Creating a budget

[dagman1]

Well at some point or another your thread became less about genuinely asking for advice on budgeting to more about how you'll have plenty of money so you don't need to worry about it. What do you want people to tell you? To add a prostitute budget? Obviously, if you have $700 extra dollars a month, even if you missed something that money should more than cover it, especially since you apparently have no need to save.

Sorry to be combative but you came on here asking for advice. Most people, older, wiser and with more life experience are telling you the biggest oversight you have is not saving. Instead of taking the advice you just dismiss it on the ground that you don't need to save, like you have some magical crystal ball into the future, or that you are relatively better off than most 20 somethings, like that makes a persuasive case for not saving. Maybe you should take the advice you asked for.

 

[leftover_salmon]

Originally Posted by GQgeek

I don't understand how someone in finance can't come up with a personal budget. =/ It seems pretty simple to me. Figure out what your retirement needs are and then work backwards to figure out what you need to save factoring in raises but without getting unrealistically optimistic... Frankly, I'd budget for the worst-case scenario, meaning you're not as awesome as you think you are and you never make it to the point of 500k/yr or whatever a junior vp makes in a bulge bracket firm these days... Consider that the more you save early in your life, the more freedom you will have to do what you want. And I've personally met a bunch of people that made lots of money at one time and wish they hadn't squandered it only after the money stopped flowing. The money could stop for a whole variety of reasons, many of which you can't imagine right now.
Okay, but how do I know what my retirement "needs" are? To be honest, I have no idea what my life will look like in 40 years. See, it cuts both ways -- I have to save for uncertainty but I don't know how much to save. And I get that "You can't save enough," but frankly, I'd rather enjoy it while I'm young; I don't want to be some 60-year old schmo in a Ferrari hanging onto his toupee in the wind. As I said a couple posts above, a very baseline scenario -- working for 2 years, getting fired and having to take a significantly lower-paying job with no raises -- has me putting away over $2M for when I'm 65. That seems pretty good to me for what is an unrealistic baseline scenario. A more realistic one, albeit still pretty baseline, has me saving $3-4M for 65. While you guys are at it, you should tell fat people to stop eating Ding Dongs or smokers to quit. Advice that's unlikely to be followed is just as bad as bad advice. What would be better advice is "Replace xxx with xxx" or "Do this instead of that and you'll save another $2000 a year." I think if you guys were in my position, you'd be spending a lot, too, on one thing or another...I know lots of other people my age have planned to save even less than me, if they're planning at all at this point. I understand that I'm the one who came for advice, but I didn't come to get tongue-clucked at because I don't plan on being an ascetic until I'm 40. Is there anyone here who thinks I'm being reasonable and realistic? Because I could've just made up a bullshit budget that has me going out once every two weeks, buying microwaved meals at home, and commuting by bus from the suburbs 1-hour a way, and saving $60k a year, but nobody would actually believe that.

 

[dagman1]

I've heard if you want to enjoy the same lifestyle as you did when you were working you should put 11-20% of your take-home each year.

It's not really complicated though: after accounting for everything you have $700 to put away so why don't you invest it. The only other alternative is to waste it. The worst case scenario is that in 10 years you realize you overfunded your retirement account and you have more disposable income.

 

[leftover_salmon]

Originally Posted by dagman1

I've heard if you want to enjoy the same lifestyle as you did when you were working you should put 11-20% of your take-home each year. It's not really complicated though: after accounting for everything you have $700 to put away so why don't you invest it. The only other alternative is to waste it. The worst case scenario is that in 10 years you realize you overfunded your retirement account and you have more disposable income.
Thank you -- this is helpful. I'm right in that 11-20% range on my salary alone ($500-700 of $4500 take home); well above that with bonus. So why are you criticizing me?

 

[dagman1]

Because you are saying you don't need to save since you seem to know you will have a 500K a year salary that will be able to fund your 3-4 million in savings.

 

[Hombre Secreto]

Originally Posted by leftover_salmon

That leaves me with $900. What else am I spending money on? Does saving $500-900/month and then saving $10-20k of bonus seem like enough?

You spend way too much money.

I survive only $900 a month. My rent is less then $800, and food and utilities less then a hundred. Learn to to survive on less now rather then wait for something bad to happen.

 

[leftover_salmon]

Originally Posted by dagman1

Because you are saying you don't need to save since you seem to know you will have a 500K a year salary that will be able to fund your 3-4 million in savings.
No, reread what I wrote. If I save $40k over the next two years, which is on the low end of what I can save with my budget, and then get canned and have to work a $50k/year job WITH NO RAISES, I'll have $2M+. With raises, that's $3-4M. I'd say that both are pretty unrealistic worst-case scenario. If things go average, which is to say I top out earning $500k after 10 years and continue to earn around that for 20 more years, I'll have A LOT more. And FWIW, we're leaving out 401k matching here. That helps a lot, too. Also, you guys keep talking about bad unforeseen events, but what about good ones (at least economically)? Morbid as it is, I will very likely inherit a decent amount of money, if not while I work, then by the time I retire...I can marry into money. I can invest in the right stocks and earn 50% returns in a year. Stuff like that.

