Friday, May 2, 2008

Throughout college I had a goal of amassing a sizable emergency fund before graduating so I could begin the next phase of my life with a greater sense of security, but I've been rethinking just how large that fund needs to be. My recent bond purchases mean I'll have a somewhat smaller liquid emergency fund, and I think that's ok. Saving for retirement and earning returns high enough to combat inflation are somewhat larger priorities than liquidity for me right now.

After my cd matures next week, I should have enough money to fund a Roth for 2008, cover my summer expenses, and still keep about $7,000 liquid. There are several reasons that should be enough:
  • I'm single and have no dependents. If other people relied on my income to meet their basic expenses, larger reserves would be necessary.
  • I have a job lined up for after graduation, and it is in a fairly stable field. There is an ongoing shortage of qualified physics and math teachers in most areas of the country so a recession probably wouldn't leave me unable to find employment.
  • I have no debts of any kind. If I lost my job, I would only need to worry about taking care of my ongoing expenses rather than having to pay creditors as well.
  • I'll be in a low cost of living area and have roommates. My obligatory monthly expenses should be fairly low, enabling me to live for quite a while on a few thousand dollars if I spend only on true necessities, as I would if I lost my job or had to rebuild my savings account from scratch following some major emergency.
  • My e-fund won't be my sole financial resource. Taking principal from a Roth IRA is rarely a good idea, but if I needed the money to put food on the table, it would be an option.
Beginning in April 2009, it will be possible to cash out the $3,000 in I Bonds that I bought this month, and at that point they too will be something I can draw on if necessary. It's hard to envision a scenario in which I'd spend over $7,000 more than my income in the course of one year. As soon as I get my first paycheck I plan to start socking away money for car repairs and/or eventual replacement, but even if I had to find a new vehicle tomorrow, I could get a decent used car without totally wiping out my savings account.

I think I have a reasonable plan and will be in better financial shape that most people who are fresh out of university, but I'm fairly new at this whole adulthood thing so there are probably a lot of important factors that haven't occurred to me. If you have any suggestions for additional things to think about or have any words of wisdom on surviving the transition from college to work, please do share.


Anonymous said...

You are golden. I wasn't pf savvy in college (though I was no spend thrift) so I started my new job with less than $500 in the bank. And I owes my dad $500! Luckily everything worked out. I did have a good job secured, but I don't know if I could be so carefree these days!

Words of wisdom... I have no wisdom here. :) It'll be hard at times to stop being a student, to be on your own, make new friends and create your own life. But from what I've read, you will be able to handle it

Fabulously Broke said...

I agree. You're so smart to have started early --- I'm linking this in my next round of link love

And you are totally on the right track in my opinion!

DogAteMyFinances said...

You're going to have to move, right? So, you know you'll need a little money for a UHaul and probably first and last month's deposit.

That's not 7K, but it is important to have. I had to borrow from my parents for my first deposit. Not fun.

E.C. said...

I've been including an estimate of what I figure deposits and the first month's rent will cost in my planned summer expenses so I hope the $7,000 will be what remains after that and the Roth. As far as moving goes, I haven't yet been able to dissuade my mother from persisting in her plan to rent a UHaul and help me move my stuff.