About To Enter The Workplace For The First Time? Try The 50% Solution

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“I’m about to leave college and enter the workforce. I don’t want to work forever, and I want my options to be open as much as possible later on. What should I do?” I hear some variation on this question at least once a week from readers of The Simple Dollar. Here’s my eternal answer to that question.

The reason people wind up committed to jobs they hate is because they didn’t start off making themselves truly independent. Instead, they chose to spend their money on stuff – newly leased cars, lattes, and all of those other luxury goods. Eventually, though, they find themselves stuck in a career that they can’t get out of, even if their heart is begging them to leap – they don’t have the financial safety to make that jump. Instead, they have stuff.

On your first day at work, do these two things.

First, sign up for your retirement plan, including a 401(k)/403(b). Within that plan, contribute whatever you need to contribute up to the employer match limit. In other words, contribute exactly enough so that you’re also getting every single dime that your employer might offer up into that plan.

Next, set up two separate but equal direct deposits for your paycheck. Have one of these deposits go into your normal active checking account. Have the other one go into a savings account you can’t access easily, like the one offered by ING Direct (they’re the “high interest” bank that I use). If you can’t split them up yourself, set up an automatic transfer within your checking account to transfer half of your check each time you’re paid straight to that high-yield savings account.

That second one is likely to shock some of you, because it basically means “save 50% of your paycheck and live off the other 50%.” For people freshly flush with a high-paying new job, that can be very hard to do – you’re tempted to buy a nice car, nice clothes, and some expensive toys. I know I was certainly tempted, and I fell squarely into that trap. Falling into that trap was the single biggest regret of my life. If I could roll back the clock six years and do things differently, I gladly would.

Using the Savings Account
In short, you shouldn’t use that account for anything. Try to live off of the amount in your checking account and pretend as though the other part doesn’t even exist. If you’re freshly out of college, you should be quite good at the art of living off of a tight budget – even half of the paycheck from a good job can seem like a mint.

If you find that you simply cannot make ends meet this way, then change the ratio to 60/40, but give the half-and-half split a sincere try first.

The Next Step
Once you’ve settled into a routine, every three months invest 80% of your account balance in an index fund. It’s easy as pie – just sign up over at Vanguard and slip your money in. I recommend reading The Lazy Person’s Guide to Investing and following one of the recipes in there. You can do all of this online, then just sit back and forget about it.

Eventually, you’ll amass a pretty sizeable bankroll. When you have a couple years’ worth of living expenses socked away, you’ll find that your horizons suddenly get a lot wider. You can easily quit your job if it’s not fulfilling you. You can seek other career opportunities if you wish. Whatever you want.

What Are Your Real Goals In Life?
For most people, it doesn’t involve settling in at the same job, living as a single person, and working there until retirement. Most of us have big dreams – a career of public service, a career as a freelance writer, some years as a stay at home parent, a trip through Europe with nothing but a backpack and a laptop.

Putting half of your paycheck away buys you a little more than a year of complete freedom for every year that you work. If you work for ten years, then you’ve probably built up eleven or twelve years of living expenses. Even if you work a single year, you’ll be able to just follow your muse for another year on that savings.

“I Don’t Want To Live In Poverty!!”
Some people will immediately reject this concept out of a need to “not live like a poor person.” If that’s your justification, realize what you’re trading – you’re trading years of your life away for stuff. You’re trading away countless amazing experiences so you can have some quick-fix material conveniences.

This plan buys freedom – freedom to go where you want and do what you want with your life. Not wanting to live in poverty rejects this freedom and trades it for extra stuff. Before you outright reject the plan, sit down and imagine yourself in ten years if you buy a bunch of trendy stuff – or if you started socking it away hardcore? I’ll give you a hint: one of those future selves will be locked into working a job and will be burdened with stress, while the other one will have the freedom to follow his or her muse. One will have lots of stuff – the other one will be living out lots of dreams.

It’s your choice, and you’ll never have the opportunity to make it again. Think about it, and make the right choice for you.

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66 thoughts on “About To Enter The Workplace For The First Time? Try The 50% Solution

  1. I think I might try this idea (50% Solution), but I don’t know how feasible it will be considering I am moving away from home as soon as I graduate. And I am moving into an expensive area. Thanks for another great article.

