23 New Job and I don't know what to do with my money

Howard Roark

Hi all,

I'm 23 and I'll be starting a new job in April earning 42k. The only jobs I've had in the past are part time in bars and shops so I have no money management skills at all. I'll be living at home for at least a year so and I have no debt to speak of. (I will definitely throw my parents money week by week but we won't have any formal arrangement)
I have a car but it's quite old and I would like to replace that with something nicer and I want to buy my dad a watch, but both these can wait if the consensus is to build up some savings first.

Does anyone have any general guidelines of what to do with with my money? Should I just lob half of it each week into a savings account? Or should I educate myself on some sort of basic investment? I've looked around the internet but most of the advice is tailored to yanks with a 100k college loan and the prospect of being charged 1000s for a hospital visit.

thanks

lcwill

As a first step the best advice I can give is to completely separate what you earn from what you spend.

Keep your spending steady at current levels (with a bit extra for your parents) and save everything extra.

If you are getting by fine on E1000 a month now, why would you increase spending to E3000 a month just because you have it?

Do this for a year and let it pile up in a savings account. In the meantime read everything you can about personal finance and investing - sites like monevator.com, mrmoneymustache.com, books like The Richest Man in Babylon, The Millionaire Next Door, and listen to podcasts like Stacking Benjamins and Money for the Rest of Us.

Within 12 months you will have a pot of money and the knowledge of how to invest it.

In the beginning of your financial journey saving will be a far more important part of building your wealth than your investment returns. If you have E1,000 now and save E9,000 over the next 12 months you have a 1000% increase in your wealth and end up with E10,000. No miracle stock or once in a lifetime investment opportunity is likely to give a 1000% return in one year and in the best savings account you can find in Ireland you could only get 2-3% on that E1000 and end up with E1,030 by the end of the year. So don't worry about investing, just focus on keeping expenses low and saving as much as you can in a regular saving account.

deathtocaptcha

also, while you're saving, make sure to set up a high interest savings account... KBC offer 3-4% interest for example in a regular saver account lodging up to €1k/month... their basic online savings account also earns about 1.25% which is greater than what you'll get in most other banks...

i'd also recommend you don't get in to the habit of spending based on what you know you *will* earn...

so for example if you want a new car and set yourself a budget of €10k, don't think to yourself "I have €0 now, but I can easily afford to take out a loan and pay it back over 12 months"...

instead, force yourself to wait and hit targets e.g. wait until your savings hit €15k, then take out the loan...

Howard Roark

Thanks to both of you, I'll focus heavily on saving for the first year while I continue to educate myself.

eeguy

Firstly, congrats on getting such a high earning job.

I'll echo the advice given here. Just live your life the same as you usually do, put any extra money in a savings account, treat yourself occasionally and in a year or two, when you've built up a savings pot, you can do something more dynamic with it.

ixus

Check what rents are if you were to go renting. Save that amount to get the feel for paying real rent.

Then put away normal monthly savings. Get used to living on the rest and saving an extra bit where you can.

If you spend it all, that will become a habit.

Frogdog

I'd echo what everyone else has said so far. I'd also add in a point about a pension.

If your employer has an employee pension scheme (and it's very likely they do), start it up with your own contributions as soon as you can. You get tax relief on your contribution, up to a certain amount. Your employer will likely match your contribution up to a certain amount or percentage of your monthly salary also - make sure you get that as it's free money to you. If you have a say in what funds to invest it in, look for predominantly equity funds with the lowest management fees.

The sooner you start a pension, the more time you have to let compound interest do it's work.

Mehapoy

Howard Roark wrote: »

Hi all,

I'm 23 and I'll be starting a new job in April earning 42k. The only jobs I've had in the past are part time in bars and shops so I have no money management skills at all. I'll be living at home for at least a year so and I have no debt to speak of. (I will definitely throw my parents money week by week but we won't have any formal arrangement)
I have a car but it's quite old and I would like to replace that with something nicer and I want to buy my dad a watch, but both these can wait if the consensus is to build up some savings first.

