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The idea behind the lecture was to provide very basic information that the average computer science student needs, and that my friends and I found that we were not given by the time we had graduated from college. Some of the advice here is from my own experience, but a lot is also from the experience of friends, several of whom kindly shared advice they wished they’d gotten earlier.
I should emphasize that the advice here is not comprehensive. It is intended simply to ensure someone starts out with some basic information. For more complete advice you will need to consult a financial advisor and, possibly, a lawyer. Keep in mind, too, that the advice here is heavily tuned for computer science and electrical engineering students who plan to work for high-tech firms in California.
Money
A lot of the advice has to do with handling money, so let’s start there.
Salary and Taxes
I asked contacts in human resources at some Silicon Valley companies what they paid new undergraduates. The salary range was from the mid-40s to the low-50s. Table 1 shows roughly how much you actually receive per month, after taxes, on such a salary if you live in California.
A few comments are in order. First, you’re paying a lot of money in taxes. You’re in the highest state tax bracket (9.3%). You’re in the 28% Federal tax bracket and likely in a few years to graduate to the 31% bracket. Basically that means that for every new dollar you receive in salary or interest on your bank account, you only get 60 cents after taxes. That point is worth repeating another way: an extra dollar in salary is not really a dollar, it is 60 cents.
It is also important to remember to prepare to pay your taxes. If you somehow receive $10,000 without the taxes taken out, remember that you need to put $4,000 away to pay your taxes. People have been known to spend windfalls on a new car, or a down payment on a house, only to scramble to pay the tax bill at the end of the year.
The last major point of Table 1 is that, even after taxes, you have a lot of money. Despite the cost of living in Silicon Valley (and we’ll get to living expenses in a moment) you’re taking enough money home each month to support a family, not just one person. By some standards you’re even considered rich, because with a salary like this at age 22, trends say you’ll be wealthy when you’re 40. People who sell luxury goods will be beating a path to your door. Ignore them. A more serious concern is that you’re worth suing: you can pay a several hundred thousand-dollar judgement spread out over several years. So make sure you’ve got lots of liability insurance on your auto insurance.
Living Expenses
So how much does it cost you to live each month? That’s a question Table 2 tries to answer.
Rent is your biggest expense. The best advice I can give you is that you learned in college how to live with roommates and now is a good time to put that learning to use. Rent a house or apartment with some roommates for a few years. Renting a nice apartment by yourself is extremely expensive in Silicon Valley (it can easily run $1800/mo, which is more than you can afford) and you don’t need that much space. So share space, and put the money you save someplace useful.
The second biggest expense is your car. The car expenses here include gas, the cost of car payments or saving to buy the next car, repair costs and insurance. An important tip: as a new rich person, you’re exactly the kind of person whom auto salespeople want to persuade to buy an expensive car. You can afford something fancy ($35K+ car), but don’t do it. For one thing, expensive cars not only cost more to buy, but also increase your insurance and usually cost more to get serviced. Buy a good quality used or, if you must, new car in the less expensive class (under $22K). It will do just as a good a job of getting you to work as the more expensive car.
Food is the next biggest expense. The costs here assume you know how to cook. If you don’t know how to cook, you should learn. If you cook, you’ll eat very well on $10 per day (and that includes a morning stop at Starbucks for coffee). If you don’t cook, you can easily spend double that, which works out to $3,600 more (after tax!) per year.
Benefits are probably your next biggest expense. I’ll talk about benefits in a moment. Finally, there’s paying off your college loans.
There are other expenses, such as clothes and telephone and cable TV bills. Rather than track all these little bills separately, I suggest you do something simple. Give yourself an allowance, say $500 a month, to cover clothes (Silicon Valley doesn’t require expensive clothing), telephone, cable TV, dates, and things like skiing trips at Tahoe. And have the rest of your money direct deposited into a savings account, where you won’t see it when you pull up your checking account balance at the ATM machine.
Benefits
A feature of your job compensation that people don’t discuss enough is benefits. Your employer typically provides a bunch of benefits, for which you pay a little bit and your employer pays the lion’s share. Here are a few tips about benefits.
You need medical insurance. Take the time to read the plan benefits carefully. Reimbursement plans vary widely.
Your most important benefit after medical insurance is disability insurance. Suppose you’re in an auto accident and are paralyzed, or you get such a bad case of carpal tunnel you can’t work for two years. Where do you get the money to support yourself? The answer is disability insurance. A typical disability insurance benefit will pay you 60% of your current salary if you are disabled, and you’ll need every cent.
Unless you’ve got someone who depends on you (children, elderly parent) for financial support, you typically do not need life insurance. If you do have a dependent, talk to an accountant to figure out how much life insurance you need. It may be a lot (like $1 million or more).
