How much to save? (Ira: rent, insurance, unemployment)

[yahay]

Hi all,

I am moving to the city in August and I just wanted some opinions on my budget&rent/bills situation.

Income will be about $4000 per month after taxes and such.

Rent: $1500
Internet+TV Time Warner: $120 (too damn expensive!)
Gym: $90
Phone: $80
MetroCard: $104
Utilities: $120ish? Not too sure about this, but I would expect it to be high especially since I plan to use an A/C in the summer until September.

Those are all major monthly costs I anticipate, for a total of around $2000 left for living. Everything else (food, clothing-related, entertainment, health care&hygiene, etc) will come from this remaining amount. I also will start paying for insurance I believe once I start working, and probably renter's insurance as well.

How much would be a realistic amount to save on this budget? I think I can manage $500 if I try hard, but I'm not sure about theory versus reality. I expect to spend quite a lot on food since I'll be eating out most days due to work (Probably cooking about 1/3-1/4ish of my meals) but I don't expect it to be outrageous. Maybe $500 on food per month, excluding occasional nice restaurants. (~3-4 times a month perhaps)

I rarely go clubbing or party, most of my entertainment will be the more affordable concerts and such.

Any comments would be appreciated. Please be harsh if you think I'm being too optimistic.

[bill83]

I would save $1000 minimum per month. You never know when you lose your job. Did you watch the movie "Up in the Air"? NY Unemployment is only $405/week before tax. Manage the $3000 spending wisely, you will live a comfortable live. US Government is the worst role model in managing money. Learn the the mistake from Uncle Sam and don't spend money you don't have.

[yahay]

Thanks for the reply! I have about $2000, not $3000, to spend on living expenses besides rent and other fixed monthly costs. Is it realistic for me to save $1000 out of that $2000?

[bill83]

You have $4000 take home. Divide into $1000 "mandatory" savings and $3000 left for all regular spending. Your savings is to cover some unexpected expense, in another words, the rainy day fund. The key is to spend wisely, make every dollar count. Good luck.

[yahay]

I'll try my best to save $1,000. Thanks for the advice!

[urbanintllctl]

May I suggest that instead of starting your planning with spending, you start your planning by providing for automatic deductions (eg, every 15th and 30th of the month) from your salary that would go for automatic purchases of shares in a low-cost mutual fund. Money you don't have is money you won't spend (or misuse). Your spending will then adjust to your disposable income and, trust me, you'll soon find it second-nature to make do with what's left. The nice thing about such a scheme is that it makes saving the default scheme and therefore you won't have to make a decision every month not to spend and you also won't have to make a decision on how to invest what you do save. I've been following that scheme since 1998 and it has helped me save enough so that I can now semiretire.

[babo111]

When you say taxes and such, is such including contribution to retirement account such as 401k or other tax shelter vehicles?

If you aren't doing that, that'd be first step which is to start contributing to retirement account. Then I'd do the budget on what's left. Reason for this is that you can withdraw from retirement account without tax penalty for certain hardships. Also account like Roth, you can takeout your contribution anyway.

If you already are contributing, then I'd try to save much as possible to build up at least 4-6 month worth of living expenses. Afterward or if you already have that socked away, I'd take it easy and sock away 1k/mo at minimum. Food for thought is 1k/mo is only 12k a year which isn't chump change but it also doesn't go far in NYC. Based on your budget below, 12k will cover maybe 6 month of your living expenses should something happen. That means one year worth of your savings translates to your rainy day money.

Lastly. Saving and investment strategy also differs by what you want to achieve. If your goal is to say start your own small business in few years, you'll need much cash as possible. This could mean contributing to Roth IRA and rest into savings in cash in very safe assets like CD. If you have no intention of running small business and planning to ride out on corporate career track while hoping to retire early as possible...then probably worth considering to max out your 401k and contribute to traditional or roth ira and then some more into savings or other vehicles.

There are many ways to plan all this stuff out so you should take some time to think about long term picture if not 20 year down the road. At least next 5 and maybe seek professional help in form of CFP. Good luck.

Edit: This is just personal opinion on some internet board so take it with grain of salt and do your own research before making decisions Plus what I laid out above is because I'm pretty conservative and risk adverse.

[manchesterUnited]

I would suggest using Mint.com or something similar to track your spending. After a few months do a serious retrospective and figure out where your money is going. If you're not saving as much as you'd like, then start cutting back, and having this data will help you identify areas where you can make some big wins.

Also, do you really need cable? Maybe rabbit ears plus a Roku box would suffice.