Does anyone have any general guidelines of what to do with with my money? Should I just lob half of it each week into a savings account? Or should I educate myself on some sort of basic investment? I've looked around the internet but most of the advice is tailored to yanks with a 100k college loan and the prospect of being charged 1000s for a hospital visit.

thanks

Well done on starting so young, I actually wish I had taken a keener interest in my finances earlier, was nearing 30 before I really looked at it...
Totally agree about starting a pension as soon as possible after you start a job, the tax advantages cannot be got anywhere else, even if you make a small personal contribution to start you've made a big step in building up a good amount considering compounding...
Read the business pages of the papers even if it sounds like double dutch to start with, you soon get into the terminology. Its great for keeping abreast of the business cycle.
would recommended a KBC account with savings initially, have a look at their index tracking offerings and see the differences in management fees etc. between the different products...
don't make it all about saving every penny either, you have to enjoy the money too to make it worthwhile!

com1

AS was said earlier regarding pension contributions... Lob as much as you can into an AVC (Additional Voluntary Contributions) the ultimate in long term savings - completely tax free (so essentially you get an interest rate of ~40% at the marginal rate) and you start building a healthy pension pot. I know you are young and miles away from retiring but this is really the best time to start particularly with a healthy salary and before you get used to the money (because you will, and very quickly)

VisibleGorilla

What job have you got that pays you €42,000 per year at 23 years old?

hardCopy

Save like a demon for the next year. It'll never be as easy as it is now when you have no rent or bills to pay.

Howard Roark

com1 wrote: »

AS was said earlier regarding pension contributions... Lob as much as you can into an AVC (Additional Voluntary Contributions) the ultimate in long term savings - completely tax free (so essentially you get an interest rate of ~40% at the marginal rate) and you start building a healthy pension pot. I know you are young and miles away from retiring but this is really the best time to start particularly with a healthy salary and before you get used to the money (because you will, and very quickly)

Mehapoy wrote: »

Well done on starting so young, I actually wish I had taken a keener interest in my finances earlier, was nearing 30 before I really looked at it...
Totally agree about starting a pension as soon as possible after you start a job, the tax advantages cannot be got anywhere else, even if you make a small personal contribution to start you've made a big step in building up a good amount considering compounding...
Read the business pages of the papers even if it sounds like double dutch to start with, you soon get into the terminology. Its great for keeping abreast of the business cycle.
would recommended a KBC account with savings initially, have a look at their index tracking offerings and see the differences in management fees etc. between the different products...
don't make it all about saving every penny either, you have to enjoy the money too to make it worthwhile!

Frogdog wrote: »

I'd echo what everyone else has said so far. I'd also add in a point about a pension.

If your employer has an employee pension scheme (and it's very likely they do), start it up with your own contributions as soon as you can. You get tax relief on your contribution, up to a certain amount. Your employer will likely match your contribution up to a certain amount or percentage of your monthly salary also - make sure you get that as it's free money to you. If you have a say in what funds to invest it in, look for predominantly equity funds with the lowest management fees.

The sooner you start a pension, the more time you have to let compound interest do it's work.

ixus wrote: »

Check what rents are if you were to go renting. Save that amount to get the feel for paying real rent.

Then put away normal monthly savings. Get used to living on the rest and saving an extra bit where you can.

If you spend it all, that will become a habit.

eeguy wrote: »

Firstly, congrats on getting such a high earning job.

I'll echo the advice given here. Just live your life the same as you usually do, put any extra money in a savings account, treat yourself occasionally and in a year or two, when you've built up a savings pot, you can do something more dynamic with it.

Thanks everyone, I read through all your advice and I'll keep it all in mind.

VisibleGorilla wrote: »

What job have you got that pays you €42,000 per year at 23 years old?

Trainee solicitor

runawaybishop

Pension, stick in the max you can while you are young. Its far far far better to load up in your twenties and reduce it later than it is to take it handy when you are young and be forced to put in the max when you are in your 40s/50s where it will be worth a lot less.

Cute Hoor

Agree with a lot of above, particularly the pension contributions.

I would also suggest that you save (however small) with your local Credit Union, will (most likely) pay you an annual dividend and will be the best source of revenue when you eventually need to borrow.

stefanovich

OSI wrote: »

Quite a few jobs that would offer that at an early stage. Particularly in the tech sector.

Not in this country I'm afraid.

VisibleGorilla

OSI wrote: »

Quite a few jobs that would offer that at an early stage. Particularly in the tech sector.

That is a considerable salary for someone who at 23 most likely has zero professional experience. Software engineering grads would not get this salary starting off.

