around 6 months ago I started this job. Around 3 months ago while reading this very website I downloaded a budgeting software and started writing down everything I earned and spent, and I noticed I'm spending roughly only half of what I earn.

This was my first serious job so I had almost no money when I started but now - for reasons of simple math - I already have enough money to comfortably live for half a year without working. I read, again on this very website, that it's a very good rainy fund.

But now I'm very torn on what to do. I already live fairly comfortably and while I try to avoid impulse purchases I buy myself mostly everything I really want, but obviously there are things I like but not love that I don't buy.

These are the options I see:

  • Keep saving 50% of what I earn indefinitely, in case I need it later.
  • Spend it all on small/stupid things that, while stupid, would make me happier. For example take taxis more often, eat often in nice restaurants, buy designer clothes, etc. I'll be young only one time.
  • Save it to buy something big, for example a nice car.

I realize this sounds like a really stupid question, but I don't really know what's the right thing to do. Money not spent is worthless, but I feel this impulse to keep saving it.

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    How much are you contributing to your retirement accounts? Do you have a 401k? Have you opened a Roth IRA yet? – myron-semack Nov 18 '10 at 13:30
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    Something big like "a nice car"? Bah. How about a future-house down payment fund? Or a future-childrens'-college-education fund? – fennec Nov 19 '10 at 0:50
  • I wish I have your problem!! My problem is that despite earning a large paycheck ( compared to my peers) and despite trying to live as frugally as possible ( no clubbing no fanciful house no nice car) I can't still save as much as I want, which is just half of what I earn. Can we swap problem? – Graviton Dec 6 '10 at 9:30

11 Answers 11

If you are happy, really honestly happy, there is no need to change because you read it somewhere.

While I believe that budgeting in some fun is smart so you don't go crazy, I am really speaking for myself. I personally have to work at not spending more than I make, so I need to blow off some steam.

I also think that you will find in the future something you want to do that costs money, and you would be glad to have it now.

The same rules apply for you as they apply to everybody

  1. Have no debt.
  2. Have an emergency fund of 6 to 12 months in a liquid form
  3. Take advantage of any retirement account with employer matching
  4. Fully fund a retirement account like a Roth or traditional IRA
  5. Save money for future large purchases like homes or cars
  6. Have some fun.
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    I would like to add that I fully support the "good cause" idea from @GUI Junkie – MrChrister Nov 19 '10 at 22:22

Goodness, I wish I could put away half my paycheck.

Not to rain on your parade, but a 6-month emergency fund is not quite "very good." It is the typical starting time frame. Personally, I would feel more comfortable with a 2+ year fund. That is a bit extreme, but only because many of us can barely seem to make it around to a 6-month fund. So, we focus on the more attainable goal.

I say you do all three. Make saving money your priority, but do enjoy some of it; in moderation. Do not plan on making any big purchases with it, but know that you will eventually be able able to do so.

Money not spent is worthless

Idle money is worthless. Make some -- hopefully -- prudent investments with some of your money.

A small portion of that investment portfolio can/should be in speculative investments. Maybe even as much as 20% of your investment portfolio, since you are young. Consider that money gone and you will hopefully be surprised by one of those speculative investments. That is the crucial point: earmark a small portion of your investment portfolio which you are willing to lose. However, do not gamble with it. Research the hot emerging technologies, for example, and find a way to make an investment.

So, in summary:

  1. Keep saving and consider increasing the size of the emergency fund.
  2. Invest some of that money, prudently.
  3. Invest a small portion of that in some riskier ventures, but do not gamble with it.
  4. Do enjoy some of that money, but do not make that your focus.

You may have more money that you know what do with, right now. However, that does not mean you need to go out and spend it all. Trust me, as you get older you will think of plenty of good uses for that money.

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    "Idle money is worthless". love this. Invest and make money work for you so one day you can stop working for money. – Vitalik Nov 18 '10 at 13:23
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    Investments sound good in principle, but they are not for everyone. Be warned. I invested into fairly conservative and well-diversified mutual funds, and now I'm down a very nice car. Basically, unless you're both talented and lucky, you can't beat the market, no matter how diligent you are. – dbkk Nov 18 '10 at 19:38
  • @dbkk I agree with the general notion. Investing is not for everyone. It does truly take a certain mindset. However, you do not need to be talented and lucky, per se. You need to look beyond what meets the eye and try to dissect everything. Most mutual funds do not compare themselves to the S&P500, for a reason. That reason is why I avoid them. Meanwhile, 401k's sound nice and dandy, until you find out that someone managed to create a huge industry out of an obscure tax code. I avoid them, unless I can take advantage of an employer's matching funds. – George Marian Nov 18 '10 at 22:01
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    Investing is not merely buying some shares in something and hoping their values rises. – George Marian Nov 18 '10 at 22:01
  • Mmm, 401(k)s were originally a tax loophole, but have become a respectable industry (with the exception of fees when you're stuck with your employer's choice of 401(k) provider - coughFidelitycough) and the US government has demonstrated its respect for this sort of vehicle by explicitly creating similar ones and expanding the options available (e.g. the Roth 401(k)). Tax shelters aren't always the best option, but the 401(k) can be a useful vehicle and shouldn't be discarded out of hand just because of its origins. – fennec Nov 19 '10 at 19:34

Heck no, don't spend more!

I saved a ton of money when I got my first real job.

You won't always be able to do this. Save a bundle while you can.

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    Wish I had done that while at my first job. – George Marian Nov 22 '10 at 22:54

I have an idea. Keep saving what you are and think "Early Retirement". Work for 20 years, then do whatever you want 40 hours a week. If your satisfied with your current lifestyle, start thinking of your bigger long term financial goals and when you want to accomplish them by. Maybe you can accomplish these sooner than you think. Saving to buy a house/property? Investment portfolio? Want to travel all over the world? Family planning/kids? I am sure you will figure out how you would want to spend it.

