I’m getting a big raise — how should I manage my money?

A reader writes:

I’ve read a lot of your posts about interviewing and negotiating over the last few years. I was recently offered an exciting opportunity to run a brand new nonprofit program. I negotiated my salary and ended up accepting the job with a significant salary increase! And I’m only in my mid-20’s!

So now that I’m here, what do I do with all this money? Any advice on how to wisely budget my money so I can keep living within my means?

I’m going to let other people speak to budgeting and other things you might want to do with your money (readers, that is your sign to chime in), but I’m going to give you one big recommendation: Save, save, save.

Savings are amazing.

Savings provide you an incredibly powerful peace of mind, in part because they minimize the ways life can screw you over. They don’t eliminate it, of course; bad things will still happen. But having savings makes an awful lot of life’s normal hardships much easier. Car breaks down? No problem; have it repaired that day. Ceiling starts leaking? You can have a plumber there within hours. Emergency dental work? Done. That type of peace of mind is so much more satisfying than dinners out or fancy vacations.

Plus, bringing this back to a work context, having savings gives you options. They let you act from strength, rather than from desperation. If you’re job searching and have savings, you can take your time and be more choosy than someone who needs a paycheck coming in next week. If you’re in a job that’s making you so miserable that it’s impacting your health, having savings will make walking away a real option.

In fact, because savings can have such a major impact on your life, one of the smartest things you could do would be to not change your standard of living when your new salary goes into effect. If you’ve been getting by okay previously, continue living as if you’re still earning your old salary, and put all the rest into savings. A common mistake people make when they get a big raise is that they raise their expenses commensurately — and as a result they don’t really better their financial security. Don’t do that.

Sure, have a splurge or two to enjoy your success — but sock most of that money away until you have a big stash of it. Make it your goal to save a year’s worth of living expenses if you can. This will be a far better gift to yourself than most things you could buy.

Also: Charity. Find some causes you support and donate to them. It doesn’t have to be big when you’re just starting out, but if you get in the habit of donating to causes important to you, it can become something you do as a matter of course over your lifetime, and you will be a happier person for it.

What other advice do people have?

{ 191 comments… read them below }

  1. SCW

    I had this happen to me–I’ve set a goal to save for a down payment, and actually went on a budget to spend less so I could save more! I make more but spend even less, because I agree with Alison stuff happens. I got in a car accident in December and had to replace my 20 yr old car, and because I had savings I didn’t have to get a loan.

  2. kf

    You are in your 20’s now, but someday you will want to retire. Up your retirement investments and not just to go with the raise.

    Make sure you are maxed on your 401(k) (or whatever is offered) for investment. Those are pre-tax dollars and will lower the tax implications of your raise.

    If you don’t have an IRA, start one and invest in that too. That will also lower your current tax rate.

    1. Ask a Manager Post author

      Yes! And if your company offers matching contributions to a retirement plan, make sure you’re contributing enough to get the full match. That’s free money.

      1. Jessa

        Absolutely, even if you don’t have enough to put in the absolute maximum the law allows you, make sure you put in the max amount your company matches. Never give up free money from your company toward your retirement.

    2. nuqotw

      If you can, make sure you get Roth accounts, both 401(k) and IRAs. You pay taxes on the money now, but when you retire, the money and all the investment growth are tax free. The IRS phases out Roth eligibility for very high income earners (I think it’s about $168,000 if single) so contributing when you are young and your income is below those limits is even more beneficial.

    3. Michael

      This!

      I love having a family but if I didn’t have them and given the way my salary has gone up over the last few years I would be maxing out my yearly retirement account allotment.

  3. Sascha

    Yes to savings. Yes to keeping your standard of living roughly the same. When I got my first full-time job, I did a little bit of splurging and got a few nice things for myself, and then settled down and saved. I was able to have a down payment for my house, cars, etc. I think it’s good to treat yourself to something nice – like a new computer or something in that range – but do save. The importance of it can’t be stressed enough, especially these days.

    Also, while you are young and in a presumably lower tax bracket, look into a Roth IRA. Do some investing. Don’t rely on your workplace to save for retirement – it’s good to have separate retirement savings account.

    1. Josh S

      Ditto to what other people are saying— SAVE!

      Spend less than you make (aka don’t go into debt). Reduce the debt you have already by paying off student loans or credit cards (especially high-interest debts).

      There’s a phrase, “A penny saved is a penny earned.” But considering that you’ve already paid taxes on that income, and will probably pay more (sales) taxes if you buy anything, it’s really more like “A penny saved is the equivalent of TWO pennies earned.” If you save instead of spend, you’re giving yourself a BIG advantage going forward.

      I would strongly encourage you to keep your current level of lifestyle, and automatically deduct/transfer the “extra” amount in your paycheck directly to a savings account. That way, you don’t have to feel the ‘pain’ of not spending money that’s just sitting in your checking account, and you don’t have to feel the ‘pain’ of scaling back your spending to a smaller level.

      1. Liz in a library

        Totally agree with this! Many employers will even split your direct deposit between two accounts for you.

  4. MF

    Retirement savings! (in addition to just regular old savings, of course).
    I’m only 2 years out of college, but in my senior year of college, my dad, who’s a CPA, had me start a Roth IRA to start putting money away for retirement.
    I don’t have much in it yet, but I put some of my tax refund from last year in it, and will hopefully be able to up my contribution each year. Even though it’s not a lot and retirement is literally decades away for me, it feels good to get started saving.
    An actual accountant can give you more/better info than me, but I would definitely look into starting an IRA (either Roth or traditional – one of the advantages of a Roth IRA is that you pay taxes on what you put in now, but then withdrawals, under certain requirements, are tax free).
    My dad has a lot of clients who have nothing or very little saved for retirement, and he always encourages people to just start small, and start early. So even if you can only put in a little bit now, get started anyway, and increase your savings gradually.

  5. Katie the Fed

    Yep on not changing your standard of living yet.

    See about maximizing your retirement contributions – if you do it early the compounded interest will be amazing, and you can always reduce contributions later. Plus if you have high contributions now you won’t feel the pinch if you need to save more later.

    Pay down any debt you have as soon as possible. Even good debt (student loans, etc) – it’s still debt and you should pay it down. Most importantly pay off those credit cards.

    Spend some of it. I used to save every penny and not really enjoy myself and now I know that was a mistake. I actually designate 10% of my income just for fun stuff. Studies have shown that people who spend on experiences versus stuff are a lot happier. So take a great trip – go on a safari or jet off to New York for a weekend. Enjoy yourself. Make some memories!

    Invest some in upgrading your professional wardrobe. If you’re more senior, you might need some nicer clothes. So buy a few well-tailored, classic pieces that won’t look dated in a few years. And don’t be like my and gain a bunch of weight after you do that.

    In saving (particularly non-retirement savings) have some specific goals in mind. A down payment for a house. A car. College for the kids. It’s easier to save when you can picture what you’re using it for. And if you find yourself tempted to spend what’s in your savings, put it in a different bank and even lock it up in a CD (crappy interest but it’ll help you keep it there just for emergencies).

    Congratulations!

    1. Chinook

      Pay off your credit cards monthly and don’t have credit cards with annual fees and your credit cards will then cost you nothing while helping you to build credit.

      1. Katie the Fed

        And use a rewards card if you can be disciplined enough to pay it off monthly. I put EVERYTHING on my United card and I travel a lot because of it.

        1. FD

          Exactly! I swear by Discover card; I pay it off biweekly (when I get paid, it’s just easier to track it that way), and I can spend the rewards points directly on Amazon.

          1. fposte

            Another credit card person here–the other advantage is trackability. With cash, who knows what I spent it on?

    2. Zed

      “And if you find yourself tempted to spend what’s in your savings, put it in a different bank and even lock it up in a CD (crappy interest but it’ll help you keep it there just for emergencies).”

      Yes! The first thing I did when I got my first full-time job was to open up a money market account. The interest isn’t anything to speak of, but the real benefit is that moving money from my checking account to the money market FEELS final – it isn’t included in my ATM balance and I can’t get to it with my debit card. But, at the same time, it isn’t locked up in investments or a CD. That is important to me because I am in my mid-twenties and single–I want to preserve relatively easy access to my money for the stage-of-life appropriate big purchases such as a house or a car, as well as for things like work travel (I am reimbursed but I still have to put out the money in the first place).

  6. RedStateBlues

    Save your money. Jobs aren’t forever anymore, if they ever really were, and most people can’t make it on unemployment alone. Also, as Alison said, you really don’t want to be stuck in a bad job because you don’t have the money to walk (I speak from past experience on this one).

  7. anon

    “In fact, because savings can have such a major impact on your life, one of the smartest things you could do would be to not change your standard of living when your new salary goes into effect. If you’ve been getting by okay previously, continue living as if you’re still earning your old salary, and put all the rest into savings.”

    ^This is absolutely key. Just because you can spend it, doesn’t mean that you should.

    It took a lot of trial and error (and a harsh reality check as to what exactly I was spending my money on – those trips to Starbucks really add up – ouch), but I work off a monthly budget that fits with my needs and goals. I also got a no-fees account (bank fees add up over time), which also allows me to open multiple chequing accounts under my main one so I can easily transfer in/transfer out funds according to my budget. So basically it works like this (using fake whole numbers to make it easier):

    Main Account – monthly pay $4,000
    Auto transfer of:
    -$600 to Grocery/Household account
    -$100 to Emergency account
    -$1,200 to Rent/Mortgage account
    -$200 to Bills account
    -$200 to Vacation Savings account
    -$200 for Entertainment (ie. dinner out, going to see a movie)
    etc… until the funds are allocated.

    So I only use what’s in the specific account that month. If I end up only spending $550 on groceries one month, I leave the extra $50 that I’d budgeted in there, as a “cushion” for other times when I might go over (ie. guests in town so need to get extra food, etc). I don’t view the extra $50 as a license to spend it on whatever (like Starbucks).

