A budget for the new college graduate

posted by Jeff | Sunday, March 31, 2019, 2:06 PM | comments: 12

In today's edition of "no one in politics gets me," I'd like to talk a little about the cost of college. While I'll be the first to say that I'm all for some kind of socialized healthcare (in part because nearly every industrialized nation but the US does it), I can't get on board with the free college thing. I don't understand the problem that it's trying to solve, or even the problem that college solves. This may seem counter to my general advocacy around education, but I'm not convinced that college is the answer that solves some particular problem.

So let me get this out of the way: I know college costs in real dollars have been on the rise for the last two decades, which is to say they significantly outpace inflation (source: US Department of Education). This narrative also often suggests that wages have not increased, which is true, but they have kept pace with inflation for about 40 years (source: Pew Research). I'm going to put all of that aside, because I'm saying the current debt loads being incurred by college grads is in fact manageable with the right budget.

Every figure I'm going to use here on out is in 2018 dollars, using the fed's numbers. Let's start with the basics from the DOE: The average debt for a 2018 graduate was $33,000, and interest rates varied between 3.76% and 4.66%. Let's say that averages at 4.5% even though it would be less. The loan term is 10 years. This puts the payments at $342 per month. Again, we're working with averages here, so don't bother me with anecdotes higher or lower.

I can't find an authoritative source about average starting salaries out of college, but for 2018 the sources tend to average about $50,000. (I found a lot of studies about expectations that put the number at $60k, with a fifth of people expecting $80k!) Let's work with a lower than average salary at $45,000. Assume that 30% comes out for benefits and taxes (and that should even cover a 401k contribution if it's available), and that gets us to a monthly budget of $2,625.

Quicken has a simple budget calculator, so let's use that! I'm going to roll with expenses here in Central Florida, which is generally not bad but the rent here is crazy high, like almost mortgage territory. Let's make some assumptions here: You share a place with a roommate, your car is a new leased Toyota Corolla with nothing down, a functional but inexpensive phone on Google Fi, etc. Here's what I came up with:

Rent (your half) $600
Renter's Insurance (your half) $50 
Utilities (your half) $150
Cable/Internet (your half) $50
Cell phone $50 
Car payment $250 
Car insurance $100
Gas $100
Student loan payment (see above) $342
Groceries $150
Clothing $50 
Entertainment $100 
Savings (5%) $131
TOTAL: $2,123 ($502 unbudgeted... save or make extra loan payments!)

Is this doable? It was for me, because believe it or not I still use the same version of Microsoft Money I did when I was right out of college, and I actually know what I spent money on. It was very nearly this budget, I drove a Toyota Corolla and had a roommate (then-future first wife) who was in grad school, no less. Things were tight for me, but where I went horribly wrong is that I was paying another $200 in credit card debt every month which I was actively replacing with about $200 worth of eating out and buying CD's and DVD's (these small plastic discs that once contained music and movies). I also didn't do any of the saving or retirement account deductions, so I really pissed away a lot of money.

Let's also keep in mind that I went to school for radio/TV and journalism, careers that I abandoned after four years to chase dotcom dreams. I never had any illusions of making a ton of money. Because I went to a private school, my student loan debt was actually more than today's average at $40k (adjusted), and my loans were all at 8%, so my payments were higher, too. My schooling had zero impact on my career: Nobody has ever cared where I went to school, and in recent years, didn't even care that I went at all.

But I digress... I didn't want to get into whether or not college was worth it, I wanted to look at the cost for today's graduate. There are all kinds of variables you could throw in here, like, "But I work in San Francisco!" or whatever. Countless people will say, "But I needed a masters degree, so my student loan debt is twice that!" Sure, we all make choices. I know a lot of MBA's who used to argue that they "needed" that degree to get ahead, but now say they're not ahead because the ROI wasn't there.