  • I also like what @GUI Junkie said about donating to a good cause. If you are happy where your at, you have the power to help others and be very helpful to others around you. – Troggy Nov 18 '10 at 20:33

Apart from what the other posters have said, you could look at some 'good cause'. I'd keep on saving 50% as spending more won't really make you more happy. You already sound happy.

What I used to do, when I could, was to donate 10% of my 'profit' per year. I'd compare year start with year end and do the math. Afterwards it was just a matter of choosing. there are non government organizations that will get most money where it's needed.

Edit as soon as the business I'm starting becomes profitable, I'll continue my donations. Thanks for the appreciations.

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    This is a wonderful idea. If you are taken care of yourself, no sense in not trying to help other people. – MrChrister Nov 18 '10 at 16:50
  • When I get to Gates / Buffet rich, I'll give away 50% just to be on par with the boys. – GUI Junkie Dec 4 '10 at 17:54

I use to think there was something wrong with me because I always hated spending money. This hatred of spending resulted in me always saving quite a bit of my income.

Since I don't enjoy spending it, why am I making and saving it (besides for an emergency fund)? I've come to the realization that I enjoy my free time more than I enjoy making lots of money. So I go to work for something to do - and pay the bills - but I am no longer trying to advance my career, or be the best at my profession, or climb some corporate ladder, or be some superstar. In fact, I'm considering a career change where I would make half of what I'm making now.

What's my point? If having a lot of savings depresses you and you don't enjoy spending it then consider reducing your income.

The suggestions towards retirement and emergency savings outlined by the other posters are absolute must-dos. The donations towards charitable causes are also extremely valuable considerations.

If you are concerned about your savings, consider making some goals. If you plan on staying in an area long term (at least five years), consider beginning to save for a down payment to own a home. A rent-versus-buy calculator can help you figure out how long you'd need to stay in an area to make owning a home cost effective, but five years is usually a minimum to cover closing costs and such compared to rending.

Other goals that might be worthwhile are a fully funded new car fund for when you need new wheels, the ability to take a longer or nicer vacation, a future wedding if you'd like to get married some day, and so on. Think of your savings not as a slush fund of money sitting around doing nothing, but as the seed of something worthwhile.

Yes, you will only be young once. However being young does not mean you have to be Carrie from Sex in the City buying extremely expensive designer shoes or live like a rapper on Cribs. Dave Ramsey is attributed as saying something like, "Live like no one else so that you can live like no one else." Many people in their 30s and 40s are struggling under mortgages, perhaps long-left-over student loan debt, credit card debt, auto loans, and not enough retirement savings because they had "fun" while they were young. Do you have any remaining debt? Pay it off early instead of saving so much.

Perhaps you'll find that you prefer to hit that age with a fully paid off home and car, savings for your future goals (kids' college tuitions, early retirement, etc.). Maybe you want to be able to afford some land or a place in a very high cost of living city.

In other words - now is the time to set your dreams and allocate your spare cash towards them. Life's only going to get more expensive if you choose to have a family, so save what you can as early as possible.

Keep saving or investing, but set aside a relatively modest amount for "fun money". That way, you can go have a good time without thinking too much about what you're spending within the limits you spend for yourself. You don't need to spend lavishly to have a good time!

Not having the stress on your shoulders of worrying about money is a huge thing. Savor it!

Aside from what everyone else has said about your money (saving, investing, etc.), I'd like to comment on what else you could spend it on:

Spend it all on small/stupid things that, while stupid, would make me happier. For example take taxis more often, eat often in nice restaurants, buy designer clothes, etc. I'll be young only one time.

You could also put the money towards something more... productive? Like a home project. Convert a room in your living space into an office or a theater-like room. Install hardwood floors yourself. Renovate a bathroom. Plant a garden of things you would enjoy eating later. Something that you would enjoy having or doing and can look back at and be proud of putting your money towards something that you accomplished.

"Your Money or Your Life" is a great book on this topic.

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    Which Your Money or Your Life? Can you please provide the author and/or the subtitle? (I just found three different books on Amazon with that title.) – George Marian Dec 4 '10 at 18:35
  • the one by Vicki Robin et al. amazon.com/Your-Money-Life-Transforming-Relationship/dp/… It's often thought of as a "retire early" book but I think it's more of a "making conscious decisions with full awareness of the options" book. If you want a general personal finance book, I've read many, and my favorite single book is amazon.com/Smart-Simple-Financial-Strategies-People/dp/… (one great thing about it is that it's mostly not about investing, it also covers insurance etc.) – Havoc P Dec 6 '10 at 2:28
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    btw, Your Money or Your Life has some outdated implementation suggestions, for example suggesting tracking expenses with paper and pencil, and suggesting investment only in treasury bonds. I haven't read the latest edition which may update some of it. The Amazon negative reviews point out some of the more dated suggestions. If you've also read something like Jane Bryant Quinn's book, and know how to use the Internet, you can figure it out, and still get the big picture which is not dated at all. – Havoc P Dec 6 '10 at 2:45

Looks like you don't want to participate in the consumerist rush but feel that you just have to do that too.

First of all, you don't have to do what you don't want. Then there're researches showing that joy from a compulsive purchase only lasts for a short period of time and then you are left with a relatively useless item in your house. So it's one thing if you really wanted that cool full-electronic sewing machine (or whatever DIY item you might want) to be able to repair all the stuff and craft all the nice things you wanted, but it's another thing if you look at the item and can't decide whether you really need it. The latter scenario is you struggling with the consumerism rush.

If you feel really happy and can save half of what you earn just save the difference - it won't hurt. Having a good sum of money saved is really helpful in many scenarios.

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