    It takes a lot of time and discipline to stick to it, but in the end it’s been so worth it for me, especially seeing my vacation savings get padded up!

    1. Mo

      I really like this idea! Does that mean you have a debit card for each one of those accounts? My wallet is already a bit out of control with all the debit/credit cards, insurance cards, memberships cars, etc that I use on a fairly regular basis. I’m afraid adding even more debit cards to my wallet would just be a nightmare for me… Hm

      1. Laufey

        You can use online banking transfers to move money between accounts. You can link account at the same bank and between different banks. It’s wonderful.

      2. anon

        My wallet is pretty out of control too! Actually, it’s one debit card, which makes it a bit tricky, but helps to keep things very organized. Before I go grocery shopping, I go online and transfer the amount that I think I will need to spend onto my main account that’s attached to the debit card. Any unspent afterwards, I transfer back immediately when I get home. A bit of a pain, but it has unintentionally made me much more organized in other areas… like planning meals ahead of time and sticking to grocery lists.

      3. Kimberlee, Esq.

        I do something really similar, and have them all set up at separate savings accounts. Then I put everything on my Chase Freedom card (points!) and then transfer the amounts from savings to my general checking, where I pay my CC from. It might be a precarious system for some, since you have to remember to transfer the funds, but it works well for me.

        1. Shannon!

          This is amazing. I’m currently living paycheck to paycheck, and working long hours on little pay really puts a dent in the freetime that could be spent preparing meals, etc. I use MoneyWiz to track my money and pay my bills as soon as I get paid, but I’ve been struggling to create a budget for myself and really adhere to it. Having an example like this is unbelievably helpful.

    2. FD

      I use an Excel sheet system to do this. I’ve been meaning to start a blog on it for some time; is that the kind of thing anyone would be interested in reading?

      1. Ask a Manager Post author

        Yes!

        I use Excel to track streams of revenues (and projected revenues), expenses (and projected expenses), savings (and projected savings), and projected money on hand a year out. It is awesome.

        1. fposte

          Oh, God, a friend and I just spent this weekend geeking out over our projection spreadsheets. I would totally read such a blog.

        2. Alicia

          Alison, I think I might have reach a new level of appreciation for you. I obviously love your blog, and your cat pictures on open threads, but you’re also an Excel projection geek!

          I just spent a few hours projecting my net worth as I pay down my debt and save at the same time. It was like heaven pulling that formula down one more row at a time to see the progress each month.

            1. Anon

              I love Excel too! All of our checking account transactions are tracked in it exclusively, as are all the balances from our savings & retirement accounts. I monitor the checking account weekly and the savings/retirement monthly to update our net worth. Because of this it always floors me when learning, via watching Suze Orman, for example, that there are people who have NO IDEA that they’re actually short every month. It seriously blows my mind! I know exactly what is coming in and going out and wouldn’t be comfortable otherwise.

            2. fposte

              My favorite game (and very restful toward bedtime)–what if I managed to put $x more into the tax-deferred account?–and watching all the numbers reset. Okay, now I sound like Mr. Banks from Mary Poppins.

              1. V

                Ooo… I like that game too. I wait to put money into my IRA when I’m doing my taxes and I LOVE watching the numbers go up on your estimated tax refund when I’m trying to decide how much on top of my 401k to sock away into retirement savings for the year.

      2. tcookson

        Yes! I’ve been wanting to set up a budget in Excel (since I already have it) instead of spending money that I don’t really have right now on new software such as Quicken or whatever that other one is.

        Would your blog be for aspiring Excel nerds as well as accomplished users like Alison? Would I be able to go on there and learn HOW to do the Excel based budget?

    3. Eric

      I do something similar. I’m a big fan of zero-based budgeting, where you allocate every dollar you bring in to specific categories and if you reach your limit you can’t spend anymore. I’m not as strict about not going over as I used to be (I’ve been doing this for about three years) because eventually the discipline because a habit.

      It takes a LOT of discipline (I write down every dollar in cash I spend, rounding up if I get change back, which goes into a cup which I cash out every once in a while and go to the movies with or something) but seeing your spending go up every time you buy a pack of gum or a cup of coffee really makes you think about how and how much you spend.

      1. Lanya

        Yes, I do the zero-based budget as well (using an Excel spreadsheet) and it works wonderfully. I have managed to get myself out of debt and completely off of credit cards this way, and I now use one debit card for all my purchases. I keep my receipts and track them each morning. This method forces you to be realistic about how you spend your money.

    4. Christina

      Has anyone else used YNAB (You Need a Budget)? It’s software based on an Excel spreadsheet the founder originally created to track his income, budget, and spending. It’s fantastic and the “philosophy” such as it is really encourages saving and planning, but also accounts for the un-plannable and “rainy days.”

      It also doesn’t link to your bank account, which may sound like a pain but a) it’s more secure than giving lots of systems your bank account(s), cc account(s), student loan account(s), etc. And it makes you much more accountable to actually keeping your budget under control.

      I swear I don’t work for them, I just really love the software!

      1. Lynne

        Late to the game, but you are all talking about YNAB, but just don’t know it. It is like excel sheets on steroids, and it has charts, and it makes everything easy.

        Even if you don’t use the software (and I suggest you do) check out the forums: ynab.com/forums. Very good for saving/budgeting/debt reduction advice and encouragement. I don’t work for them either…but I can say this software changed my life!

  8. Lunchtime Anon

    I was living and saving comfortably on salary A. Then I got a new job and increased salary B. For a year, I put the difference in salary toward my car payments. Once the car was paid off, I added the difference to my monthly savings.

    1. Lanya

      That’s great – I am hoping to be able to do the same thing if/when I get a bump in salary. Congrats on the car being paid off!

  9. AnonHR

    I usually encourage employees to increase their 401(k) contributions/retirement savings with a raise. You don’t feel it as when you have a raise to go along with it, at it affords you some security and flexibility for your retirement options in the future. With a significant raise (congratulations!), you should be able to do a little of both personal and retirement savings right now, which is not something everyone is able to do in their 20s, so get ahead of the game!

    Also, if you can, set up your goal savings (down payment on a house, vacation, etc) to be separate from your emergency savings. I was “lucky” a few years back that some medical expenses came up before my ticket for a long planned trip to Europe was paid for, because as far as my finances went, it was one or the other. That’s probably a predicament more people face before they have a shiny new salary to work with, but it can be a mentality that’s hard to get out.

    1. LMW

      I’ve used both ING (which is now Capital One 360) and Smarty Pig to set up separate accounts. Right now I have an emergency fund, a large purchases fund, a downpayment fund and a vacation fund. It’s very easy to transfer the money to my bank account when I’m ready to use it, and it’s made it easier to set realistic goals that I want to save for at the same time. (Especially since I can keep the downpayment and emergency accounts separate, and I’m not tempted to dip into those when I want a vacation.)

  10. PJ

    You Need A Budget.

    No, I’m not preaching — it’s the name of a budget software program that saved me from my own stupidity and set my feet on firm financial footing. I wish I’d had it when I was in my 20’s.

    Start saving for retirement NOW, and don’t stop. At the very least, do whatever you need to do to grab your employer’s matching contribution if there is one. After that, max out your Roth IRA. Every single year. Then move on to other options if there’s still extra money.

    Save up for “big” things — for instance, annual insurance, DMV fees, or professional association dues. When the bills come due, the money will be in your bank account ready to go to work.

    If you own a “thing” (car, pet, refrigerator, roof) assume that it will need fixing and/or replacing at some point, and start a fund for each.

    If you have any debt, pay it off FIRST before doing any of the above. Then stay out of debt forever. This includes car payments.

    Start an “emergency” fund. Don’t stop until you have enough so that you can live on it for at least six months.

    And, as coached by the You Need A Budget (YNAB) program, start living on last month’s income. You may need to save up for this, but it means that you enter each month with enough money in the bank to cover all expenses. No more saving up the rent money from two paychecks, holding off on paying utilities until the second check comes in, etc. it’s awesome!

    1. twentymilehike

      If you have any debt, pay it off FIRST before doing any of the above. Then stay out of debt forever. This includes car payments.

      Start an “emergency” fund. Don’t stop until you have enough so that you can live on it for at least six months.

      I want to emphasize these points. I received the same advice from one of my mentors and It has proven invaluable. Having money saved up, and having no (or just a little now in my case) debt, is so freeing.

      Things happen that you can’t predict. In the last three years I lost both of my parents unexpectedly. I am an only child, and my parents lived out of state. The amount of work I missed while my parents were sick was ridiculous, and living paycheck to paycheck makes it next to impossible to take large amounts of time off. You don’t need the stress of being broke to go along with emotional turmoil. Chances are when you have to take unexpected time off you’ll already be stressed out; having savings will help reduce your stress level enormously.

      It’s tempting to spend it … but let it sit there and forget about it! Good luck and congrats! :)

      1. Ag

        I agree, but unfortunately student loan debt is not something that will be paid off in any reasonable amount of time for me…

        1. Natalie

          If you can afford it, even a little bit, bump those monthly payments up. You probably won’t notice a missing $10 or $20 a month, but given the magic of compound interest you will notice how much more quickly to pay those loans off.

        2. twentymilehike

          unfortunately student loan debt is not something that will be paid off in any reasonable amount of time for me…

          I hear you on that one … that’s the only debt that I have allowed myself to not attack aggressively. It’s a small payment compared to where I was when I started my aggressive financial plan, so I’m letting it ride until I get that next big boost. The other one is low interest hospital bills. Attack what you can, but don’t make yourself miserable!