I know a ton of software developers who didn't go to college at all making six figures before they're 30. I've met trades people making a comfortable living on $60k a year contracting on their own terms. I know a guy who moved to Nowhere, Montana to work in radio there on $35k a year who lived comfortably. The more I look at the college debt "problem," the more I wonder if the underlying issue is a combination of choices and expectations. I'm not convinced that these factors have significantly changed in 20 years, even if the cost of college has. And if more people go to college, then the pure economics dictate that the cost goes up because of demand while the value of a degree goes down because of market saturation.

I'm digressing again. Tell me why that budget can't work?

Comments

bigboy, April 1, 2019, 6:03 PM #

Enjoyed reading this and I've sat across the table from many a young job candidate or read resumes wondering why salary expectations are so ridiculous. I'm not looking for anyone to take a vow of poverty, but I can't take anyone seriously when they've been out of college for a year and they're looking to make $25k more a year than me.

Your budget reminded me of a story my wife told me one time. She teaches in what I would consider an affluent school district and she asked one of her co-workers how her young adult son was doing. He had recently graduated from college and was out on his own. Her coworker said he was doing well, but got a very serious look on her face and said, "My husband and I are having to give him money on a regular basis just to help him get by. I don't know how these companies expect someone to live on $50,000 a year." Note: this is in Texas, not California. $50k goes a long way in Dallas.

Alan Conceicao, April 12, 2019, 9:26 AM #

Seeing the link to the story about theme park workers - which, FWIW, totally misses the reality that there aren't enough bodies to do service jobs in the US, ergo the shortages of able bodied adults at every single theme park in the nation and resulting rising wages - led me to also see this. I'll bite.

#1 - Fringe rates don't come out of your pay; 501K/503B contributions do as will taxes. This is why economists consistently point at increasing health care costs as causing pay to not increase. If it did, LOLOLOLOL at 30%. Try 40-50% for folks making 45-50K. Taxes then obviously change significantly based on state; in California this person is paying 8% state income tax and 22% federal income tax. Take out FICA at 7.65% and a 5% 501K deposit (matched...maybe?) - how does that look now?

#2 - Literally no value whatsoever is put on personal care costs. Apparently college grads don't need deodorant, cologne, or haircuts. Exercise? Buy...err...steal a bike!

#3 - Hope this person has no medical concerns of any kind, because there's no budget for medicine!

#4 - $5/day for groceries. Do you buy groceries in the year of our lord 2019? You're basically suggesting someone's diet consist of eggs, PB&J, and rice.

#5 - What 22/23 year old college graduate is getting full collision on a lease for $100/month?

#6 - The cheapest unlimited data/talk plan that exists is Metro-PCS's at $50/mo plus tax. You also need a phone. Do you think asking kids fresh out of college to eschew having a cell phone is a good idea if they want to have a career in a modern field of almost any sort?

#7 - I guess they don't need furniture. Or sheets. Or towels. I guess it all cleans itself, too.

#8 - $50 for clothing a month might be sufficient for a guy working IT where everyone just expects them to wear polos or even t-shirts, probably less so for anyone in other professional settings like law or business majors. And for women?

#9 - Nice that the car seems to have a permanently free parking spot wherever it goes.

#10 - Also nice that this graduate doesn't have to pay for any kind of certifications of memberships.

Of course there's states with lower taxes - Florida has no personal income tax. It would appear that average rent in Orlando (which is one of precious few places in Orlando where anyone can make a career, let's be honest, no one is rushing to make a living doing bioinformatics in Ocala) is about $1,320 a month for a 900 square foot apartment (avg. 2 bedroom unit; https://www.rentcafe.com/average-rent-market-trends/us/fl/orlando/), and of course you're more likely to be subjected to tolls to get to work too. The revenue has to come from something. Of course, people tend to move where the jobs are, and those places (predominantly on the coasts) are places with (high) personal income taxes, state/local sales taxes, et al. I'm not even going to bother to discuss what the cost is for a movie or streaming channels or video games, nor am I going to get into the cost of trying to, I dunno, date someone else.

