Depending on how often you expect to need an emergency fund and what the relevant interest rates are for illiquid saving (eg: paying down student loan debt) and unsecured borrowing, it may make more sense to have your emergency fund in an unsecured line of credit or credit cards.

Example with made-up numbers: Suppose you spend $2000/mo, you have an unused line of credit of $10000 @ 10%, your student loans are at 5%, and you are taking home $4000/mo. If you have an emergency that costs $2000 that hits your line of credit, that ends up roughly being an extra month servicing $2000 of debt at 10% instead of 5%. If you keep $2000 in cash instead of paying down student loan debt, that ends up meaning you service $2000 of debt at 5% instead of paying it down. These are roughly the same thing, so you wind up ahead if the LoC is sitting empty ~50% of the time.

Granted, these are much more favorable numbers than typical use of credit card debt, but the point remains - if you have access to credit on good terms, and you won't need it often, and you have good illiquid returns on excess cash, you ought to take a look at using credit to handle emergencies instead of cash.

Make sure to be diligent in checking the terms for that LOC. Many banks reserve the right to cancel it if there's substantial change in your financial situation, e.g. if you were to lose your job.

Make sure your emergency fund remains accessible if you get into an emergency.

Lines of credit can be revoked immediately. I have family members who relied on a line of credit only to have the limit dropped and the interest rate hiked by 10%.

The low yield on the emergency cash laying in a checking account is to compensate for its liquidity.

I was taught:

For the first 2 years, live on 50% of your income. Eat Ramen, coupons, live like a begger, and save up 1 year of income.

Then divide that by 12 and use that as a salary for a year while collecting another year. Repeat. Steady income, always a year behind.

Of course this was back when I was trying to go into film. A bit more unstable than software development.

Interesting, I hadn't heard of this before. That said, it's not easy in some cities where rent is 40-50% of your income.

> Eat Ramen, coupons, live like a begger, and save up 1 year of income.

It's unsexy, but one doesn't have to live in the hottest part of town, or go to the newest restaurants every weekend.

But the problem is that people are to led to believe that programming == tech money == big living, when it's really decent middle-class living which means one should still budget, which may mean not keeping up with the Joneses.

That being said, 50% is really a stretch these days. 25% would be more realistic for most yuppies in America, and 33% for those more financial prudent.

I'd call the lifestyle by most new grads in San Francisco to be on par with the middle-class lifestyle. I think your percentages are way off but the gross dollar values are acceptable when compared to other U.S. locales.

Most new grads in San Francisco are likely eating up most of their income on taxes, rent, and repayment of student loans. After contributing the maximum of $18k to their retirement plan and some modest savings, they likely have enough for one night out per week.

    100000 - 18000 # starting salary minus retirement contribution
    =82000
     82000 * 0.39  # tax before tax refund
    =31980
     82000 - 31980 # salary after taxes and retirement
    =50020
      1200 * 12    # annual rent for a bedroom in a shared house in untrendy area
                   # this $1200 figure is from other posters in this thread
                   # and an cursory look through craigslist
    =14400
     50020 - 14400 # disposable income minus rent
    =35620
       500 * 12    # annual student loan payment for $50k, 120 month loan
    = 6000
     35620 - 6000
    =29620
     29620 / 12    # remaining income per month
    = 2468

$2468 per month to save, spend on food, transportation, et cetera is pretty damn good. I think it leaves about $1000 per month for savings, considering groceries, utilities, recreation, transportation, and miscellaneous expenses.

10% savings sounds bad but the dollar amount is not too terrible. I'm assuming the retirement savings weren't part of the equation, since they can't be readily used for support during unemployment. Overall, the San Francisco Bay Area is not a good place to save money. I think the financially prudent step is to not move to it.

If anyone disagrees with my numbers, please speak up! I would love to be able to optimize my own spending or make suggestions to my new grad friends.

Great job with the break down--the numbers seem spot on. I just checked my spending for September and I spent $1600 for discretionary; and this was with larger family dinners where I paid, and also a weekend trip to LA with friends. I'm more on the frugal side, though.

In regards to the 10% vs 25%, I believe most guidelines account for retirement saving. So with your numbers, we'd be at 28% which isn't too shabby. But yeah, in terms of getting six months worth of savings..

    1200 # rent
     500 # student loans
    1200 # discretionary
   =1900
    1900 * 6
   11400 / 1000
   =  11.4

We'd need 12 months, which isn't unrealistic either. I figured one can easily live on $1200 for discretionary when unemployed. $300 for utilities, $600 for food ($20/day), $300 for whatever else. Just can't be blogging from Sightglass every day.