      2. PJ

        Agree, twentymilehike. I was out of work for a year, and because I’d paid off my debts and saved up an emergency fund I was able to feed and house myself without skipping a beat. And because I live frugally I was able to cover all my monthly expenses with my unemployment check. I’m tellin’ ya, living well below your means makes EVERYTHING easier!

    2. Daisy

      I second YNAB as being really good! It’s a one-time software buy- you don’t need a subscription- and it’s really flexible in the kind of categories you want to set. And there’s lots of free advice on their site for people who have it in how to manage your spending/ saving.

    3. HR Gorilla

      Thank you, thank you, thank you! I’ve been on the hunt for a good way to plan and budget–it does not come naturally to me. Like, at all. I just read through the YNAB site and am super excited to get started. Loving this thread!

      1. Steve

        Yes – YNAB is amazing. We’re doing just fine financially but I still maintain it’s the best budgeting program out there – bar none. The inherent ability to roll-over budget categories, account for overages, and live on last month’s income is nothing short of perfect when it comes to personal financial management.

        Oh, and open a Roth IRA if you don’t already have one. Vanguard is wonderful. Stick with index funds. Read the Bogleheads’ Guide to Investing. Learn it. Live it. Prosper.

    4. Jen @ ModernHypatia

      Seconding You Need A Budget as an awesome tool (the YNAB method is a bit different than a lot of people’s, but they have some really wonderful training sessions and webinars and forums. They’re some of the best online training I’ve ever seen, and while the software isn’t cheap (most people find it pays for itself inside a month or two), the training sessions are entirely free.)

      I’ve also found “All Your Worth” by Elizabeth Warren and her daughter Amelia Warren Tyagi to be really helpful in figuring out larger goals (they advocate a 50/30/20 split: live so you are spending no more than 50% of your income on stuff you have to spend (food, shelter, necessary transportation, etc. plus contracts you couldn’t get out of easily like a car payment), then 20% on savings and debt, and 30% on the rest (hobbies, entertainment, also things like travel)

      It’s a little more complicated than that (the book goes into a lot more detail), but I’ve found it a good framework for feeling like I’m managing my budget sustainably (and being able to keep going on, say, short term disability if something happened, for a while, without having to drastically panic) while having some money for enjoyable stuff.

      1. Jesicka309

        I follow something similar: 60/20/20.
        60% on living expenses: rent/mortgage, groceries, bills etc
        20% on savings (any long term debt is paid off here instead): this goes into a high interest account I can’t see every week.
        20% splurge: 10% on savings for holidays etched, 10% for anything I like (clothes, dinners out)

  11. Rob (Bacon) Bird

    Most of the jobs I have had have a probationary period (usually 6 months). I take the extra I make and put it away into savings until I complete the probationary period. This does a couple of things:

    1) I am living on the same amount I was before, so I am training myself not to just spend it on anything I want.
    2) If, for some reason, I do not complete the probationary period I have savings built up without new expenses to worry about.

    Once you complete the probationary period, treat yourself! You have earned it. I have worked with many people who get great paying jobs (especially in the oilfields in North Dakota) and go out and buy brand new $50,000 pickups, only to lose their jobs a few months later and are now stuck with a $700 payment every month.

  12. Judy

    And get it out of your checking accounts automatically. My work allows us to direct deposit in up to 4 accounts. My husband and I have savings deposited straight into an investment account, instead of going anywhere near our credit union. Especially if you set it up for $X going to your bank, and the remainder going to investments, that allows you to almost forget it when you get your next raise.

    Before kids, we would review our budget right after we completed the taxes for the year. Now, it seems like we have to make the time to even do taxes.

  13. Chinook

    Invest in ways that give you “free” money. I don’t know about retirement plans in the US, but in Canada some employers will match RRSP contributions that are made through payroll deductions. We also can do long term and short term savings in tax free accounts like RRSPs (to access during retirement) and TFSAs (to access at anytime).

    Also, do automatic payroll deductions or bank account withdrawls that go automatically into a savings account and treat this like any bill. It is a way to pay yourself first that is painless because you never really see the money. And, by doing this with every paycheque, compound interest becomes your friend. It may look small right now but it will add up over time.

    Check to see if there are minimums required to get free banking. Sometimes having $1,000 sitting in a chequing account that you never touch (i.e. you treat $1,000 as your zero balance) can save you the monthly fee for having said account.

    Lastly, for when you start to have a lot of money saved up, check what the maximum insured amount is in the event your bank fails. Again, I don’t know US rules, but in Canada a maximum of $50,000 (I think) per bank is guaranteed by insurance in the event the bank goes bankrupt.

    1. the gold digger

      If you have more than $250,000 in just a savings account, you are not doing it right! Have money in checking and savings for easy access, but invest the rest.

      Unfortunately, investments are not protected in the US, but you at least have a chance to increase your investments through growth.

    2. plain jane

      CDIC (Canada) limit is $100k per bank. This only counts for deposits, GICs, not investments/mutual funds.

      So you can (if you really like security) have 100k in eligible accounts with ING, and then another $100k with PC. Coverage for money in banks that have merged (like BNS and ING) is more complicated, and if you’re over the limit combined you might want to move some of the money to another bank.

      http://www.cdic.ca/DepositInsurance/FAQ/Pages/default.aspx#increase in limit

  14. Lisa

    I’ll also add 401K it – put in at least 10% and do it now while you won’t notice the difference.

  15. Lindsay

    The OP is my sister and I recommended Ask a Manager to her (also give advice on negotiating salary, as wise older sisters do.). Is an Ask a Manager finders fee appropriate? :)

  16. ExceptionToTheRule

    If you have debt, work on paying it off. Pay off that which costs you the most (ie – highest interest rate or not tax deductible) first.

    And save while you’re at it. Congrats and good luck.

  17. as

    I’m young only about a year out of college and was given a Dave Ramsey books. Some of the message is not relevant but the emergency fund of 1000$ and stomping down debt was super helpful. The piece of mind of having a true emergency fund is spectacular. From there it gets easier to save up six months of expenses fund and start steam rolling those student loans.

  18. Laura

    Congratulations!

    Like everyone else has said, absolutely take advantage of any retirement plans your company has, and make sure you contribute enough to get the matching, because that’s free money. My company’s plan is administered by ING, and they let company employees enroll in their management program (or whatever it is) and for a very reasonable fee they will manage the investments for you: moving things around to make sure you have the optimal investment mix for your age, buying and selling, and so on. I have been very pleased with how my 401(k) has grown, and I don’t have to worry about managing it myself, and I can let other people much more knowledgeable about this kind of thing do it for me.

    Also, going forward, up your contributions by 1% per year until you reach the maximum percent allowed, or the maximum dollar amount allowed by the IRS. They increase it each year by about $500. I do this, and I time the increase in the contribution to start when my raise goes into effect, so I never miss it.

    Pay off any credit card debt you may have, and going forward, pay for everything you can with cash. Being debt-free is a great feeling, and if/when you do need to go into debt — to buy a home, replace your car, or whatever, it will be easier to get approved for credit, and at a decent rate, and the payment won’t sting as much if you don’t have to add it to making credit card payments each month too.

    And like Alison said, build up that rainy day fund! It’s huge piece of mind to know that you’ve got a reserve fund to dip into if you need it.

    And don’t forget to treat yourself to something to celebrate!

    1. danr

      Pay with credit cards, but pay them off every month. And track your expenses on a spreadsheet (as mentioned above). Paying by credit card gives you certain protections and establishes a good credit rating. Plus there are situations where you need to use a credit card.

    2. Kiribitz

      I have friends who did Dave Ramsey and when they went to buy a new house, because they had paid everything but the mortgage on their old house off, and used debit or cash for the majority of their purchases, the loan process was actually more difficult because their credit history was so sparse. I think his advice is good overall, but it really might be better in the long run to keep using a credit card or two on a regular basis but only if you can commit to paying them off every month.

      Some credit cards even give you the equivalent of free money. For example: we have one that gives us 2% back on every purchase, plus we get the benefit of the minimal interest from the bank building up on the cash balance we have in the account between the monthly credit card payments. It’s not a perfect system, but it does add up!

  19. Ag

    I totally agree with everything Alison said. I was/am in a similar situation. I am in my mid 20s and when moving to my current position, I negotiated a $20k raise (+ quarterly bonuses) from my previous job. I did basically exactly what Alison suggested – I was living fine before, so I put the additional money from the raise in my savings (after taking out the max 401k). Of course, every once in awhile something comes up and the money never gets to my savings, but I’m pretty proud to say that I’m in my mid 20s with $30k in the bank.

    Also, I have the money directly deposited into my savings account through direct deposit – I have a portion go into my checking and the rest into my savings.

    1. TRB

      Just want to say that is awesome! I’m striving to be like you. I’m in my early-mid20s and hopefully I’m in that same boat before I’m 30.

  20. ThursdaysGeek

    If you buy a house, you can use that extra money to pay it off a lot earlier. When we were younger, we had two incomes, lived on one, and most of the other went to the house payments. Interest rates were pretty high then, and I didn’t want to end up paying more than $105K for a $30K house. We paid it off in under 3 years, and paid only about $5K in interest. That saved us about $70K right off , plus we could then keep saving the money we weren’t paying in house payments.

    In other words, really look at what debt is costing you. Do the math before buying on credit. It’s a lot cheaper to save and then buy something (furniture, car) with cash, then to go into debt and get it right away. It costs you peace of mind, but it also costs real money.

      1. fposte

        I would disagree here. Paying off the house *can* be a good thing to do, but if you’re underfunded for retirement and your mortgage is at a low rate (say, under 4%), you’ll get a better return on your money if it goes into mutual funds in an IRA/401k/403b. If you’re otherwise okay for retirement, it’s mostly an emotional call, but it’s important to look at the return on investment for the money use, whether it’s paying off a debt or investing it.