  2. I like the 50/50 rule and try to follow it. It’s a lot easier (or maybe just more strict) if you don’t have to manually transfer from your main account to your savings. I definitely agree to having your direct deposit split or setting up automatic transfers.

  3. Not a bad idea Trent. A bit extreme, but still not way out there. I might actually try this and see how it goes.

    I have a question. My work place offers a 403b but does not match, should i still put money into it? Or is it better to invest elsewhere?

  4. I really hope that people realize that this is the way to go. I started out this way and it was one of the reasons, along with some excellent Real Estate deals, that I was able to pay off $40,000 in student loans one year after leaving college.
    It also allowed me to take a month off when I switched jobs in order to take a break and start up some other business opportunities.
    I can’t say how much of a psychological advantage it is to go to work knowing that you could walk away for a year if you really wanted to. This type of psychological freedom also allows you to push the envelope with your creativity and make some suggestions at work that you might not otherwise make if you weren’t backed by a year’s worth of freedom!

  5. Great post! This also works for people already working, with significant commitments who are (hopefully) just making their 10% Pay Themselves First commitments:

    1. For any future increase in salary – commit to saving 50% of the increase as this articles suggests

    2. For any future ‘found money’ – bonus, tax refund check, part-time business income, etc. do the same.

  6. Excellent advice! I wish I had read this when I was 18!

    Once you start owning lots of “stuff”, it’s really hard to scale back (particularly if it’s a house). The absolute BEST time to do this is when you’re starting your first fulltime job.

  7. I disagree with several things in this post:

    I’m not sure it’s wise to limit your tax-advantaged retirement saving to the amount that your employer matches – especially if the employer offers only a very small match or none at all. If your contribution plus your employer’s match doesn’t add up to at least 10% of your income, you need to contribute more. Possibly much more.

    If your employer is paying your health insurance, and you don’t have a spouse whose employer can pay your health insurance, then one year’s worth of savings is not going to buy you one year’s worth of freedom, because you will have that additional cost on top of your normal expenses. So that’s something you need to take into account.

    Finally, I’ve noticed that a lot of the posts lately have been based on the implicit assumption that “following your dreams” necessarily means not being employed in the traditional sense. Maybe that’s true for you, Trent, and maybe it’s true for a lot of people, but it’s certainly not true for everyone. Two years ago I was in a job I hated, so I went out and got a job I liked. Problem solved.

  8. An interesting idea, but not necessarily feasible for many, many new workers, esp. if you live in a high rent area. Perhaps a more flexible standard would be to subtract rent from your paycheck, and then put 75% of the rest into savings/debt reduction.

    I had a fairly high paying job out of college (> 55K) but rent, utilities and student loans alone were within $150 of 50% of my take-home pay (after 401(k) contributions). $150 a month is not going to cover food, clothing, gas, etc.

    With the 75% beyond rent idea, I would have had around $230 ‘extra’, which is more reasonable.

  9. Is this named after the 60% solution?

    Care to comment a bit on why you suggest putting the 50% in an after tax account rather than some kind of tax advantaged one? I assume it’s so you have ready access to the money, which you wouldn’t if it were locked in a 401(k).

  10. I agree with Johanna’s comments – I think Trent’s writings makes it appear that those of who love our ‘traditional’ jobs are in the overwhelming minority.

  11. I have to agree with Johanna – not everyone needs a huge bankroll to make their dreams come true. My husband and I work hard at jobs we like because WE PICKED THEM. I hate the idea of going out and getting a job you think you will hate just to save up to start your life later. Instead of worring about putting a ton of money away now, worry about finding a job you love and just be willing to live on what you make. We don’t make a ton of money and we didn’t have a huge bankroll at any time but we are happy in all points of our life – financial, emotional, spiritual, family, etc. No amount of money can buy that.

  12. I REALLY wish someone would have told me this when I graduated from college. What a shift in world view. I am living more closely to this idea now, but a good chunk of that “extra” money is going toward debt reduction, not my dreams. I anticipate being finished with that in about a year and I am so excited about being able to save at least 30-40% off the top each check. I do want to work towards buying a house but am torn between doing so and building up a dream fund like you describe. I can’t envision being able to do both. I guess it’s a matter of deciding what’s most important to me and my family.

  13. If you are 22 and putting 10% of your income into tax advantaged accounts that will be plenty by retirement. Building up the emergency fund and being able to live off half your income is an accomplishment in itself. This will give you the freedom to change jobs whenever you want. You don’t have to take crap from any boss. It also frees you to find a job you really enjoy and to pursue less profitable ventures that are your passion.