Thanks for the reply OP. Congratulations on the job and best of luck with your career.

stefanovich

Expect to pay around 1/3 of that money in tax too. Your already in the top tax bracket.

runawaybishop

stefanovich wrote: »

Expect to pay around 1/3 of that money in tax too. Your already in the top tax bracket.

Thats why pension contributions are quite attractive

RainyDay

runawaybishop wrote: »

Pension, stick in the max you can while you are young. Its far far far better to load up in your twenties and reduce it later than it is to take it handy when you are young and be forced to put in the max when you are in your 40s/50s where it will be worth a lot less.

com1 wrote: »

AS was said earlier regarding pension contributions... Lob as much as you can into an AVC (Additional Voluntary Contributions) the ultimate in long term savings - completely tax free (so essentially you get an interest rate of ~40% at the marginal rate) and you start building a healthy pension pot. I know you are young and miles away from retiring but this is really the best time to start particularly with a healthy salary and before you get used to the money (because you will, and very quickly)

Yes, you will get a great return from a pension, but you are tying the money up until retirement age - at least 50 and possibly later depending on the scheme.

There is no point in having a meaty pension fund but finding yourself unable to buy a house to live in when you're ready to settle down. I'd be reluctant to tie up money for so long at such a young age.

runawaybishop

RainyDay wrote: »

Yes, you will get a great return from a pension, but you are tying the money up until retirement age - at least 50 and possibly later depending on the scheme.

There is no point in having a meaty pension fund but finding yourself unable to buy a house to live in when you're ready to settle down. I'd be reluctant to tie up money for so long at such a young age.

You aren't "tying" up money if it would go on tax in the first place though. 100 euro is worth 50 to you if you are taxed on it but if that 100 is matched in a tax free employers contribution then its worth over 3 times that. Personally i wouldn't only put money towards a pension, but i would certainly advise getting into it and hitting it hardest when you are young and, like the op, have a lot of disposable income - don't forget max contributions are like 15% of net. A 10% contribution when you are in your 20s is roughly the same as a 15% in your 30s and a 20% in your 40% and so on (might actually be more).

Howard Roark

runawaybishop wrote: »

You aren't "tying" up money if it would go on tax in the first place though. 100 euro is worth 50 to you if you are taxed on it but if that 100 is matched in a tax free employers contribution then its worth over 3 times that. Personally i wouldn't only put money towards a pension, but i would certainly advise getting into it and hitting it hardest when you are young and, like the op, have a lot of disposable income - don't forget max contributions are like 15% of net. A 10% contribution when you are in your 20s is roughly the same as a 15% in your 30s and a 20% in your 40% and so on (might actually be more).

When people are talking about employer matching is this something that all employers do?

runawaybishop

Howard Roark wrote: »

When people are talking about employer matching is this something that all employers do?

No, its not a legal requirement for them to match any or all of your pension though many companies would up to a certain amount, 5% of common enough. My sisters UK contribution from her last state agency was up to 18% added by them if you stick in 6%.

Howard Roark

VisibleGorilla wrote: »

That is a considerable salary for someone who at 23 most likely has zero professional experience. Software engineering grads would not get this salary starting off.

Thanks for the reply OP. Congratulations on the job and best of luck with your career.

Out of curiosity, what can someone in Google or Facebook's graduate program hope to earn?

eeguy

Howard Roark wrote: »

Out of curiosity, what can someone in Google or Facebook's graduate program hope to earn?

Probably on the scale of 25-30k depending on certain factors, similar but you need to be fairly hot on your results to get into these places.

This is from 2012 and much hasn't changed: https://gradireland.wordpress.com/2012/05/31/latest-graduate-salary-survey-results/

Howard Roark

eeguy wrote: »

Probably on the scale of 25-30k depending on certain factors, similar but you need to be fairly hot on your results to get into these places.

This is from 2012 and much hasn't changed: https://gradireland.wordpress.com/2012/05/31/latest-graduate-salary-survey-results/

Don't I know! Google rejected my application twice.

Though I assume their tech grads are on better money than the business side.