          1. fposte

            Not to derail, but what the heck are your investments in? It’s been a crazy active year–the market’s gained over 15% since the start. If you’re solely in bonds, yes, you’re in a tough place right now, but my impression is that you’re not of an age to be stuck in all bonds (even if that were recommended right now, which it’s not).

  21. CT

    Hi OP!

    I’m in a similar situation – in a few months I’ll be making SIGNIFICANTLY more than I make right now. I completely agree with everyone about trying to keep your life expenses as low as possible but thought I’d chime in with a very slightly different viewpoint.

    I’ve always been an aggressive saver but since I’ve been on a shoe-string budget the last several years (while training and searching for a job in my chosen field) I’ve also had to do without some things that border on needs instead of wants. I would save as much as you can from the raise but realize that adding a line items for things like work clothing, that dental/eye/etc. exam that you’ve been putting off, or saving up for a replacement car when your current vehicle finally quits this year are completely reasonable.

    Congrats!

    1. RedStateBlues

      You are correct. I wasn’t suggesting, nor do I think anyone really is suggesting that OP live like a miser, just not to spend needlessly.

  22. Colette

    I’d agree with everyone else’s comments – pay off debt (and don’t add more) and save (for emergencies, fun, and retirement).

    I’d also add that if you decide you want to make some sort of new financial commitment (car, house, vacation villa in Tuscany, designer cheese club, whatever), consider whether you’d be able to afford it if your salary dropped again. It happens, and it’s a lot less stressful if you haven’t overextended yourself.

  23. Anonymous

    I definitely agree not to change your standard of living a lot. Identify what’s important to you (whether it’s going out to dinner often with friends, traveling, concerts, whatever) and allow that to be the area where you spend your money.

    If you have good credit and are responsible with money, I would recommend signing up for a credit card which rewards you for things you already do/use/like, using it for all your normal, budgeted expenses and paying it in full every month. I haven’t paid more than a couple hundred dollars for a vacation in years because of a rewards credit card.

    Save, save, save. I have separate accounts for certain things I want to save for. If you don’t have a car payment but probably will in the future, deposit a car payment every month into your savings account so you can put more money down in the future.

    If you have any outstanding loans, pay them down. I paid off a car in < 3 years, instead of the 5.5 years on my loan.

    But if you are in a position to do have this sort of freedom where you're not living paycheck to paycheck, or even close to it, budgeting will be more about your priorities. You don't want to spend tons of money on everything, but you don't have to scrimp on everything either. Identify your own goals and priorities and plan accordingly.

  24. AmyNYC

    If you haven’t already, make a budget! Excel is great for this, start with your take home pay and subtract rent, insurance, groceries, gym membership, utilities, some savings, and whatever other regular expenses you have and figure out what’s left – that’s your pocket change. I like Easy Envelope Banking App (also heard Mint is good), just get in the habit of tracking what you spend.

    With the new addition to your budget; if you’re comfortable living as is, don’t even think about the “extra” you’ll be earning, send half of it to pay off student loans and the other half right into savings.

    Congrats, and in the words of Tom Haverford, TREAT YO SELF!
    (A little, don’t go crazy, but maybe try that new restaurant you heard about or get a new pair of shoes, not a new car)

  25. Laurie

    I’d recommend the following:
    1. Pay off credit card debt
    2. Max out up to employer match in 401k
    3. **Pick a goal to budget for i.e. a house / summer home, graduate degree, some other appreciable asset. I read somewhere that saving with a goal in mind, especially an achievable one, is more motivating than saving without a goal.
    4. Get set up on Mint.com or some budgeting software to track your expenses. Since you’ll have some extra money, give yourself bigger budgets for leisure stuff – travel, clothes, coffee whatever.. Live the life, but within some budget :)
    5. Research IRAs, stocks and so on, and once everything above has been set up and you have a 6-month emergency fund, start investing.
    6. Watch your bank balance grow. This is seriously the most fun part.

  26. K

    This happened to my parents a few years ago and they decided to maintain the standard of living they were currently used to, but increased the amount they paid towards debts and increased their contributions to savings and retirement accounts. They also increased their charitable giving. They did splurge on a couple of things–like some new clothes for the new job, bumping up their cable package one level, and replaced their old and inefficient air conditioner–but it was all very reasonable. This was a very good move because only 2 years later the one who received the large raise was laid off.

  27. Natalie

    For me, the extra money priorities are:

    1. Emergency fund. There are various opinions about this but I would personally shoot for 3-6 months of fixed living expenses (rent, required bills, debt service, reasonable food budget).
    2. “Bad” debt (credit cards & auto loans). Pay these off literally as fast as you can.
    3. Any necessary medical care you’ve delayed due to finances. One of the first things I did when I got a regular job and dental insurance was get my wisdom teeth removed and finally get glasses. My partner got a root canal and crown. It’s not a fun experience, but it is a gift to yourself that keeps on giving.
    4. “Good” debt (student loans, mortgage). Bump your payments up above the minimum as much as fits into your budget. It may not seem like it, but even a small amount makes a difference. I increased one of my student loan payments by a mere $15 a month and in the end I will cut nearly 2 years off the repayment time.

    After that, the priorities are up to you. Saving for retirement is wise, but IMO it’s also good to save for other large expenses that will come up sooner. If, for example, you think you might want to buy a house, this is a great time to start saving for a down payment and furniture and whatnot. If you think you might go back to school, you may want to start saving now for tuition. Maybe you are interested in the stock market and would like to trade a bit.

  28. HR lady

    Congratulations, OP! You seem to be doing everything right – I’m not surprised you got that promotion.

    I love this question and love Alison’s answer. Especially this:

    Savings provide you an incredibly powerful peace of mind, in part because they minimize the ways life can screw you over.

    And this:
    But having savings makes an awful lot of life’s normal hardships much easier.

  29. Sarah

    Supplement your employer’s retirement account with starting a Roth IRA. Especially as someone in your 20s (like myself), you can earn a lot of interest on that money and will be better off later.

    1. fposte

      The general rule of thumb on priorities is: money goes first to the 401k up to employer match, then Roth IRA to the annual max ($5500 for somebody under 50), then 401k over employer match (up to the limit of $17,500 for the OP).

  30. bearing

    This sort of reminds me of the best financial advice I remember getting when my husband and I were first married: even though we have two incomes, choose to buy housing, cars, etc. as if we only had one of our two incomes.

    This advice prevents you from getting into a level of debt that makes it extremely difficult to scale back to a one-income lifestyle, should one of you lose a job or decide to stay home with kids.

    The larger point stands: live comfortably, but don’t bet your happiness and security on a gamble that you’ll always have the same income.

    1. Anonymous

      My boyfriend and I try to do this as well. We just put an offer in on a house, but we budgeted for it as if we’d only have one income. I never want to feel stuck in a mortgage where we both absolutely need to be working, making $x to continue to afford it.

      1. annie

        Yes, and as a bonus if the couple has a child, you can survive an unpaid maternity/paternity leave, or maybe even stay home longer with the baby if one of you wants to be a stay at home parent for a while. This is a major issue many of my friends are running into right now – even a six or eight week unpaid maternity leave for the mom can be a huge financial hit if you haven’t planned for it.

  31. Marina

    Totally agree with everyone else about savings! But I think the one things I WOULD spend money on is good work clothes. Dress for the job you want, right? :) A classic suit will last you years, although it can be a pretty big chunk of change. Look for good quality materials (wool not polyester) and classic rather than trendy design. Get half a dozen good quality basic pieces you can build a wardrobe around, and fill it out with cheaper/trendier stuff.

  32. Mary Sue

    This is what I did, one step after another, in my 20s:
    1) get on a budget and stick to it. Tailor this budget to your needs. For me, I have budget categories for beer and comic books, along with savings, travel, et cetera. I use zero-sum budgeting, which means every dollar has a name and a job. Here’s a good explanation. I also use ‘buckets’ and have seperate savings accounts for each one, here’s the article that taught me this.
    2) create an emergency fund. Save up $1000 and put it in a savings account and only touch it for the most dire emergencies, like your car engine blowing up or needing to fly somewhere for a funeral.
    3) Then pay down all high interest rate debt. Credit cards, car loans, student loans, anything over 4% must go.
    4) Now your icky debt’s gone, stick the money you were using to pay that debt into another savings account until you’ve got 6 months worth of expenses. Mine’s earmarked for in case I get laid off.
    5) When you make it this far, you’ll have a pretty good basis for making any decisions you want. The typical ones are retirement, investing, or buy a house. After looking at my goals and finances and the market, I went with buying a house. I’m single, 33, and I own my own home without having to resort to roommates. Other than the cat. I know others who are in similar financial places as I am who are still renting rooms in houses with 7-8 other people so they can max out their investments and retire by 40, but I like working and really, really enjoy my privacy.

    And I have an entire room of my house dedicated to comic books.

  33. E.R

    Echoing the value of savings. In my first professional sales job, I made a modest salary, with potential for pretty huge bonuses (or at least, it seemed so when I was 24). I always made sure to live below my salary, saving a bit even from that, and when I got those bonuses they went straight to the bank – maybe I took $100 out of $20,000 to buy something nice to celebrate. Years later, I still make sure I live well below my means. There is so much to save for – emergencies, losing a job, retirement, travel (if it’s important to you like it is to me), that nice feeling of being able to take care of your friends, family, and pets when they need you. Way better than a new pair of shoes or a new car. Congratulations on the new gig!

  34. B

    As others have said pay off your debt, save for an emergency fund, spend a little on you (could be clothes, vacation, something that makes you smile), and a Roth/403B/401k definitely. However, not to be a negative nancy but since this is a new nonprofit program that emergency fund, at least 6 months of total living expenses, may become necessary.

    I would also look at where you are in life. Are you living at home and hope to move out? Are you living with a roommate and would like a place of your own? Do you want to save for a house of your own? Do you want to move to a more expensive area? Take those ideas into consideration, as they each have added expenses, and plan accordingly.