  14. I think the idea of this is great. I’m sure you’ll have lots of posters who were in situations like mine: first job out of college, moved to a city, and made $8.50/hour (approximately $12 per hour in today’s wages). My first four years out of college in the early 90s, my salaries were: 18k, 20k, 18k, 27k. Fortunately I “only” owed 10k in student loans to my parents, and my rent was super cheap: 300/month (but wow… what a dive).

    Finally I started jumping higher in salary, and I was smart enough to keep my living costs down. BUT I didn’t set aside the increase in pay as I wish I had! So even if readers truly can’t set aside 50% now, be aware of avoiding lifestyle inflation when your salary finally DOES jump.

  15. You should linke to this guy – one of your readers (I think anyway, I’m sure I’ve seen him commenting here) who’s apparently been on the greater than 50% plan since leaving college. His blog is great.

  16. I got a kick out of Trent putting high yield savings in quotations. With the additional 75 point cut today, those savings accounts are looking downright paltry! (But I have a good amount of e-fund cash sitting in them too).

  17. I didn’t earn as much in my first year at the job. It was easier to put away substantial sums of money in subsequent years because I kept my expenses at around the same level while my income went up. Even so, I’d saved about $10K by the end of that first year, which was more than enough to start investing.

  18. @SavingFreak – 10% will be plenty for retirement, if you retire when you’re over 60. Most people don’t want to do that. They want to be able to do whatever they want as soon as possible, and they can by following this advice. Right now (I’m 27) my husband and I live on 30% of our income, and it’s great. I don’t spend too much more than I did when I earned $15k in grad school. It really makes a difference.

  19. I couldn’t imagine doing this for more than 3 or 4 years. I agree with others, if you job is that bad you should’ve picked a different one to begin with.

  20. This is a lovely thought, but not everyone leaves college and gets a high paying job. Sure, it’s more than you might have made in college – but in college oyou had very few expenses. No rent, no grocery bills, no utilities to pay… If you’re not in a field where you make good money straight out of college putting away 50% is a nice dream but a difficult reality with your normal monthly bills and student loan payments to boot.

  21. I didn’t mean to imply that you can’t love your job *and* save like mad. I’m just saving for goals other than “escaping from a career I hate.”

    Out of curiosity, I just ran my own numbers, so I thought I’d share:

    23.4% – retirement savings (403(b))
    22.0% – taxes
    21.3% – other savings (house down-payment fund)
    1.7% – medical insurance (part paid by employer)
    2.8% – charitable donations
    28.8% – everything else.

    @LC – I used to be a grad student too. :)

  22. I certainly think there should be an adequate trade-off between emergency savings and retirement savings. Saving 10% for retirement is a great idea in theory, but starting a new life usually bears a lot of risk. I believe building an emergency savings account is nearly as important as building retirement savings.

    Great post Trent.

  23. @Johanna and Dina,

    Yea but you gals make it sound so easy to just “find the job you like.” I have applied for a job that sounded awesome only to find out it was total crap, nothing like what they promised me. It takes time and at times a risky leap.

    The idea is that people are so restraint by their financial situation they are afraid to make the big leap. When you saved a good amount, say 18 months of emergency fund you can take that risk. You are more willing to entertain the thought of walking off the job and pursue something significant.

  24. I think that people are taking a leap in that this is about hating your job, the point is that once your job is no longer your sole source of support you can make your choices more objectively.

    So you like your traditional job, that’s good, but your company can be sold, your boss can retire, circumstances can change, having that freedom to move on instead of grinning and bearing it is very liberating.

  25. I dont’ think the ‘setting aside 50% of your salary’ option is feasible for most right out of college. Most of my friends and myself could never of lived off of 50 or even 40 percent right off the get go. While I am fortunate to do so now a few years after graduating, I was more concerned with meeting my expenses after college. The advice about not making it harder on oneself with expensive purchases and car loans is really relevant though.

    Also, the 50% savings are you recommending that goes to retirement or a taxable index fund account? Retirement savings and e-fund savings are on top of that? SEems like a stretch for someone who is trying to balance rent, insurance, gas, utilities, food cost, emergency fund, student loans and retirement on a potentially small income.