Of course a person with absolutely ideal circumstances physically/mentally (e.g. able to sustain their body on 2,000 calories a day v/very lean protein) going into an industry where minimal expectations are put on professional appearance in a suburban location outside any of the most significant population centers/professional job hubs in the nation could do this. But let me also introduce you to something called "opportunity cost". Choosing a lower cost-of-living locale comes with the potential of opportunity cost - you very well might lose out on significantly higher earnings in both the short and long term because you aren't closer to where the action is in your industry. If you're a journalism major looking to break into the biz and you aren't in one of the top 10 media markets (really, top 3-4 if we're being completely honest), you're already done. You're finished. You have no future except to go into administration somewhere using your 4 year degree and shuttling coffee for people. That's not specific to that industry; it's specific to any industry. It's a significant part of microeconomic theory. And it's really the most damning part of the rebuttal I can offer.

Jeff, April 12, 2019, 10:07 AM #

The budget above has $500 still uncommitted.

#1: There is no universe where half of someone's paycheck is deducted, not even with healthcare. Where I work, all non-tax deductions, including an FSA plan, would amount to about 9% in the above scenario, and I have pretty mediocre benefits. Someone making $45k is not taxed 22%... it's 12% on the first $38k, which is all of it because of the standard deduction. It'll be 30% or less.

#2 & #4: I spend about $200/person/month on groceries, factoring in expensive convenience options from Schwan's and Whole Foods delivered. We could easily get that down to $150. Hygiene products are part of that spend.

#3: Still $500 uncommitted.

#5: OK, sure, so average rates are about $140 for that age bracket. See uncommitted $500.

#6: I pay on average $55/month for two lines on Google Fi.

#7: Welcome to life after college! My "couch" was a futon too. Get over it.

#8: If you're working in a law office, you can afford better clothes. If not, I strongly doubt it's more than business casual.

#9: I've never in my life paid for parking.

#10: If you say so.

I have a journalism degree. I don't work in journalism because it's a horrible business, but your expectations are pretty typical of people in the biz. I remember the obsession with market size, and that's all ego bullshit. I've still got friends making a comfortable living in markets like Cleveland (mid 20's rank, I think). But your expectation is mostly rooted in a general sense of entitlement that you're owed success in difficult professions. You don't get to skip the steps that involve being a little poor and gaining the experience that justifies higher pay.

I did all of this myself and survived it with realistic expectations. My financial profile, which was worse than today's averages since I chose to go to a private school and borrow heavily for it, made it difficult, and I worked through it.

Alan Conceicao, April 12, 2019, 10:54 AM #

>#1: There is no universe where half of someone's paycheck is deducted, not even with healthcare.<

That's because no one's paycheck has healthcare deducted from it. Contributions are shown in lieu of that. What do you think the cost to employers is for a run of the mill health plan?

>Where I work, all non-tax deductions, including an FSA plan, would amount to about 9% in the above scenario, and I have pretty mediocre benefits.<

Because you make an enormous amount of money, maybe. Do you think you pay for the accouning clerk's healthcare?

>Someone making $45k is not taxed 22%... it's 12% on the first $38k, which is all of it because of the standard deduction. It'll be 30% or less.

You're right. They'd only be taxed that highly on the last 7K or so.

>#2 & #4: I spend about $200/person/month on groceries, factoring in expensive convenience options from Schwan's and Whole Foods delivered. We could easily get that down to $150. Hygiene products are part of that spend.

So, you spend $600/month on groceries and one of the people in the household is eating like 1000 calories a day, primarily fruitsnacks and chicken nuggets, right? Again, also - you're a guy. So am I, for the record. I don't think either of us buy tampons, for example.

>#3: Still $500 uncommitted.

At some point, committing costs to these other lines adds up, bruh.

>#5: OK, sure, so average rates are about $140 for that age bracket. See uncommitted $500.