  35. Alicia

    I am seconding everything everyone else has already said really. If you’re living fine now, don’t feel the need to increase your cost-of-living.

    Pay off any outstanding debt (especially if you have credit card debt – the interest on those things can be insane!)

    Max out your retirements savings, especially if your company matches.

    Have a buffer/emergency fund. Life always tries to throw curve balls when everything seems to be going fine.

    Enjoy some of it. You can save for trips and all of those types of things. You don’t need to sock away every penny of this new raise, just don’t blow it all on really expensive restaurants all the time because you can now afford it.

    I am 2 months into my new job and next month I will be getting a 20-25% raise (long story – confusing situation), and it’s going to get slapped onto my outstanding debt, and then hoarded away. I’m also in my (later) 20’s, and I think that having the extra money would put my stress at ease more than an obscenely expensive purse, or something. Plus, in the next five years I intend to have children, so, may as well save up for some mat leave expenses.

  36. Frieda

    Her personality is a little over the top, but Suze Orman actually has a lot of good, reasonable advice on money management. She has specific books for young people and women, too.

    1. Alicia

      I cannot stand this woman, mostly because of the crazy situations that are generally on her shows. :)

      I do really enjoy Gail Vaz-Oxlade, and if you’re Canadian you’re more likely to know who she is. She has had multiple tv shows, but her books are great. She too has a book directed at women, and personally I like her approach better – very conversational in her writing. If you don’t want to buy any books, her blog is great and updated M-F.

      1. fposte

        I love Gail (though she did once have an expert on her show give resume advice that included putting an objective up top); she’s much more down to earth and genuine. CNBC in the states shows the Till Debt shows and Princess sometimes, so maybe it’ll get Money Moron.

  37. Mike C.

    IRAs? Saving?! Budgeting for a house or car? BORRRRING!

    Buy yourself a local politician. Use their influence to pass or change legislation to further enrich you. Reinvest the money and repeat. Work your way up to members of your state legislature and even your congressional delegation!

    Save a little bit for your favorite poster, Mike C.

    ;)

    1. anon

      Ha, this is what I always joke I would do if I won millions in the lottery, start my own SuperPAC!

    1. Scrapdog

      I guess I should have read more of the comments. Seems there are a few Ramsey fans on there as well! LOL

    2. ThursdaysGeek

      Yup, I think I was part of the Dave Ramsey cult long before I ever heard of him, probably since before his bankrupcy. :) I’ve only had debt four times in my life, once for a piano, three times for houses, but the last house was paid off several years ago.

  38. Kaz

    You should absolutely go read Mr. Money Mustache (mrmoneymustache.com) – if you are willing to save a significant percentage of your salary, especially at your young age, you could retire or otherwise be in absolute control of your working life at a much younger age than anyone thinks possible.

      1. De Minimis

        I like his frugality tips…not sure that everyone can do what he has done [if you look a lot of his wealth was built due to the hot job/stock market in the Nineties—hard to duplicate today] but it’s something to shoot for.

        But saving a ton of money, cutting down on driving/foolish spending….lots of good information for anyone interested in that even if they don’t get to early retire.

        1. Kaz

          Yeah, I know that most of what he did is going to be hard to replicate these days, especially when you’re not starting out kidless and student-loanless like he did. But my take on it is that if I work on saving and finding ways to invest so I can bring in passive income, while also cutting down my expenses, I’m going to end up better off anyway. I might not get the same results he does, but I’ll take retiring at 50 or 60 over never retiring any day!

    1. Mary

      +3. Get on the ‘Stache train with a quickness and reap the benefits. Plus get support and advice from like-minded people in the forums there.

      1. fposte

        Hey, I didn’t know about that blog–thanks all for the recommendation. I think providing the milieu, as you say, can be really helpful–often if you’re young (and let’s face it, even when you’re older) you’re not among many people who are thinking about ways to save, and it’s easier to keep it a priority if you have regular contact with people who are prioritizing it.

  39. CollegeAdmin

    The only blogs I read regularly are personal finance ones and AAM – it’s like my two worlds have collided in this one post. Color me gleeful. :)

    1. Catherine

      Mind linking to a few of these personal finance blogs? I would love to check them out.

      1. Mo

        I’ve really trimmed down on the number of PF blogs I follow, but my favorite is Making Sense of Cents!

        Get Rich Slowly was also very helpful when I first starting caring about my spending habits.

      2. CollegeAdmin

        I kind of go on “binges” – I’ll start with one of the ones below and then start jumping to blogs they’ve linked to. (Also, someone recommended Mr. Mustache here, which I hadn’t heard of, but it looks pretty good!)

        http://www.wisebread.com/
        http://www.getrichslowly.org/blog/
        http://www.budgetsaresexy.com/
        http://www.thesimpledollar.com/
        http://20somethingfinance.com/
        http://smartasset.com/blog/personal-finance/
        http://www.learnvest.com/category/life-and-money/

  40. Ros

    Save. An emergency fund is key to peace of mind and/or travel, house-buying, etc.

    Something I haven’t seen mentioned above, though, is the F*You fund, which, personally, has been invaluable. Basically, having a sizable chunk of change in the bank makes you not NEED-need the job, so you can set your own line of what you’re willing to do for money and what you’re not, while not really caring about getting fired.

    Real-life examples from my last 5 years of having a F*You fund:
    1) No, I will not falsify these financial documents (and just TRY to fire me for that – I’ve got the time and money to sue you to the ground for it). Note that in this case, the rest of my department had given in and created false financial documents and were afraid of losing their jobs for turning down the request.
    2) No, I will not log into my work computer to do paperwork on Christmas morning. Everyone has limits: that’s mine.

    Also, when I was at my last job (from example #1, at which point is was pretty clear that things were going south), I had the leeway to look for a job I wanted to be at, rather than take the best offer I could get within a few weeks because I needed the income.

    Seriously: a lot of the times, money just means having the luxury of more options and choices. Being able to set your own limits is worth it.

  41. Cruella Da Boss

    Find the nearest “Financial Peace University” course by Dave Ramsey (usually held at local churches) and attend. It was the best $75 (cost of workbooks, etc…) that I’ve ever spent! I wish these were around when I was starting out. They teach you how to budget and plan and the best ways to use your money. Saving and charitible giving are very important to the program.

    We are a “cash only” family. We do not have credit cards and our only current debt is our home (that will be paid off soon.)

    It was really hard for this “material girl” to change her ways, but it can be done, especially with a goal in mind. Luckily we dodged the “McMansion” bullet ourselves, but are watching our friends struggle to pay for a home that is no longer worth what it is mortgaged for. I’ve found that I can do without that trendy outfit that will date itself in a year (and working on teaching our 4 kids too….teenagers!) and a nice car that is paid for, beats that expensive, flashy sports car that the bank still owns any day.

    Congratulations and Good Luck!

  42. fposte

    Getting a little more granular on the 401k/IRA–if you don’t want to evaluate the possibilities for where you’ll put that money right now, don’t let that stop you. Just put it all into a total stock index fund and then forget about it. Check the expense ratio–you should never be paying over 1% for a mutual fund (Vanguard, a noted cheapie that I love, has an expense ratio of .17% for its total stock index), and you often get a better ratio investing within an employer’s 401k. But don’t wait to get fancy–if you’re unsure, just put it in the simplest pot and revisit it down the line. (And don’t yank it out if the value goes down!)

  43. FD

    Read the book “Nice Girls Don’t Get Rich”! It’s good advice for anyone, not just people who want to become ‘rich’ in the common term.

    Also, make a budget. It’s going to be tempting to just wing it, now that you have more money. But spending, like responsibilities, expand to fill the available space. Limit the available space.

  44. Scrapdog

    Congrats on the raise!

    As Alison pointed out savings is great! One thing that has worked for us (my family) is we followed the baby steps program through Dave Ramsey. It doesn’t cost you anything. You essentially learn to live on less than you make. For example, start an emergency fund, pay off your debts smallest to largest (don’t worry about interest rates) as it is the same concept of wanting to lose 30 pounds, but if you make it a 5 pound goal little by little you are more likely to stick to it. Do the same with savings and paying off debt. If you want $10k in your emergency fund, then have a goal of $1,000 first, then hit that goal and set a goal for $2,500, and so on.

    We are big fans of the baby steps, and although we don’t agree 100% with what Dave says (not a huge fan on his religious/political rants so we tune out there) or any financial advisor, it has been the best program/plan we have stuck to in terms of building savings, paying off our debt (there is no such thing as ‘good’ debt), saving for kids college, retirement, and paying off house.

    Good luck and let us know how it goes into your new career.

    http://www.daveramsey.com/new/baby-steps/

  45. Daisy

    If you don’t read it already, I recommend The Billfold as a good source of advice- the writers/ commenters tend to be fairly young (twenties/thirties), and there are loads of good posts in the archives about how to manage saving when you’re doing it for the first time.

    1. Rachel

      I’m SUCH a fan of The Billfold- particularly because it always feels sane. Like, it’s okay to spend money on things that make your happy, or things that make your life easier! As long as you have the money, that is. It’s great to focus on saving, and I work hard to be responsible about my long-term and short-term savings goals, but I also have a category in my budget that’s specifically for buying discounted theater tickets every 6 weeks or so, because theater makes me happy. I could save that $40 or so, but I love theater, so too bad!

      I seriously recommend budgeting for the things that make you happy, so that you don’t end up going too far towards self-denial. For me, that means budgeting for theater tickets, e-books, and fancy coffee. It comes out to less than $100 per month and it means that I don’t feel guilty about buying a new book instead of waiting for the library edition, or going to the nice coffeeshop across the street from the office instead of drinking the work coffee. Worth it, for me.