  26. Brilliant idea and it should be entirely possible for anyone just graduating from college. Looking back, I know I certainly COULD have done this (or at least close to it) but instead I decided to spend money like a fool.

    Seriously, anyone starting out that doesn’t have a family to support should give this a try.

  27. My wife and I have done this for the last three years and because of it we are able to take the next two years off and go to graduate school and purchase a home at the same time.
    One point I would make is in regards to rent. A lot of college graduates feel the need to live on their own but to live by the 50/50 rule you will probably need a roommate which is something some people are unwilling to do.

  28. The vanguard products seem to be real popular. Are they available to Canadians?

    And are there any guides/books out there that offer a good overview on creating your own financial plan? My modest income and short financial career doesn’t quite warrant a CFP.

  29. Trent, I wish you had been born 10 years earlier and started The Simple Dollar around the time I left school. If I only had a time machine – I am quite sure I could have close to $500k socked away knowing what I know now. As it is I am floundering in negative networth and trying to climb out of the hole, one paycheck at a time. When I become debt free, hopefully within the next 18-24 months, I fully plan to save 50% of my paycheck. It shouldn’t be too hard as I’ve been 50% of my pay to credit cards and car loans for months!

  30. I’m really new to this so please bare with me through the beginner’s questions…

    “Once you’ve settled into a routine, every three months invest 80% of your account balance in an index fund.”
    1) What is your account balance? Is that the difference in your savings account between Month 1, and Month 3/4? For example, in Month One you have 1000 dollars, and in Month 3 you have 2000. 2000-1000 * 0.8 to figure out how much to invest?

    2&3) You save 50% of your pay check. Then, you take 80% of that 50% for investing? So 20% of the 50% is your emergency fund?

    4) What is your retirement fund if the answer to number 3 is your emergency fund? I don’t have a 401k, is that what the retirement fund is?

  31. I think this is a great idea, but not everyone will be able to pull it off. I graduate in May, and I’ll be teaching in a low income school district for two years and then perhaps heading back to college for a doctorate in physics. I plan to save as much as possible and try to avoid lifestyle inflation, but I’ve been told to expect a starting salary of $27,000-$35,000, and I’m not sure that $13,500 will be adequate for taxes, health insurance, rent (I do plan to have roommates), utilities, car insurance and maintenance, gasoline, and groceries.

    Now, if I’d looked for a lucrative job rather than deciding to join Teach for America, it might be more feasible to save 50%. As it is, I may not hit that number, but I’d rather be useful than wealthy.

  32. I have an “ancient” post along the same lines: http://earlyretirementextreme.com/2008/01/what-i-would-teach-a-child-about-savings.html
    Savings rate is mostly a question of choice. I saved 80% when I was a grad student, but it required a lot of what people call sacrifices. To me they were challenges. I even turned to heat off completely during a winter just to see if I could do it (I could). It really depends on attitude and expectations.

  33. I think the reason Trent suggests putting money into after tax investments (after the match) is that he feels (and so do I) that taxes will be much higher in the future. I am in my early thirties and could easily max out my 401k, but instead do enough to get the max (6%) and then save after tax. Not to get into politics but being a republician I know there is very little chance of McCain winning – and both other options are goin to increase taxes – so I am paying now and will try and find some type of tax deductions the next 4-8 years.

  34. Interesting article. As a recent college grad I’ll probably follow the advice once I get that high paying job.

  35. Very good idea! I personnaly focused on clearing all debt for my first year-year and a half of steady work, by devoting AT LEAST 50% of my income to it. I and my partner will certainly give it a try! I believe paying down debt at this crucial time of life (right out of college) is ideal.
    Thanks for the advise

  36. I am 35 and have finally made it to a 50/50 plan of my own, the major difference being I invest the max allowible into my 401k, and the rest into a combination of ING and long term investments. Wish I would have done it 12 years ago.

  37. This is what I did. I maxed out my 401k to the tax free limit (15k, then later 15.5k), and saved an extra $500 or so on the side. After rent and bills this left me with almost no spending money, so I couldn’t acquire much stuff.

    I did manage to increase my net worth from 0 to $50,000 in two and a half years, and I quit my first job and am working on starting a business in a different industry.

    If I hadn’t gone on the semi-extreme savings plan, I would still be working at a job that was really making me unhappy, or looking for a similar one to replace it.