You just committed an additional $50 to "food" so someone could shave and eat meat once in awhile. Still can't buy aspirin, but alright. Now you have about $400 uncommitted. That's two of your lines. You start doing this to all of them, and that "uncommitted" portion is gonna get really small.

>#6: I pay on average $55/month for two lines on Google Fi.

Free phone?

>#7: Welcome to life after college! My "couch" was a futon too. Get over it.

You didn't even budget anything for that much furniture. You literally budgeted zero. I guess you're gonna just go with whatever's curbside and cart it home in your....Corolla?

>#8: If you're working in a law office, you can afford better clothes. If not, I strongly doubt it's more than business casual.

LOL at this. Do you think law grads find lots of jobs easily too?

>#9: I've never in my life paid for parking.

Parking here in Ann Arbor is $750 a year. You know, the midwest.

>#10: If you say so.

You made this budget up.

>I have a journalism degree. I don't work in journalism because it's a horrible business, but your expectations are pretty typical of people in the biz.

My expectations are typical because they are the reality of that industry. "lol just code" as a response to everyone would be remarkably tone deaf and I can't imagine you would seriously suggest that.

>I've still got friends making a comfortable living in markets like Cleveland (mid 20's rank, I think).

OK, great for them! Do you think the opportunities for working in the tech industry are equal between Seattle, Silicon Valley, and Cleveland? If so, what do you gain from lying to me?

>But your expectation is mostly rooted in a general sense of entitlement that you're owed success in difficult professions. You don't get to skip the steps that involve being a little poor and gaining the experience that justifies higher pay.

*My* expectation? No, buddy, no. One of us has actually looked at labor numbers in the last...ever?...and one of us is offering platitudes about how they had to walk 9 miles in the snow.

>My financial profile, which was worse than today's averages since I chose to go to a private school and borrow heavily for it, made it difficult, and I worked through it.

So this being based on the mean and all, you obviously recognize that the 51st percentile and up will have more debt than this.

Jeff, April 12, 2019, 9:15 PM #

You're so rage filled that you're not reading my responses... they're all contextual to the $45k scenario, not my own. Those friends in Cleveland I'm talking about aren't slinging code, they're slinging video cameras and reporter hair. And no, they wouldn't be taxed on the last $7k because the standard deduction means only $33k is taxable. Also, the first $9,525 is taxed at 10%.

I worked in shitty media jobs and survived. My first job was $38k (2018 dollars) working in TV. I made it work with more college debt than average and less salary than average. Unemployment was 5.5%, it's 3.8% now. And yeah, I did actually sling that futon in my Corolla, which was a real treat after the 8-year-old pile of rust I drove for two years before that, with its leaking gas tank see-through fenders.

If you wanna take the Pepsi challenge over who had a harder time starting out after college, I guarantee I'll win, but I didn't complain about it because I expected it.

Alan Conceicao, April 13, 2019, 2:06 AM #

>You're so rage filled that you're not reading my responses...

I literally replied point by point?

>they're all contextual to the $45k scenario, not my own.

I think I pretty well covered that?

>Those friends in Cleveland I'm talking about aren't slinging code,

Is this your way of telling me microeconomics isn't real?

>they're slinging video cameras and reporter hair. And no, they wouldn't be taxed on the last $7k because the standard deduction means only $33k is taxable. Also, the first $9,525 is taxed at 10%.

Federally, yes.

>I worked in shitty media jobs and survived.

Well, yeah, in no small part to your abandoning of media jobs. Do you think your situation is perfectly analgous now in that field vs. 20+ years ago before the advent of streaming media and the majority of ad revenue moved to the internet?

>Unemployment was 5.5%, it's 3.8% now.

Do you want me to explain to you what "full employment" is or how it has an upward effect on pay?

>And yeah, I did actually sling that futon in my Corolla, which was a real treat after the 8-year-old pile of rust I drove for two years before that, with its leaking gas tank see-through fenders.

Good anecdote.