      1. fposte

        I like the way you convey this. I also think that pacing yourself modestly on pleasures and focusing on which are important to you adds to the enjoyment–it’s a special treat that you allow yourself that’s more special because you know you don’t spend on just anything, or it can be something that a week’s anticipation only enhances.

  46. Not so NewReader

    Congrats, OP! A dream come true! Good for you.

    Am kind of adding on to what others are saying here- because there is some excellent advice.

    Paying down debt. The psychological burden of debt is awesome. It can really wear a person down. And if you end up in a job you hate at some point you can feel very trapped.

    Savings. Emergency fund- yes! You don’t have to wonder about the cost of the plumber or the car repair. You know it is covered.
    Then, a intermediate savings- this is the new car, the down payment for a home, etc. Those things in life that take a little bit of time to save up for come under this category.
    And of course, retirement savings which is really well covered here.
    But if you have debt- start this whole process by working down the debt and building an emergency fund. The rest you can do later.

    One credit card. Just one. By limiting your cards to just one you have tighter control over spending and less surprises each month. You pay it off each month and your credit limit will soar sky high in no time. So don’t worry about not having enough credit.]
    Don’t get caught in the trap of the stores that offer 5% off if you use their card. If you are paying 18% interest on that purchase you have not gained a thing.

    I never put anything on my charge card that I cannot cover in cash right then. I do not like carrying $900 in cash to the car mechanic’s shop. So this is why I keep the card.

    Charity. That is important, not only is it giving back and good karma but it also helps to remind us to have an attitude of gratitude.
    Research your choices, make sure that the charities are legit. You can also look at ways to volunteer your time.

    And finally, OP, invest in your health. This could be a gym membership, a YMCA membership- or just committing to walking a mile every morning. It is very easy to get caught up in “the high” that a nice paycheck can give us. It does not take long- 30s? or maybe 40s, the health problems start. And all that neglect comes back to haunt us. Keep your feet planted on the ground and take care of yourself. It would be a crime to have that nice savings and be confined, unable to take trips and enjoy the results of your hard work.

  47. Anonymous

    For me priorities were:
    1. establish emergency savings
    2. put extra towards paying down debt
    3. save for big purchases

    When I received more $, I already had an emergency savings so then I started saving for more particular goals, such as a new to me car and a house down payment. Any savings that can be put towards big purchases like these will help you keep your debt low when you need to buy a different car or decide to get a house.

    I had been living very frugally so it was also important for my peace of mind to set aside small amounts for things so I would stop feeling so deprived. Nothing huge, but enough for a modest lunch with a friend twice a month, or enough to buy a few new pieces of clothing when I typically get everything second hand from the thrift store. I don’t go overboard, but I do feel my quality of life is more enjoyable and I feel I can be more generous to charity and occasionally buy a friend dinner.

  48. Jamie

    Full disclosure: I work in the financial services/insurance industry.

    I haven’t seen this posted yet, so I though I’d mention to at least look into whole life insurance. I know if you’re young and single that life insurance doesn’t sound appealing or needed in the least, however there are many advantages. For one: it will never be cheaper than it is right now. If you ever plan on getting married or having children then get it now before it gets prohibitively expensive. Two: it builds cash value and that’s money you can take out tax-free. Same tax advantages as a Roth, with the added bonus of guaranteeing your insurability for the future when your health may not be great. So don’t think of it as “I’ll only use this when I die”. It’s another way to save and mitigate your tax liability at retirement, because your 401k is going to come out taxed at whatever your ordinary income rate is.

    1. the gold digger

      Yes! Life insurance! Get it now while you are insurable. Once you have health problems, you can’t get it.

      If you don’t want whole life, then get renewable term.

      Do not lie on your application. If you smoke, admit it, even if it triples your rates. Otherwise, when you die and your spouse tries to redeem the policy, the insurance company will find out you were a smoker and will graciously return your premiums and say that there never was a policy.

    2. scrapdog

      Thank you for being honest that you work in the Fin svcs/Ins industry. However, I would have to disagree on whole life insurance. Insurance shouldn’t be an ‘investment’. It should be insurance. Look at insurance like you do car insurance. You pay every year or every month and hope you don’t have an accident. Same with life insurance, if you need to file a claim, then something horrible has happened and someone has passed away. In all fairness it is not like a ROTH in terms of savings or even tax advantages.

      I would rather see someone buy a 10-20 year TERM-Life insurance policy. You pay anywhere from $150-$200 a year for $500k+ in coverage. For us, we took 10x our annual income for each of us to help the other person grieve, be with kids, pay off the house, fund the college savings and take FMLA for a 1 year to heal emotionally. In all honesty, there seems to be only 1 type of person that promotes whole-life or universal life and those are the ones selling it, as their commissions are much greater in that investment vehicle.

      http://www.daveramsey.com/article/the-truth-about-life-insurance/

      1. FD

        As I understand it, it depends on your situation. From what I understand, if you’re young, healthy, and relatively well-off, whole life is the better deal for tax reasons and because it’s still affordable (if certainly not cheap) when you’re young, for tax reasons and so on. If you’re older, not as healthy, or not particularly well off, it isn’t a good deal, because you primarily need the maximum protection for the minimum investment.

    3. Jamie

      Edited to add: Lots of people think what benefits they get through work are sufficient, but they typically aren’t. Plus, you’re not taking insurance with you if you leave/get fired/are laid off. It’s better to have an advisor take a look at your entire financial picture and tell you what the gaps are. Some firms do charge a hefty fee for this, however plenty do not. I’d shout my company’s name from the rooftops, but FINRA generally frowns upon that. And disability insurance is also something you should look into. 70% of disability claims are due to illness which can strike anyone at anytime as opposed to freak accidents.

      1. the gold digger

        I used to sell group health and life insurance. One account had only $5,000 of group life on each employee. I kept nagging them to increase the amount, but the owner wasn’t having it.

        I should have nagged harder. The finance guy, who was my contact, got cancer at the age of 33 and was dead in four months. He did not have individual life insurance. He left a wife and a baby. And $5,000. That’s not even enough to bury somebody.

        Buy life insurance.

        And amen to disability insurance. Having a disabled person who can no longer work in your house is worse (financially) than the death of that person.

    4. Anon

      Don’t get whole life! And don’t buy that “it builds cash value” crapola because the cash value ends up being LESS than what was put into it. Keep savings (IRA/401k/Money Market) separate from insurance. Get term life insurance through your employer if possible (for about $1M) and then take the extra money you would have paid into the whole life policy and put that into your retirement account which historically will give you an 8% return.

    5. fposte

      Actually, you can contribute post-tax to a 401k as well (presuming your company’s arrangement allows it). Then there’s the question of whether you think you’ll make more money in retirement than you do now–you may prefer to pay your taxes on your retirement income bracket rather than your earning income bracket.

    6. fposte

      Hang on, so we now have a Jamie in finance/insurance *and* a Jamie in IT? For a minute I was wondering when Jamie in IT had moved jobs.

  49. bo bessi

    A good tip to stay on top of weekend spending (or even shopping trips) is to take out cash. It’s so easy to just pull out the debit card and lose track of how much you’re spending. I typically take out about $100, give or take, on Friday afternoon to last the weekend. Once that’s gone, it’s gone, and I won’t let myself spend any more.

  50. Been There

    Act almost like it never came in – put it into things where you won’t realize it till later. After a 14% raise, I immediately got my 401k match going and then concentrated on debt.

    1. Retirement, Health, Disability, and Life Insurance (great things to get out of the way)
    2. Emergency fund
    3. Pay down bad debt (use snowball method)
    4. Savings

    Do treat yourself but don’t go crazy. Way to go and congrats!

  51. Chinook

    If you don’t already have it (and you should) make sure you have renter’s insurance. It seems obvious to have auto insurance if you have a car and home insurance if you own a home (in fact, it may be mandatory for you) but renter’s insurance is just as important, especially since with more income you have more nicer stuff to replace in case of fire, theft or some other disaster. Make sure you investigate getting replacement value (not actual value) and it includes accomodation costs in case your home is destroyed. Your landlord will have insurance for the envelope of your rental unit but the contents are your responsibility.

    As an added bonus, most renter’s insurance covers damage/theft of personal property away from home and even at your workplace. I used mine when the school I worked at burned down and was able to go shopping less than 2 weeks later to replace all my personal classroom supplies plus a couple items of clothing that I had left in the classroom that day.

    1. Alicia

      Great point. I didn’t have it until I was 24 (couldn’t fathom the extra $200 or so a year at that time) but it gives so much peace of mind to not worry if there is some sort of incident.

  52. Anonymouse

    Any suggestions for your favorite high-yield savings account? I need somewhere to put my emergency savings that earns more than the .01% my bank currently offers. Thanks in advance!

    1. Rachel

      I like Ally- I’m getting .85% right now, which seems to be around the most you can get. I actually do all my banking with Ally- they have no physical branches, but they reimburse for all ATM fees and the iPhone app for depositing checks is great.

      1. Anon

        I like Ally. Most of our savings was with HSBC until I saw that Ally was offering a much higher rate so I moved our money there and now we’re making 4x as much in interest. :)

      2. Mo

        I too like Ally. I’ve had my savings account there since last October and have made so much in interest! It was at .90% when I opened it but it looks like it’s currently at .84%. Still pretty good compared to my .01% from my brick and mortar bank!

        Rachel, how do you handle cash deposits? I’m hesitant on switching over to Ally for all my banking needs because of cash deposits.

        1. Rachel

          Honestly, my life doesn’t call for cash deposits ever. No on gives me so much cash that I need to deposit it. Direct deposit for my paycheck, the occasional small amount of cash to balance restaurant bills between friends, my mom slipping me a $20 when I visit? That’s it. I wouldn’t recommend Ally for my friends who wait tables, for example.