    So the 50/50 plan did give me the freedom to at least take a break from the rat race…

  38. This is such great advice, my income increased considerably last year when I finally got a job in my field and moved on from my near minimum wage job. I’ve been trying really hard not to succumb to lifestyle inflation; I lived on my previous wage for 18 months, there is no reason I can’t continue.
    While I actually enjoy my job, I don’t want to do it for the next 40 years, I’m hoping that I won’t have to with a little effort now.

  39. My husband and I have been saving 50% of our combined salaries for roughly the last ten years. The peace of mind this has given us is worth more than any possible amount of “stuff” could be.

  40. I’m interested to see what the percentage would be for those who have part time jobs. I’m fresh out of college and haven’t been able to find a full time job, so I’m working two part time jobs. There’s absolutely no way I could survive on half my salary at this point.
    I really, really like this idea though. I would love to try it when I get a full time position. Also, I’m surprised Trent didn’t mention Roth IRAs in the savings plan.

  41. As with any advice, you absolutely have to tailor your plans to your own situation. I’ve been living under my means for the last year and a half due to a 25% garnishment that is almost paid off (legacy of a layoff and years of not being able to find work). As soon as that is finished in another month or two, I am going to start putting aside that 25%. I’ve got a series of short-term goals for some of that money (a used car to replace one that is on it’s last legs, living room furniture for the first time in over a year, a washer/dryer to replace one that is no longer working) but even there only a fraction of that savings will be used. Most will be to build first a rainy day fund of at least a year’s pay, and then the rest will go towards retirement.

    Had I not been forced to get used to getting by on only 75% of my paycheck, I’d probably never be able to pull this off, simply because I’d be so used to having and buying stuff that I now know that I can get by without that I’d never make the changes to my habits to do it. For many people just starting out, setting up financial discipline early can make a huge difference.

    I think that the 50% figure is an ideal goal. No, not everyone can do this starting out. But if the post had said 40%, or 25%, or even 10%, there’d have been people who pointed out that not everyone can make due on that. But perhaps if you set the rate very high initially, then back it down only when you absolutely have to, evertually you’ll settle to a rate that is doable while still setting aside quite a bit.

  42. I believe this is great advice. I made lots of bad choices in my first job, including living in an apartment that ate up 50 percent of my income.Even if you can’t save to that amount, I believe Trent is saying you should at least give it a try, and if not feasible, then up the ante. I am also a bit preplexed at some of the negative comments, as it is obvious from Trent’s article that this is meerly a suggestion and of course if you can’t absolutely make ends meet on that amount, then increase it. And when is he ever suggesting that this is something that only people in high paying jobs can achieve?? This implies to all walks of life I belive. Save more, spend less, live life, read carefully. Thanks for the great article Trent.

  43. Trent, although I believe in many of your recommendations, I find myself disagreeing with nearly everything in this post.

    1) 50% Savings is not only unrealistic, but also not smart. Saving 50% coupled with 401(k) contributions is roughly saving around 56% of your income. Mind you, recent college graduates entering the workforce are making as little, at that particular time in their life, than they every will. On top of small salaries, grads are faced with expenses they have never endured before like health insurance premiums, student loan payments, etc.

    2) Agreed, a savings should be built up, but why stock away all your savings in an index fund? Use your 401(k) contributions for this. At this stage in your life, think long-term and slow growth in other ways like purchasing a home and making bigger payments to student loans. Building strong retirement in index funds is an important step, but recent college grads need to use this time to get a solid foundation in their life both personal and in the workforce.

    3) The living for stuff concept is a little absurd as well. People work long hard hours and need to enjoy themselves. Remember, saving and investing in your future is important, but you live once. Think about that, you won’t get today back or yesterday, enjoy yourself and indulge a little.

    While it’s important for people to read your post to learn about finances – lets be realistic, otherwise what’s the point?

  44. Oh, what my 39 year old self would love to tell my 22 year old self! Not only about personal finance, but about relationships, marraige, parenthood and knowing yourself a whole lot better before making irreversable life changes……

  45. I’m 22 and living on 40% and saving 60%. This will change soon as I’m moving to a new city. My goal then is to live on 70% and save 30%. My savings is with ING as well, but I locked in a 12 month CD last year before the rate cuts started too.

    My split does not include retirement, which works out to about 17% between roth and company 401k.