>If you wanna take the Pepsi challenge over who had a harder time starting out after college, I guarantee I'll win, but I didn't complain about it because I expected it.

Have I complained once about my time starting out after college? Like even a single time? Or did you imagine that?

Jeff, April 13, 2019, 5:25 PM #

If you aren't complaining about it or trying to win a "life is hard" trophy, then what's your point?

Alan Conceicao, April 13, 2019, 7:32 PM #

Your argument is primarily an emotional one: *you* were able to survive off this budget (though you ultimately totally changed career trajectories; seems relevant), *you believe* that it is a necessity to "be a little poor" post-college, and *you* see your experiences as being entirely analgous to what the average/all college graduates should be expecting. You haven't actually argued why in any sense what you're arguing as necessary is defendable via labor market dynamics, especially in the present day, other than to perhaps accidentally argue on behalf of monosopy power for the sake of itself. It's pretty clear that you see the "be a little poor" mentality post-graduation for however long that should be as a gatekeeping mechanism, presumably to only allow the serious talent in (though you never actually get to the point of describing the rationale obviously, since I don't think you even identify *why* it's important).

You (and the other poster) seem keen to sustain the system - even one in an industry you find to be somewhat reprehensible! - for reasons unknown other than presumably you are uncomfortable with the idea that people are provided for more reasonably in exchange for labor at a younger age. It isn't "snowflakery" to ask you why you would think that it costs a similar amount to sustain a 23 year old female as it does your elementary school age child, especially when you publicly ask for consult. There might be better words to describe the feeling that you are the model for all university graduates than "snowflake." I'll let you work that one out independently.

Yes, this isn't about me - my life is A-OK. I've got a house, job (2 of them - purely by choice because I love money and the impact of what I do), wife of 10 years, sustainable household income that keeps me well into the top quarter of national households, and outside of my piddly midwestern mortgage, no debt whatsoever of any kind. It's the concern I have for the undergraduate and graduate students that I've worked around for the last decade at huge "name brand" research institutions. When I see that Research Technician positions that require four year degrees and bench experience are paying less than the Aldi's warehouse who will hire anyone with a pulse or rural truck stops/gas stations, I'm dumbfounded. These same people making these ridiculous calls on labor value then have the audacity to complain they can't get anyone good who shows up consistently! Absolute crazy world, and yet here we are. I'm at least self aware enough to recognize that a significant part of my success is due to sheer luck and being able to pass for a normal white guy and not because I "worked really hard" regardless of just how many hours of sweat equity I've got in anything (well, that and realizing that only legal equity matters, sweat equity ain't real). It's obvious when others don't.

Jeff, April 14, 2019, 11:48 AM #

I'm not going to try and respond to the dozens of assumptions you're making. My point from the start is simply that one can live on $45k out of college, is not entitled to more, and Americans have been doing it that way since the industrial revolution. My point is that the *system* isn't the thing that has changed... it's the expectations. Even then, it's not the expectations of everyone. Certainly I know plenty of millennials, going through the same arc I did, college debt and all. They don't think the system is broken, they realistically see that they start at the bottom, and the bottom has never been lucrative.

So you're dumbfounded that a job requiring an education pays less than a warehouse job... what don't you understand about that? Sounds like a supply and demand problem, which gets back to the question about why people go to college and what problem it solves. Going to school is a choice (as if borrowing for it), and like all choices, you should think about what the outcomes are. If I go to school for some specific academic pursuit that has little demand, I can expect it won't pay well. But I could go to school for nursing and know the salary averages $65k in Florida right now, with fairly strong demand.

And you're damn right I switched careers... that was a choice too. For the record, I had almost paid off my loans when I switched after five years, but I would have been on that trajectory regardless. Before the switch, I enjoyed a nice 1,100 sqft. apartment with my then girlfriend (interestingly, that place is still only $844 in the Cleveland suburbs). I could have stayed in that job for a long time and been comfortable, if not killing it. But I *chose* to go faster in another industry, because I saw an opportunity.