Originally Posted by Hombre Secreto

Learn to to survive on less now rather then wait for something bad to happen.
Way too late for that. My rent at college is $1150 a month. I have DirecTV and spend more than a decent amount of money on food and going out. So part of it is, yeah, I want to maintain my lifestyle. I'm not like the first overall NBA draft pick, I just want to continue living the way I've lived the past 22 years.

 

[dagman1]

Okay I'll try to give some more constructive advice here... I am making about the same salary as yourself starting this summer. Here are some notable differences in my budget.

Debt repayment: $500
TFSA: $400 (to max the limit)
RRSP: $1000 (to get close to the max)
Rent + Utilities: $1000 + $200

Why so much to savings? Because I might not always have the luxury of a well paying job, I might want to retire early, I might hate my job and want to quit for something more fulfilling at a lower salary, I might have a family and be unable to contribute as much in the future, etc.

 

[Hombre Secreto]

Originally Posted by leftover_salmon

Also, you guys keep talking about bad unforeseen events, but what about good ones (at least economically)? Morbid as it is, I will very likely inherit a decent amount of money, if not while I work, then by the time I retire...I can marry into money. I can invest in the right stocks and earn 50% returns in a year. Stuff like that.

You shouldn't think like that. Life has a weird sense of humor... But do what you want.

 

[dagman1]

If you are an idealist and save relatively little, then if things go wrong, well you're screwed. If you are a realist and save a lot, well if things go right, the income is still there for you to spend. See why it's prudent to save?

 

[Asch]

Originally Posted by leftover_salmon

What would be better advice is "Replace xxx with xxx" or "Do this instead of that and you'll save another $2000 a year."
In terms of specifics, I would consider dramatically cutting your rent, food, and entertainment budgets. Of course, I think you'll naturally find yourself spending less than you are budgeting for food and entertainment, unless you're exclusively hanging out with high rollers, but that rent seems absurd. I think that later in life you'll regret having spent so much of your salary on an apartment.

If things go average, which is to say I top out earning $500k after 10 years and continue to earn around that for 20 more years, I'll have A LOT more. And FWIW, we're leaving out 401k matching here. That helps a lot, too. Also, you guys keep talking about bad unforeseen events, but what about good ones (at least economically)?

I think that what you're calling "average" here is already quite an optimistic scenario, taking into consideration how miserable many people find themselves in that kind of job.

 

[gqreader239]

Some things to reexamine...

1. Rent

Rent and parking is over 40% of your take home. That is too high!! Esspecially for a rented space and not one where you build equity. You will need to reexamine your current apartment and decide if the nice location and decor is worth the money. In my experience, apartments such as those are not worth living in. Get a roommate to split a 2-2 is another good idea to bring down costs without really sacraficing your living standards. (I would find someone in the i-banking industry, since they are never home )

2. Dining Out and Drinking

Dining out and Entertainment and drinking needs to be combined into one category and reduced by 25%. $800 a month is too high, $600 is a more appropriate budget. You can still have fun, but eat at the office or at home a couple more nights and you will be able to keep it under budget.

3. Savings

You should work your savings (amount stocked away at any time) upwards of 50% of your annual salary. That is the top short-term priority (1-2 years). Rainy days will always happen, job security in finance is an illusion. I have met with too many professors and professionals that have described the cyclical events in their finance careers. I am not trying to say that you will be the first to be on the choping block when the company decides to cut employees. I'm saying that risk management is vital in the profession.

Long-term goals are very hard to decide. Many people will be on either extremes. SAVE EVERYTHING!! or... I AM YOUNG NOW, I WILL WORRY ABOUT SAVING LATER!! I assume that the later ideology implies that there is a high discount rate in life. $100 bucks now is worth more than $1,000, 10 years down the line due to youth and energy.

There is a middle ground. Review your tax brackets and decide where the government takes a ridiculous chunk out. My tax bracket only stretches to 25% (I just started my career, still poor). However, the incremental amount that is taxed at 25% is all contributed to my IRA. Think of long-term saving as also a way to avoid taxes and increase your net worth. Invest in what ever stocks you like and watch that nest egg grow.

I do not know what you want to save towards or w/e. However, since you sound like someone who wants the best in life, and its pretty obvious that nice things do not come cheap.