    I think my greatest skill has been to learn from other people’s mistakes. Everyone here wishing to talk to their 22 year old self has inspired me since I was 18. The price you pay is all your friends call you ‘grandpa’. That’s ok, my gramps has a big bank account.

  46. You want to focus on contributing anything above and beyond what’s required to get the full employer match for your tax-advantaged plan to an after-tax account because taxes are only going to go one way: UP! They are at historic lows and our political leadership has plunged us into eye-popping deficits and debt. That, coupled with the crumbling infrastructure in our country, and we will likely see taxes increase for those of us who are Gen X/Y and beyond.

  47. It’s a nice idea but much more possible in some parts of the country than others. Also, sometimes your first job just doesn’t pay much.

    I think rather than just making the cut at 50%, new grads just need to make a budget (a tight one!) and stick to it, saving everything they can.

    But 50% is a good goal.

  48. I am paying 50% of my income towards student loans and credit card bet that I accumulated during school. I’m trying to hit it hard and pay it all off so I can look towards a home since rent in the city is sky-high. I guess that would be similar to saving 50%.

  49. Great post Trent.
    I took your advice TODAY and re-did our budget. I couldn’t get it all the way down to 50% BUT when I had re-done the numbers, I discvoered we will be paying off $30K in debt in 25 months.
    DANG That feel f-ing GOOD!
    YOU Rock dude.
    Keep up the good work. Your writing is a real inspiration!
    Sometimes the most obvious approach is not so obvious.

  50. MC – there are a lot of us who had PLENTY of expenses in college. My parents were not able to pay for my expenses, so I had tuition (with the help of student loans), school expenses, rent, utilities, car insurance and entertainment expenses to take care of myself, and I know I’m not alone on that. I don’t think the numbers (50/50) are as important as the idea that, regardless of your circumstances, it’s extremely helpful to live on as little as possible and save the balance. Admittedly, those of us who did pay our way through school may have a slight leg up on that experience, but it’s a lesson for all.

  51. Trent,

    I appreciate the sentiment here, but you speak from a place of privilege, and worse, you don’t appear to realize it. I don’t know many recent college grads who could live on 50% of their take home income. Maybe it’s just that I graduated (in 2005) from a liberal arts college. No doubt. Regardless, you are universalizing from your own experience. I don’t have ANY debt – no school loans, no car loans, no credit card debt, nothing. It would STILL be a stretch for me to pay my rent and buy gas and food on $850 per month (half of my monthly take-home pay, as you suggest). I live in the Chicago area, so my costs are higher than yours in Iowa.

    Furthermore, not every employer offers a 401k plan immediately upon hire (at my company you have to wait a year before participating). Not all companies match your contributions, either. I grant that you could start a Roth IRA, instead, but I would have appreciated an acknowledgement that not everyone works at an employer like yours.

    Especially if you start out in a job close to your passion (like in the non-profit sector – maybe these are just MY passions), you will probably not be making enough money to follow this plan. Unless your degree lands you an entry-level job that miraculously pays well, most of the advice in this post is not that helpful.

    I guess I should have been a business major; ironically, I could then afford to pursue my dreams. I thought I was pursuing my dreams with my English major. Pff.

  52. @Bethany: Living in Chicago on $850/month would be a bit difficult. But it is by no means impossible IF you ditch the car (Chicago has great public transportation) and choose your housing carefully. Getting a roommate (or two or three) can cut your rent to less than $500, and $350 is more than enough for food and incidentals.

  53. @Bethany: I’ve got a BA in music education from a private liberal arts college, and I’m teaching. Even on my beginning teacher’s salary, I’m able to use 50% of my income to pay down student loans (yes, I’m not saving other than an emergency fund, but 6x what I’m required to pay on the loans). You can do it, but you have commit to it.

  54. I was appauled you didn’t mention the Roth IRA. To me it’s the obvious next step after funding the company match to the 401K. But I’d rather be at my job that I like versus being paid half to do what I love.
    I usually agree with you Trent, but not on this one. I rank retirement well above following my dreams.

  55. Thank you so much for this post Trent! I’m graduating with my masters in July and I’m entering the career world for the first time and this post was exactly what I was looking for. I’ve never made more than $15/hour in my life, and it will be hard not to spend all my newfound money, especially without a husband or kids to support.