          1. Mo

            Aw shoot. I get a large, set amount of cash each month. I hate dealing with cash, so I deposit it into my checking account immediately. There’s just no way around getting the cash right now, unfortunately. Guess I’m not going to be able to get around having a brick and mortar bank. :(

  53. EngineerGirl

    Late to the game, but I do have advice as someone that has financial freedome due to the choices I made when I was younger. Key advice: Whatever you do in your 20s and 30s will affect your position when you are in your 40s and 50s. Compounded interest is a powerful thing.

    Agree with not changing your lifestyle yet. Instead, establish a financial foundation.

    Suzie Ormond has a nice book on the young, fabulous, and broke. I can also recommend Dave Ramsay’s classes. People don’t like what he has to say (because it isn’t what they wnat to hear), but they can’t say his stuff doesn’t work! It is a good investment of your money up front. And believe me, it is far, far, easier to make sacrifices when you are young than when you have kids, etc. Do it now to establish a lifestyle.

    Another great website is Get Rich Slowly:
    http://getrichslowly.org/blog/

    The three-prong strategy:
    Create an emergency fund – this keeps you from going into debt
    Fund your retirement (they don’t give loans on this)
    Get rid of debt with a debt snowball

    Use your money to bless people.

  54. Brandy

    This happened to my husband when he was 24. New job netted him a 30k salary increase! Smartest thing he’s ever done was make one big splurge (I forget what, but probably $1k in tools or clothes or something), pull an additional $100 or so a month into his checking account for “living better” and every other single penny went straight to a savings account. He didn’t get a new car, or a new apartment, or start buying nicer stuff. After just a few years, he had a substantial savings account, which was used to fund roth IRAs, etc. And also bought me an engagement ring ;)

    But we still live by this philosophy. We were a 1-income family when DH was in grad school. After his MBA program, he got a great job, but we lived on my salary (plus an extra $500 or so that we pulled in). We did buy a (sorely needed) new car with his signing bonus, but the rest of his post-MBA salary went to paying his student loans, paying down our mortgage, beefing up our retirement accounts, and the rest went into an emergency fund.

    Turns out, two years later, he got the opportunity to work for a start-up (minimal benefits, low pay, high high risk). We were able to comfortably make that happen because we can easily make ends meet on only my salary.

    1. FD

      I second letting yourself have a small splurge. If you try not to splurge at all, you’ll find it much harder to stick to a budget. Letting yourself have a small splurge and a small increase in overall budget helps you feel like you’re getting a reward now, but also lets you save up for the future.

      It’s like trying to diet and *never* letting yourself have a treat.

  55. c

    Save up 1 year’s worth (or at least 9 months) of living expenses and tuck that back and FORGET ABOUT IT. From there, save up for things like house downpayments, new cars, vacations, etc. But by having that “rainy day” fund, if you ever lose your job/get laid off/are injured, you are set for a little while to have that safety net. Keep living like you were making your old wages as long as you were able to pay your bills.

    And of course, occasionally, splurge and treat yo’self.

  56. Verde

    Another one I haven’t seen mentioned yet is (if you have the qualifying type of high-deductible insurance for it), utilize a health savings account (HSA). Put the most you can afford into it up to the maximum per year. (And sometimes your employer will contribute, too.)

    If you have a choice of insurance and you are in decent health, choose the high-deductible plan and open an HSA (if your employer doesn’t manage one for you.)

    *The dollars are pre-tax contributions
    *It earns interest like a savings account
    *Once you have a certain dollar amount in it, you can roll that over into investments (like an IRA) and earn more on it
    *You can use the funds tax-free for medical/dental/vision expenses the rest of your life (so even if you’re healthy now you never know what could happen and you’ve got it covered)
    *After retirement age, you can withdraw from it (with taxes) for any other non-medical/dental/vision expense you wish to use it for, just like an IRA
    *If you get off a qualifying insurance plan, you can’t make any more contributions to the account, but you can still use the funds for any future qualifying expenses – you don’t lose the $.

    If you have access to a 401(k) or 403(b) [the non-profit version], the funds administrator might provide free financial consulting – utilize it!

    For our month-to-month, I have a budget spreadsheet set up in Google docs so that I can access it anywhere (home, my phone, whatever). It tracks all money coming in and all money going out by week, on monthly tabs. This allows me to make sure that paychecks and bill payment due dates don’t conflict and everything is scheduled properly. I automate everything I can so payments are pre-scheduled and just happen on payday. The money goes out as it comes in, so that we aren’t tempted to just use it on something else and make it up later. My paycheck is split into multiple accounts for mortgage payment, bills, spending, and savings, and as isolated from each other as possible. The Google doc is great as it allows me to adjust things on the fly if something comes up that we missed or changed recently. We pay all of our bills on a mileage card and then send a weekly payment to the card for the bills total for that week. We also use that card for gas and budget the monthly gas expense into the weekly payments.

    One last one – pay things annually that you can, such as car insurance and renter’s insurance will save you a ton over the monthly rates.

    And travel. Travel a lot, but don’t go into debt to do it. :)

  57. JennS

    Great advice on this blog. I would add to avoid using credit cards and give yourself a weekly cash allowance. The only time I use my credit card is when I buy gas and for rare emergencies. By using cash, I really think about the purchase and if it’s “worth it”. I have reduce my monthly spending a ton. I know a lot of credit cards offer cash back options, but for me I rather pay for that sandwich now versus 30 days from now.

  58. Confused

    “Make it your goal to save a year’s worth of living expenses if you can. ” So important!
    I like Suze Orman’s Young, Fabulous, and Broke. Easy read, covers the basics, sticks to the facts (her show/other books are a bit life coach-y), and very helpful to me after I got out of college with little financial information.
    When it comes to paying off CC debt she recommends working to pay off the credit card with the highest INTEREST RATE (not balance) most quickly.

  59. Elizabeth West

    Savings provide you an incredibly powerful peace of mind, in part because they minimize the ways life can screw you over.

    Speaking as someone who until now barely made enough to get by for many years, and isn’t that great at handling money, THIS. Don’t be me!

  60. Ryepie1

    I’ll restate others and say, put your savings at another bank and have it directly desposited. It’s a mental thing that people can get over (me being one of them). That money isn’t for spending…it’s for emergencies. Having it out of sight truly does keep it out of mind.

    Also, on 401K contributions. I had a rep come into work to talk to the employees about how much they should be investing based on age, current retirement fund, date of retirement. One thing that they mentioned that I never thought about….if you are a woman, you should be contributing more money then men. Why? Because women live longer and therefore are in retirement longer.

    1. Been there/done that

      very good point, i have many women in my family and are now struggling in retirement without that second income.

  61. V

    Congrats on the new job and raise!

    I just wanted to chime in and say that while there is a lot of good advice on this post, only you will know what works for you. Try out some of these tips, monitor your spending and figure out what savings strategies work best for you.

    At the end of the day, all sound financial advice boils down to one thing: LIVE BELOW YOUR MEANS!

    As long as you do this one key thing, you will be on a path to financial independence. The fact that you are asking for advice means that you already are!

    Here are some savings strategies that I would recommend that have worked for me:

    1. Regularly calculate your net worth and set an overall goal — I try to do it about every 3 months to make sure that I’m headed in the right direction.

    2. Set smaller savings goals — retirement, emergency fund, major purchases, etc. and figure out how they fit in with you overall net worth goals.

    3. Use credit cards wisely — Pay off your balance every month and check your spending daily. I’ve read articles that spending cash is psychologically harder. I’ve noticed this does not apply to me. Losing the 1-5% cash back I could be getting from my CC hurts a lot. I think it’s also easier for me to spend cash because there is no record of it. Knowing that I will be seeing a statement at the end of the month is motivation for me not to spend it.

    4. Designate no spending days — I’ll try to pick a few days a month where I wont spend any extra money. I have to eat what’s in my fridge, avoid shopping and make up my own entertainment from things I already own.

    5. Splurge when it’s appropriate — It’s okay to treat yourself once in a while. When you are a good saver, it can be hard to forgive yourself, but life is full of choices. Choose a couple things that are meaningful to you and allow yourself to spend money on them if they truly will make you happy. Someone earlier said to spend on experiences and not things because they make most people happy… I definitely agree with this one. Memories last a lifetime!

    Best of luck!

  62. Anne 3

    Question for the people who’ve dealt with bringing down debt:

    I have about $ 25,000 in interest-free student loan debt that is supposed to be repaid in about 20 years. Should I prioritise paying this off (i.e. pay off as much as possible as soon as possible) or does it not matter how slow or fast I get rid of this debt since it’s interest-free?

    1. fposte

      Since it looks like you’re not in the US, the factors are a little harder for me to judge. But in general, you compare the interest rate on a debt to the interest rate on an investment–if you pay off a 10% loan you’re doing better than if you invest in an 8% return index fund. You don’t get much return on investment for repaying an interest-free loan, so I wouldn’t put it first thing, but I’d also make sure I had a very clear payment schedule that would get me out of it before penalties hit so I knew what I could “afford” to put in higher-return categories.

        1. fposte

          I think this is one of those areas where what bites you is assuming you’ll do it “later.” If it’s spaced out evenly it’s a little more than $104 a month; you may be able to afford that and to put stuff away for savings/retirement. Even if you’re too early in your career to afford that, I’d recommend auto-debiting something toward it just so you don’t make it invisible until suddenly you’ve got to find $20k in a year.

  63. Pandora Amora

    OP: This is a really good question to ask your financial advisor. Chances are you have free access to one through your bank.

    Visit your bank, and ask if they have financial advisors available for you. Both Citibank and Bank of America have in-house planning services that they offer. If your bank doesn’t offer these services, then visit one that does, explain you aren’t a customer, and that you would like to begin investing.