RainyDay

runawaybishop wrote: »

You aren't "tying" up money if it would go on tax in the first place though. 100 euro is worth 50 to you if you are taxed on it but if that 100 is matched in a tax free employers contribution then its worth over 3 times that. Personally i wouldn't only put money towards a pension, but i would certainly advise getting into it and hitting it hardest when you are young and, like the op, have a lot of disposable income - don't forget max contributions are like 15% of net. A 10% contribution when you are in your 20s is roughly the same as a 15% in your 30s and a 20% in your 40% and so on (might actually be more).

Yes, the tax saving is significant, and yes, if the employer will match it, it is better again - but it is no use to you having the best pension fund in the world if you're stuck in a shoebox apartment with 1 kid and another on the way, because you're struggling to get a deposit together. It is tied up for the long term, which needs to be part of the decision making process.

NewDirection

So on 42K your take home pay is around 32K. You mention putting half in savings so I am going to assume you can live off 16K in the year (after throwing your parents some money each week).
Pension: 0, Tax: 10K, Expenses 16K, Excess: 16K,

Here's my 2c:
1) Load the max into your pension while you are young so 15% of 42K is 6,300. This reduces your tax bill from 10K, to ~7.5K. Hopefully there is an employer pension match so the pension figure goes up, but not assumed. So now you have:
Pension: 6.3K, Tax: 7.5K, Expenses: 16K, Excess: 12.2K

2) Start a car account, to save for car upgrades. Car loans are ridiculously expensive (even from the credit union) so avoid the need to borrow by building up a fund now. Say 300 a month (probably less than a car loan repayment).
Pension: 6.3K, Tax: 7.5K, Expenses: 16K, Car fund: 3.6K Excess: 8.6K

3) Build an emergency fund of 3-6 months expenses. For you risk is low by living at home so shoot for the 3 months initially. 3 months expenses is 16K/4 = 4K
Pension: 6.3K, Tax: 7.5K, Expenses: 16K, Car fund: 3.6K Emergency: 4K, Excess: 4.6K

4) Buy your dad the watch!

5) Put the rest into safe savings until you've read all the books mentioned by lcwill in the first reply. And then try to improve your rate of return on your excess money.

Congratulations! You're in a great position

Howard Roark

NewDirection wrote: »

So on 42K your take home pay is around 32K. You mention putting half in savings so I am going to assume you can live off 16K in the year (after throwing your parents some money each week).
Pension: 0, Tax: 10K, Expenses 16K, Excess: 16K,

Here's my 2c:
1) Load the max into your pension while you are young so 15% of 42K is 6,300. This reduces your tax bill from 10K, to ~7.5K. Hopefully there is an employer pension match so the pension figure goes up, but not assumed. So now you have:
Pension: 6.3K, Tax: 7.5K, Expenses: 16K, Excess: 12.2K

2) Start a car account, to save for car upgrades. Car loans are ridiculously expensive (even from the credit union) so avoid the need to borrow by building up a fund now. Say 300 a month (probably less than a car loan repayment).
Pension: 6.3K, Tax: 7.5K, Expenses: 16K, Car fund: 3.6K Excess: 8.6K

3) Build an emergency fund of 3-6 months expenses. For you risk is low by living at home so shoot for the 3 months initially. 3 months expenses is 16K/4 = 4K
Pension: 6.3K, Tax: 7.5K, Expenses: 16K, Car fund: 3.6K Emergency: 4K, Excess: 4.6K

4) Buy your dad the watch!

5) Put the rest into safe savings until you've read all the books mentioned by lcwill in the first reply. And then try to improve your rate of return on your excess money.

Congratulations! You're in a great position

Very nice summary thank you.

blinkey 101

Spend it !

lcwill

NewDirection wrote: »

So on 42K your take home pay is around 32K. You mention putting half in savings so I am going to assume you can live off 16K in the year (after throwing your parents some money each week).
Pension: 0, Tax: 10K, Expenses 16K, Excess: 16K,

Here's my 2c:
1) Load the max into your pension while you are young so 15% of 42K is 6,300. This reduces your tax bill from 10K, to ~7.5K. Hopefully there is an employer pension match so the pension figure goes up, but not assumed. So now you have:
Pension: 6.3K, Tax: 7.5K, Expenses: 16K, Excess: 12.2K

2) Start a car account, to save for car upgrades. Car loans are ridiculously expensive (even from the credit union) so avoid the need to borrow by building up a fund now. Say 300 a month (probably less than a car loan repayment).
Pension: 6.3K, Tax: 7.5K, Expenses: 16K, Car fund: 3.6K Excess: 8.6K

3) Build an emergency fund of 3-6 months expenses. For you risk is low by living at home so shoot for the 3 months initially. 3 months expenses is 16K/4 = 4K
Pension: 6.3K, Tax: 7.5K, Expenses: 16K, Car fund: 3.6K Emergency: 4K, Excess: 4.6K

4) Buy your dad the watch!