  56. This really isn’t as extreme as it sounds. I basically do this right now.

    I took this job so that I could pay for school. I’ve been living off of about 50% of my income (rent, food, etc.), the other 40% goes to pay my tuition, and 10% goes into my retirement account. I’m 21 and in school at night and on weekends. I’m a few months from graduating, have it completely paid off (no student loans) and will continue to sock away that money. Except I’ll be putting 15% to retirement (hey, stocks are on sale!) and the rest of my tuition money in my ING. I’ve also got sub accounts to help me save up for a car (I’ll be taking the bus to prolong the need for this), for an eventual downpayment on a home, seed money for a business start up, and for asplurge spending/vacation fund to reward myself for working hard! I work hard to save money, but make sure that any gift money is spent on something fun or nice for me… because otherwise life is no fun!

    It doesn’t take a lot of money to do this. I only make about 2k/month and am in Seattle… better than CA by far but still not the cheapest city to live in. You just have to get creative with your spending, and only spend on what is important to you. Thats why I have roomates, why I will drive my junky car until it dies, why I only spend $30/week on food. In the end, it will be well worth it!

  57. Sounds like a good idea. I have put it into action as of yesterday for the 50/50 plan.

    What I use to do was put all my money in a savings, and take what I need for expenses, though I probably saved more this way, I also probably spent more because I had to pull money to for groceries, rent, and other bills.

    I will graduate in May and it sounds like a good plan even if I plan to live in CA, expensive parts, because my bills will be low due to renting a room in a house.

    Thanks for the great idea, it allows me to have enough money for bills and groceries and buy the stuff I want while saving a lot, the other half.

  58. This is some great advice, which I wish I would’ve had years ago when I started my career. One of my biggest regrets is that I didn’t save enough money early on, and I really didn’t make much to be able to save. At the very least I could’ve started other endeavors to try to build my income later on, but I did neither. Now I’m in a fairly high paying job, but I’m really stuck to it since we don’t have the flexibility in our finances to live without it at this point. It’s frustrating to me because I’m convinced that it’s not what I want to do with my life.

    Anybody that is starting their career, listen to this advice, you’ll love yourself later for it.

  59. OK but what about a house fund (since you are sucha big fan of home ownership.) I save over half my paycheck but only in a high interest savings account. I don’t want to put it in an index fund since ideally that is for longterm (at LEAST 7 years) goals and I would like to buy a house within 5.

  60. I love this article! I started working full time ten months ago after graduating with a master’s degree. However, I have a lot of student loans that were mainly private loans, unsubsidized, with interests varying from 5-9%. I had to pay them off… I just hate debt. I didn’t worry about the loans while studying for exams, but once I started making income, I first spent most of it (bad idea), and then got into credit card debt too! So now I’m retracking my values and goals. I have paid off my credit card bills, and ten months into working full time, I have cut my student loans by $10,000 so I just have a little less than $9,000 to pay, which I’m sure I can before this year is up. I would like to save 50% of my paycheck, but I’m waiting until the debt is done. I currently match my company’s 401K, and contribute $50 automatically to a high yield savings account. I’m glad I learned this early on in my career. Once I am out of debt, I do not plan to get into debt again, unless it’s a house. Thanks for an awesome post!

  61. Thanks for the great article! I am 21, graduating in May, and moving into Seattle in June. This article plus the comments have really helped me in how I will try to live and use my money :).

  62. I have to agree with Bethany about *where* you live and *what* sort of job you have making a huge difference. My first year out of college – more than a decade ago – half of my monthly income would have been around $700. I *did* have student loan debt as well as medical expenses. I had medical insurance, but trust me, prescriptions and doctor visits add up quickly even then. I’m not saying that it’s impossible, just much much harder in certain areas of the country and with certain careers/jobs than with others.

    My other objection is this sentence: you’re trading years of your life away for stuff. You’re trading away countless amazing experiences so you can have some quick-fix material conveniences.

    I spend much more of my money on experiences than on stuff. Taking courses, occassional fine dining, some memberships to organizations.

    I guess it’s not really an “objection” — just an assumption that you may not have realized you made.

    I still think it’s a great article. There’s probably people that read it and think 50% is completely impossible but might start saving 30% when, before reading this they weren’t saving at all.

  63. The way I see this is that I could do this and live like a pauper now and be very rich later, or use a 75/25 plan like I am doing now and live comfortably now and still be pretty rich later. It’s all about balance.

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