 

[leftover_salmon]

Originally Posted by dagman1

Debt repayment: $500
TFSA: $400 (to max the limit)
RRSP: $1000 (to get close to the max)
Rent + Utilities: $1000 + $200

Alright, but I don't need to worry about debt repayment, so let's put that $500 towards rent and utilities. That gives me $1700, which leaves just a $150 gap between my current spending on rent and utilities. Also, where are you living? Big difference between living in Calgary/Montreal/Edmonton/Ottawa than Toronto or Vancouver...and I've stayed in a $1000/month apartment in Toronto before. To be honest, I'd be ******* depressed. That's one thing you guys haven't considered: Spending a few hundred extra in a month to be happy is better than trying to save too much and being unhappy from the get-go.

Originally Posted by Asch

In terms of specifics, I would consider dramatically cutting your rent, food, and entertainment budgets. Of course, I think you'll naturally find yourself spending less than you are budgeting for food and entertainment, unless you're exclusively hanging out with high rollers, but that rent seems absurd. I think that later in life you'll regret having spent so much of your salary on an apartment.

I think that what you're calling "average" here is already quite an optimistic scenario, taking into consideration how miserable many people find themselves in that kind of job.

Rent is pretty fixed -- as I said above, I really need a decent place and don't want a long commute, especially if I'll routinely be working past 9-10pm. If I rent some shithole for a year, I will get unhappy and antsy very quickly -- I know myself. Also, you're right, I did overbudget the more discretionary stuff because I felt that's better than underbudgeting.

And I doubt I'll be "miserable." I'm really pretty adaptive and spent two summers at the same group with which I'm working full-time, and enjoyed the work a lot.

But thanks for the specifics.

 

[GQgeek]

Originally Posted by leftover_salmon

Okay, but how do I know what my retirement "needs" are? To be honest, I have no idea what my life will look like in 40 years. See, it cuts both ways -- I have to save for uncertainty but I don't know how much to save. And I get that "You can't save enough," but frankly, I'd rather enjoy it while I'm young; I don't want to be some 60-year old schmo in a Ferrari hanging onto his toupee in the wind. As I said a couple posts above, a very baseline scenario -- working for 2 years, getting fired and having to take a significantly lower-paying job with no raises -- has me putting away over $2M for when I'm 65. That seems pretty good to me for what is an unrealistic baseline scenario.

Do an honest self-assessment. Figure out what kind of lifestyle you want to live and what kind of lifestyle you could be content with. What kind of house/condo would you be in? Do you want a condo in the city and a vacation house somewhere else? How much does it cost? Factor in maintenance whether you're in a condo or a house (this can vary a lot so do some research based on your particulars). How often do you want to travel? Do you like sailing, skiing, etc? Membership fees for country clubs and private ski resorts span a huge range in fees. Figure out where your superiors are and then find out how much it costs to get a ballpark idea. If you like to eat well, budget $400-500/mo for groceries per person in today's terms because work won' be paying for it when you retire. If you add a wine habit or other hobbies, factor that in. I'd figure all of that out and put a $ amount on it in today's dollars, then factor in 30 years of inflation to see what you need at the start of your retirement. Personally, I'd plan to, and am planning to retire at 50 instead of pushing it out to 65. If something happens you're not screwed because you didn't start saving early enough.

The biggest unknown in your planning process is marriage, by far. I know a guy that makes 200k/yr and his wife manages to spend all of it because he never puts his foot down. As for kids, you're really too young to be able to say that you'll never have them. I know you don't want to hear that and think you're different, but most guys say that. They start to change their minds in their late 20s or 30s and when their wife starts nagging them. Countless men have upgraded to bigger cars and bigger houses because they gave in to their wives. These could be significant expenses. And don't forget, if you get married, your money becomes her money.

If you buy 4k bespoke suits, she's gonna want to shop at Chanel and there's a strong chance she won't be making anywhere near what you make. Oh, and can you say divorce? 50% chance of that... Is the divorce rate higher among bankers? It wouldn't surprise me because you guys work a lot and the women know they can make off like bandits.

Anyway, since you're pretty adamant about the no kids thing, I'd suggest making a separate budget for that. Consider that most of your colleagues will send their kids to private schools and given that even though you think you don't want them now, if you do have them, you'll probably want the best for them (do you really want your offspring mixing with po' folk?). If you send your kids to a local school, an elite costs 25k/yr. If, when they're old enough, you send them to boarding schookl, that's 40-50k/yr. That will seriously eat in to the money you can save and all of a sudden your worst-case won't have 2 million in the bank @ 65. This will give you some perspective about how wrong some of your assumptions probably are.

 

[Hombre Secreto]

Originally Posted by leftover_salmon

Way too late for that. My rent at college is $1150 a month. I have DirecTV and spend more than a decent amount of money on food and going out. So part of it is, yeah, I want to maintain my lifestyle. I'm not like the first overall NBA draft pick, I just want to continue living the way I've lived the past 22 years.

For your sake you better hope you don't think that way in 5 years.