5) Put the rest into safe savings until you've read all the books mentioned by lcwill in the first reply. And then try to improve your rate of return on your excess money.

Congratulations! You're in a great position

More great advice! I didn't mention the pension - grab all the free money you can (tax benefits and employer contributions). Also good to think about excess money for investing as only what is left after paying off any debt, building a 3-6 month emergency fund, and maxing your pension contributions.

Never ever ever ever take a car loan though and never borrow for a depreciating asset or consumption in general. The only loan most people should ever consider taking out is a reasonably sized mortgage.

ixus

I disagree with loading pension. Sure, it is tax efficient but, it is not financially efficient IMHO if you intend purchasing a home in next ten years. You want as much of a deposit as possible to reduce borrowing amount and, in turn, repayments.

Assuming, you qualify and earnings rise significantly in the medium term, save. When salsry grows to near six figures as it should (solicitor right) over time. Attack pension with lump sums and better tax rates aling with a reduced mortgage.

I rent, no debt, no pension. If i buy, i will have insignifcant mortgage. I am mid 30's, if i decide to attack pension, i will max it out pretty fast. Pretty much all cash as I don't really believe in Random Walk average in beimg a Trader. But that's not for everybody.

stefanovich

ixus wrote: »

I don't really believe in Random Walk average in beimg a Trader.

Either there was a typo in that phrase or I don't know enough to understand what you are saying. The latter I presume...

You have no mortgage and no pension because you prefer to manage your own investments??

ixus

I trade for a living. Why would i risk the capital i earn by "investing". My risk tolerance is already full.

Random Walk is a strategy of ignoring the market and just averaging in overtime because you can't beat the market. Most can't. Especially hedge funds!

Mortgage is a debt. I don't like debt. Less is better.

runawaybishop

ixus wrote: »

I disagree with loading pension. Sure, it is tax efficient but, it is not financially efficient IMHO if you intend purchasing a home in next ten years. You want as much of a deposit as possible to reduce borrowing amount and, in turn, repayments.

Assuming, you qualify and earnings rise significantly in the medium term, save. When salsry grows to near six figures as it should (solicitor right) over time. Attack pension with lump sums and better tax rates aling with a reduced mortgage.

I rent, no debt, no pension. If i buy, i will have insignifcant mortgage. I am mid 30's, if i decide to attack pension, i will max it out pretty fast. Pretty much all cash as I don't really believe in Random Walk average in beimg a Trader. But that's not for everybody.

That massively depends on your employer contribution - if its more than you are putting in then you'd be a fool to not take advantage of that when the going is good. Ideally you should both save for a mortgage and hit your pension hard when you are younger.

edit: also in the OPs case a lot of his cash is going straight to tax already so ther eis no downside to adding onto his pension.

Neon_Lights

Throw half of it in an easy access savings account at the start of a month as a test.. This is what I have done. You should then see if you can live off the rest.

Howard Roark

Thanks again everyone.

phantom_lord

ixus wrote: »

I disagree with loading pension. Sure, it is tax efficient but, it is not financially efficient IMHO if you intend purchasing a home in next ten years. You want as much of a deposit as possible to reduce borrowing amount and, in turn, repayments.

Assuming, you qualify and earnings rise significantly in the medium term, save. When salsry grows to near six figures as it should (solicitor right) over time. Attack pension with lump sums and better tax rates aling with a reduced mortgage.

I rent, no debt, no pension. If i buy, i will have insignifcant mortgage. I am mid 30's, if i decide to attack pension, i will max it out pretty fast. Pretty much all cash as I don't really believe in Random Walk average in beimg a Trader. But that's not for everybody.

Seems mad not to take the 40% gain from tax in a pension though, and that compounded over time has to add up to more than you could ever save in interest.

I hate tax more than I hate debt though!