correct to use my standard hourly salary to calculate how one should spend their time.

^^I agree with the 20% benchmark for rent, if you want to get rich.

I am making 20% more than I was 3 years ago, but my rent went up $350 when I moved out on my own. If I could go back to having a roommate and get rent under the 20% mark, I'd have another $2K/year to either save or use to create a much "richer" life.

Overall a good article. However, when Marotta decides to tell you that brownbagging your lunch for 40 years will make you a millionaire, they should at least disclose that they're using a ~12% assumed rate of return to get to that number. A bit aggressive, even if you want to ignore the effects of taxes (and inflation).

When it comes to the rest of the advice, its all useful, if a bit generic.

The rent under 20% of your pay is absolutely unreasonable for some areas. Living in Washington DC as I do, I know you're lucky to find a place for less than $650/mth (and it's not going to be all that nice). Now considering an entry level salary might be $28k, that's roughly $1540 take home each month. $650 rent would be 42% of your take home. And that's doing well right out of college. Of course you can move to Duluth and probably get away with rent at 20% your monthly salary, but then you're making the decision at age 23 to give up opportunities to forge a career in a niche industry. You don't have a family, have no real responsibilities, and are young. Take a chance and go for a career that will make you happy. Just don't go into debt while doing it.

I live in downtown Chicago (expensive area), graduated last May, make $55,000 a year, and spend $750/month on rent, plus about $50/month on utilities. That's about 22% of my take home pay, in an expensive area! I share my apartment with a friend, don't have cable, and keep our place at 62 degrees or less in the winter. Sure, I eat out lunch 2-3 times a week (Subway - $5 for me + the girlfriend) and dinner out maybe once a week ($35), but I've been able to pay off my consumer debt, and I just maxed out my Roth IRA for 2007 (as well as maxing out my company match for 401k), plus I have a few grand in the bank for a rainy day.

It can be done, so DO IT soon-to-be graduates!

"Overall a good article. However, when Marotta decides to tell you that brownbagging your lunch for 40 years will make you a millionaire, they should at least disclose that they're using a ~12% assumed rate of return to get to that number. A bit aggressive, even if you want to ignore the effects of taxes (and inflation).

When it comes to the rest of the advice, its all useful, if a bit generic."

I agree, the other problem with the food statement is, how much does it cost you to bring your food. When you pack your lunch it still has a cost. So really you can't save $27 a week. Maybe only like $15.

Very good article! I just hope people starting out will take the advice given them.

Brown bag every day for my entire life so that I have more dollars when I'm old and decrepit? No thanks. I like to have a break in my day and not seem like a damn anti-social hermit to my co-workers. Build those social bonds and it can help you build connections... i.e. better jobs at better pay in the future.

I save my food dollars at home. Granola with yogurt is cheap and tasty. So are noodles with parmesan cheese. Add rice to any meal as cheap filler.

Do note that when eating out fancy, you are already paying 15-20% more for tip, then ~8% more for tax. So that's 23-30% more you're paying, plus the basic cost of extra labor and silly upcharges ($1 for slice of cheese or bacon).

Also, "eating out" does not mean steak dinners as some of these PF bloggers seem to imply. I can get a filling sandwich made by someone else really quickly for $4.50. (No tip since you grab it at the counter.) I get variety and I don't have surplus unused meats, cheeses, vegetables, and condiments that no one ever calculates in the "savings of eating at home".

There is no room in this plan for the payback of student loans. Mine eats up about 12% of my salary just for minimum payments. I'm assuming its much much more for graduates who weren't as fortunate to get as high of a starting salary as me.

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