>6 months living expenses is on the high side

Not at all. Whatever causes the emergency is likely to come with unexpected costs of its own, so 6 months salary is more of a minimum in my opinion.

Minimum compared to what though? Saving at 20%, building 6 months of reserves takes 2.5 years. Do you not live until that time?

In my case, I was trying to save between 40 and 50 % untill I hit the reserve. After that, I relaxed it to 10-20 %.

You live on the other 80%.

By "live", I mean "do the optional parts of life", like vacation, date, spend money on hobbies, rent a place other than the cardboard box under the bridge, etc.

The problem with an absolute is its absoluteness.

So, you just need to acknowledge the risk you're taking on. You can "live", but if you lose your job and are unable to get one for 6-12 months, then not having a savings will be a disaster. What if you're disabled? You'll have to hire a lawyer to help you get on SS, and in the meantime you can't break your apartment lease or car payments to dynamically lower your cost of living quickly.

It's just a classic retelling of The Ant and the Grasshopper https://en.wikipedia.org/wiki/The_Ant_and_the_Grasshopper

I've also found that the things you mentioned--- vacation, dates, hobbies, are actually more flexible than you think. Lift tickets make skiing an expensive hobby. But hiking or snowshoeing gives you a somewhat similar experience for much less. You can do some research on yelp and pretty easily control the cost of your dates, and once you're serious with someone, they don't/shouldn't care about you being frugal. Similarly, vacations can be done on the cheap. A vacation doesn't mean a trip to Europe, it could mean finding some cool small town nearby and enjoying it. (I feel pretty ashamed at how little I've explored the Western united states, despite having been to Europe & China.)

I'd also say-- you work as a programmer. If you have friends in their 20s/30s who are non-programmers, you should ask or estimate what they're making. They're probably having as much fun as you for much less.

> So, you just need to acknowledge the risk you're taking on.

Exactly. Every important decision is a risk and rewards assessment. A high risk is obviated by a high enough reward, and vice versa.

>By "live", I mean "do the optional parts of life", like vacation, date, spend money on hobbies, rent a place other than the cardboard box under the bridge, etc.

If you're hit by a financial emergency, those things are exactly what you won't have the money to do anyway. At least now you can make decisions about what to cut while not under stress and the impeding deadline of bills coming due.

Pay out now or pay out much more later; it's your choice.

I don't know how people can sleep at night not having an emergency fund. I have a couple of time got close to running this out when I was a poor student and I found it incredibly stressful.

Luckily for me, I have never needed my emergency fund. But I'm the same as you, I don't know how people can sleep at night without one. I've been close to the edge at times and it is incredibly stressful.

People seem so comfortable carrying a massive amount of debt.

I'm currently on the best paying job I've ever had, and although the financial planners around would say that I'm holding too much liquid assets (I'm not sure what to invest in), it certainly makes me sleep well at night knowing that I could survive frugally but comfortably for probably 2 or more years without a job.

Try starting out with zero, and having zero income, and zero rich uncles. People talk about these things like they're a given. I'm not saying anything about you personally, but there are different kinds of poor for every "poor student".

That is exactly how I started out. If I had been born in the USA I would never have been able to go to university.

I call it FU savings. Mainly because if you get tired of your employer, you can tell them to take their job and shove it. Move on to better pastures, and not have to worry about paying bills while you look.

I've done it twice, and there's nothing like having that fund (and also being unsecured debt-free) backing you up. Each time I made my choice to leave my employer, I had a new job lined up within a couple of months - and I had negotiated a higher salary to boot.

The best way to go about getting such a savings set up is to first plan a realistic budget. Then, pay down any unsecured debt, starting with the smallest debt owed first. Roll that payment, once the debt is paid back, into the next debt, until you have all your debt paid off.

At that point, you should be left with no unsecured debt; a mortgage can be considered OK (as it is secured by your equity) - but if you can pay that off too, so much the better. Usually, though, it's better to keep it for tax deduction purposes.

Don't have a car payment - if you aren't paying cash for a used (but reliable) car, and paying for it in full - you are likely wasting your money.

There's more tips out there than just the above, but them's the basics - basically. Once you become "debt free" in this manner - a great burden will be lifted from your shoulders. I'm serious.

And once you get your FU savings set up (bank for at least 6 months to a year - but ultimately, just keep building the savings as you have available cash - you may never know when you'll need it) - you'll be free to do as you please with your career and goals.

Easy to do when you make six figures and don't have a mortgage and a wife. That said I'm trying to do just this on 70k with a mortgage and a wife.

Edit: easier to do