    One of the first things a financial advisor will do is get a complete picture of your financial situation and reflect it back to you. Maybe, as some posters have commented, you have various types of debt that need to be repaid: your financial advisor will help you see that, and will discuss strategies for paying your debts down. Maybe you want to own a house; maybe you want to spend 2 years sailing the Meditteranean when you hit 40. A good financial advisor will help you focus your saving and investing on those goals.

    Your financial advisor should be free to talk to. They do make money from you; they’ll recommend mutual funds, investment notes, individual stocks, index funds, commodities, and eventually some pretty exotic-sounding investment products to you. There’ll be a sales commission on those products. You aren’t obligated to buy anything from your financial advisor.

    I would strongly encourage you to look at some financial blogs to figure out how you need to grow your money. People recommending particular spreadsheet tools learned about those tools from somewhere; people recommending you pay off your debt first learned that from somewhere too. “Man versus Debt” might be a good blog to dig up. “I Will Teach You to Be Rich” may be useful too. “Mötley Fool” could be great for you too.

    So my core message: there are places where you can get more specific, individualized, and free advice. Use them.

  64. Pandora Amora

    Previously I commented on where you can get better advice. Now ill give you my own.

    A good starting point is this: “What is money?” Different people will answer this differently.
    – it’s how we buy things, duh
    – it’s a vehicle for representing wealth
    – it’s a high score in life; the bigger your net worth, the more you’re winning

    You may have better answers than that.

    Another is: “what is the purpose of money?”
    – to let us buy things we need. And want.
    – to sit somewhere and hopefully not lose value
    – better yet, to sit somewhere and grow in value

    Depending on how much debt and money savvy to have, you’ll answe that differently too.

    Before you know “what should I do with my money”, you need to start asking yourself questions like the above. You don’t need to answer them before making any choices – but engage yourself in dialogue.

    Let’s pretend you agree money is a vehicle, and it can be grown cheaper than it can be earned. Let’s apply that to the advice you’ve gotten so far:

    1.) Vehicles come, vehicles go. Map out your finances. Do you have various debts (student loans, credit card, car payment, jacket you’re buying on layaway, payday lender, mortgage)? Write them individually, along with the interest rate. This is your outgoing stream of money. You need to reduce it, because if you don’t the darned interest will just make that stream accelerate.

    2.) Some vehicles are transient. Figure out your spending habits; are they contributing to your debt stream? That is, are you spending more than you earn? If so, you need to find a budgeting philosophy that you can stick to. Read around; experiment with one budget, then another. Find what works for you: financial dieting is no easier than calorie dieting.

    3.) Figure out your incoming stream. Do include your salary, your investment dividends. Don’t include the financial windfalls you get – perhaps your aunt writes you a big cheque each year on your birthday; don’t include that as something you can rely on.

    Get your bank account balances, your outstanding debts, and other money numbers in front of you. Are you in the black or in the red?

    My approach would be:
    – tackle debt aggressively (an accelerating stream of subtraction is pretty lousy)
    – but not exclusively. Start building your savings, for the reason Alison suggested; and because watching a negative number get smaller sit very rewarding. You probably need to watch a positive number grow.
    – find money and pick it up.

    Finding money is pretty easy;
    – 401(k) and similar programs through your work may have some matching built in to the program; participate at least to the max they will match. Even if you don’t get matching, participating can lower your apparent net income at the end of a year: you’ll pay taxed as though you earned less money.
    – Your employer might be a publicly traded company, and might have an Employee Stock Purchase Plan (ESPP). If so, you’re in luck: you get to buy discounted stock a few times a year.
    – You might have some skills that allow you to set up extra streams of income. The best types are passive streams of income.

    Hold on to what you’ve got.
    – Split your paycheck into three accounts: checking, saving, investing. You can open a free investment account with E-trade and direct deposit straight into there; once a quarter you can make some investment move. Direct deposit is your friend.
    – Don’t lend money to friends or colleagues. Give it to them if you must; if your own financial health depends on personal loans being repaid (much less repaid on time), you can’t afford the loan.

    You don’t have to have perfect knowledge before you make some money choices. You will make money mistakes; we all have. But if you invest in your own financial knowledge, then you will understand why you are making a given choice. Later, if that choice looks bad to you, it’ll be because you have learned something new.

  65. Cat H

    I recommend the Snowball Calculator for clearing debts in the most efficient and cheapest way.
    You fill in the amount of your debt, the interest rate and minimum payment. Then you put in how much you are willing to put aside each month to pay towards your debt.
    It will show you the exact amounts you need to pay, how long it will take to clear it and how much it would save you.
    It’s brilliant!

  66. LA

    Echo the professional benefits of savings. The best advice I got in business school from a professor is “Make sure you have your ‘FU’ money.” If you are being asked to act unethically, if you are being treated poorly, if you have a great business idea and would be more fulfilled by being an entrepreneur… the best thing you can have is a cushion that allows you to walk away.

  67. Anonymous

    I had a slightly different situation when I started my current career path and decided to get serious about savings and retirement. I did what I could at first (and with a big raise, you should be able to do a lot) and then decided to do two things.

    1. Put half of every additional raise away. This allowed me to enjoy the reward for my work and raise my standard of living, but not too quickly. The savings half could go to a number of different places (401k, Roth, company stock purchase plan, separate investment account, cash savings, etc.) depending upon what seemed to make sense at the time, but the rest just went to checking. Over time, putting 50% of my raises away let me catch up a bit after not saving in my 20s.

    2. At least once a year, do a rough budget in percentages – X% to taxes, X% to 401k, X% to investment account, etc. and the rest to spend. The percentages are key because it gives you a good idea how you’re doing on savings as a habit, and can be used to measure your progress regardless of fluctuations (hopefully upward over time) in your income.

    I actually don’t worry much about “the rest to spend” although there are many proponents of budgeting expenses very carefully (not a bad habit, just not mine). I like the ease and simplicity of not feeling to restricted in my spending choices – I know I’m saving enough, so I feel I ought to get to do what I want with the rest.

    While I hope the 2 suggestions I made would be fairly easy for many people to implement, your financial plan needs to be suited to your habits and personality in order to work. Read through everything here and pick what resonates for you.

  68. Georgiana Mihalache

    Set up a target of something you really want to have – like a house, a certain car, a degree, a trip somewhere – your choice. Print pictures of your target and place them somewhere in your house in a place you can see them every day, preferably in the morning so that you start every day with your target in mind. Then start a savings account and set a target to place in that account each month a specific amount of money for your goal. Don’t cheat – always place that specific amount or more – never less. You will notice that you will achieve your target sooner than you think. Since you can already survive just fine with the money you already have, saving the rest will be easy. Good luck.

  69. David

    Saving is never a bad option. One other possibility, though, would be to look at ways to spend on professional development. Is there a school nearby with classes you could take, or would you be interested in working in a part-time advanced degree? Never count out the value of added education.

  70. Sarah G

    I haven’t read through all the comments so I don’t know if anyone addressed this, but you want to invest your non-retirement savings in mutual funds. You do NOT want more than a few thousand sitting in a regular savings account where you’re lucky if you get 1% interest, or even CDs which aren’t much more. If you do, you are losing money because it’s value decreases at a much faster rate than any interest you are getting! You can put that money in mutual funds, which will grow with inflation. Like any other savings, the idea is to leave the money alone once it’s there, but it’s accessible without penalty if you need it.
    These accounts, often referred to as TOD (transfer on death – which is a grim way of saying it’s easier for a named beneficiary to access the $ if you die), often have a minimum investment of only $2500. I personally recommend Fidelity b/c their website is awesome and makes it so easy to research the performance of all their funds, but you might want to look into whatever company holds your current IRA(s).
    If you want to make educated decisions, you don’t need to learn much but you do need some basics. I recommend talking with trusted family/friends who work in finance or econ, reading A Random Walk Down Wall Street (which everyone should read!), and also getting an introductory book such as Mutual Funds for Dummies.
    I agree with all the others who recommend a Roth IRA, etc., but for your non-retirement savings, you will see much, much higher returns if you invest in decent mutual funds, and you’ll be so glad you did once you start seeing your statements! It takes a little time but it’s totally worth it, and the basics were a lot easier to get a handle on than I expected!

  71. Katie

    I didn’t have time to read all the comments, so someone may already have said this, but as well as making deep savings for a rainy day, I like to have separate savings for a holiday as well. Even if you don’t know what you want to do, putting away $50 or £30 or whatever matches in your currency each month will mean that you don’t have to live off bread for three months to pay for interesting experiences, especially if you and your friends aren’t great at planning in advance.
    I also think it’s worthwhile being generous with your money. Give to charity, like Alison says, but also be generous to your friends and with your tips. Pay it forward. Especially since you are young, you never know when it’ll be your turn to be the one with out quite enough cash to join in, and knowing your friends won’t begrudge you a drink or two at the weekend can have a big impact on your quality of life.

  72. SubwayFan

    There’s a great blog called Get Rich Slowly (getrichslowly.com) that deals with issues like this, you should write in with this question and I bet you’d get a lot of helpful advice.

    My advice is to ask yourself what you really want, and what you can realistically do with your money. Do you want to buy a house/condo? Then manage your money with that goal in mind. Do you want to travel? The blog yesandyes.com (terrific reading) is written by a woman who liked to save up and take long (2 – 6 month) jaunts around the world, and she tells you how to do it.

  73. Samon Bagons

    Hello Admin,

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    Samon Bagons
    Finance writer.

  74. Jennifer

    As someone who did all the wrong things in her 20’s and spent her 30’s literally paying for it, I agree with everyone else to save money when and where you can. My “Jedi mind trick” is to tell myself that I’m not going to buy that shiny, new whatever and instead buy myself some peace of mind. It was amazing, to me, how much better I slept and felt when every situation wasn’t a financial crisis.

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