Alan Conceicao, April 14, 2019, 9:04 PM #

>=My point from the start is simply that one can live on $45k out of college, is not entitled to more, and Americans have been doing it that way since the industrial revolution. <

The economy that we have literally will collapse were people to revert to lifestyles akin to those of the early or even mid 20th centuries. The fact that people "aren't entitled" to these things doesn't mean that there aren't consequences.

>My point is that the *system* isn't the thing that has changed... it's the expectations.<

The expectations of what and/or whom specifically?

>Even then, it's not the expectations of everyone. Certainly I know plenty of millennials, going through the same arc I did, college debt and all. They don't think the system is broken, they realistically see that they start at the bottom, and the bottom has never been lucrative.<

The anecdotal millennial, good choice.

>So you're dumbfounded that a job requiring an education pays less than a warehouse job... what don't you understand about that? Sounds like a supply and demand problem,

You think there's a supply and demand issue in the labor force that wholly untrained labor can earn more money than trained labor? Run that by me again.

>Going to school is a choice (as if borrowing for it)

If you intend to maximize your income, there pretty much isn't any choice but to go after college degrees. There's sparse examples to the contrary.

>, and like all choices, you should think about what the outcomes are.

Lots to unpack here, like the fact that kids have generally been pushed into going to universities for decades (leading to massive enrollment increases post-war) based on the statistics that say...

>If I go to school for some specific academic pursuit that has little demand, I can expect it won't pay well.

...that any undergraduate degree will lead to better job opportunities than a high school diploma only. Wild that you're arguing this while ALSO arguing for low pay in "high demand" labor sectors. You still haven't explained why you think this is good.

>But I could go to school for nursing and know the salary averages $65k in Florida right now, with fairly strong demand.

Since I know people in nursing, and I know what's involved with obtaining access to nursing school, and I know what job prospects immediately out of college are for nursing grads (their resumes are getting round binned without 3 years prior experience for those gigs), the idea that this is simply just an alternative to being a journalism major rather than a vastly different path involving tremendously disparate skill sets is difficult to communicate in words. Same goes for people in any skilled industry. If you aren't paying people starting salaries commensurate with the "risk" involved with years of school and ringing up debt, you're naturally going to be left with a consistent shortage regardless of how many education slots exist (which is the fundamental link break, BTW, for nurses and doctors). You can try to justify that all you want in terms of your own life experience as against the present mean, but it doesn't change anything.

Jeff, April 14, 2019, 9:54 PM #

That you can't understand why supply and demand matters says everything I need to know about your position. You can go to school for the most highly skilled thing on the planet, but it doesn't mean anything if no one needs it. Conversely, shoveling horse shit requires no skill at all, but if no one wants to do it, it could be lucrative. That isn't hard math.

Alan Conceicao, April 14, 2019, 11:06 PM #

>That you can't understand why supply and demand matters says everything I need to know about your position.

You're trotting out stuff that intentionally undermines the argument you're attempting to make. How do you think a 3.8% unemployment rate is evidence for the position that companies hiring for skilled positions should low ball laborer? You have to understand this. You have to. It isn't possible to be this incorrect.

>You can go to school for the most highly skilled thing on the planet, but it doesn't mean anything if no one needs it.

In a vacuum that someone can go get a degree in an incredibly highly skilled thing that has no potential crossover with any other field whatsoever on the planet, yes, this would be true and a sensible position.

>Conversely, shoveling horse shit requires no skill at all, but if no one wants to do it, it could be lucrative. That isn't hard math.

It "could" be lucrative so long as a number of conditions are met by the company who is set up to shovel the horse shit to justify increasing wages at the entry level. Undoubtedly you should also know this, because you're hardly a guy banging the drum that Cedar Fair needs to increase pay in spite of being consistently understaffed for at least a generation. How this is different from tech - which I'm told is needing bodies to do labor! - is an interesting conundurum to say the least.

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