I should emphasize that the advice here is not comprehensive. It is intended simply to ensure someone starts out with some basic information. For more complete advice you will need to consult a financial advisor and, possibly, a lawyer. Keep in mind, too, that the advice here is heavily tuned for computer science and electrical engineering students who plan to work for high-tech firms in California.
Money
A lot of the advice has to do with handling money, so let’s start there.
Salary and Taxes
Table 1: Salary and Taxes for a New Computer Science Graduate | ||
Annual | Monthly | |
Salary | 50,000 | 4,167 |
| Federal Tax | 8,899 | 742 |
| State Tax | 2,759 | 230 |
| Medicare | 725 | 60 |
| Social Security | 3,100 | 258 |
| Net after taxes | 34,517 | 2,877 |
I asked contacts in human resources at some Silicon Valley companies what they paid new undergraduates. The salary range was from the mid-40s to the low-50s. Table 1 shows roughly how much you actually receive per month, after taxes, on such a salary if you live in California.
A few comments are in order. First, you’re paying a lot of money in taxes. You’re in the highest state tax bracket (9.3%). You’re in the 28% Federal tax bracket and likely in a few years to graduate to the 31% bracket. Basically that means that for every new dollar you receive in salary or interest on your bank account, you only get 60 cents after taxes. That point is worth repeating another way: an extra dollar in salary is not really a dollar, it is 60 cents.
It is also important to remember to prepare to pay your taxes. If you somehow receive $10,000 without the taxes taken out, remember that you need to put $4,000 away to pay your taxes. People have been known to spend windfalls on a new car, or a down payment on a house, only to scramble to pay the tax bill at the end of the year.
The last major point of Table 1 is that, even after taxes, you have a lot of money. Despite the cost of living in Silicon Valley (and we’ll get to living expenses in a moment) you’re taking enough money home each month to support a family, not just one person. By some standards you’re even considered rich, because with a salary like this at age 22, trends say you’ll be wealthy when you’re 40. People who sell luxury goods will be beating a path to your door. Ignore them. A more serious concern is that you’re worth suing: you can pay a several hundred thousand-dollar judgement spread out over several years. So make sure you’ve got lots of liability insurance on your auto insurance.
Living Expenses
So how much does it cost you to live each month? That’s a question Table 2 tries to answer.
Table 2: Living Expenses | ||
Yearly | Monthly | |
| Car Expenses | 6,800 | 567 |
| Benefits | 2,000 | 167 |
| Rent (shared @ $600/mo) | 7,200 | 600 |
| Food | 3,600 | 300 |
| College Debt | 1,200 | 100 |
Net | 13,717 | 1143 |
Rent is your biggest expense. The best advice I can give you is that you learned in college how to live with roommates and now is a good time to put that learning to use. Rent a house or apartment with some roommates for a few years. Renting a nice apartment by yourself is extremely expensive in Silicon Valley (it can easily run $1800/mo, which is more than you can afford) and you don’t need that much space. So share space, and put the money you save someplace useful.
The second biggest expense is your car. The car expenses here include gas, the cost of car payments or saving to buy the next car, repair costs and insurance. An important tip: as a new rich person, you’re exactly the kind of person whom auto salespeople want to persuade to buy an expensive car. You can afford something fancy ($35K+ car), but don’t do it. For one thing, expensive cars not only cost more to buy, but also increase your insurance and usually cost more to get serviced. Buy a good quality used or, if you must, new car in the less expensive class (under $22K). It will do just as a good a job of getting you to work as the more expensive car.
Food is the next biggest expense. The costs here assume you know how to cook. If you don’t know how to cook, you should learn. If you cook, you’ll eat very well on $10 per day (and that includes a morning stop at Starbucks for coffee). If you don’t cook, you can easily spend double that, which works out to $3,600 more (after tax!) per year.
Benefits are probably your next biggest expense. I’ll talk about benefits in a moment. Finally, there’s paying off your college loans.
There are other expenses, such as clothes and telephone and cable TV bills. Rather than track all these little bills separately, I suggest you do something simple. Give yourself an allowance, say $500 a month, to cover clothes (Silicon Valley doesn’t require expensive clothing), telephone, cable TV, dates, and things like skiing trips at Tahoe. And have the rest of your money direct deposited into a savings account, where you won’t see it when you pull up your checking account balance at the ATM machine.
Benefits
A feature of your job compensation that people don’t discuss enough is benefits. Your employer typically provides a bunch of benefits, for which you pay a little bit and your employer pays the lion’s share. Here are a few tips about benefits.
You need medical insurance. Take the time to read the plan benefits carefully. Reimbursement plans vary widely.
Your most important benefit after medical insurance is disability insurance. Suppose you’re in an auto accident and are paralyzed, or you get such a bad case of carpal tunnel you can’t work for two years. Where do you get the money to support yourself? The answer is disability insurance. A typical disability insurance benefit will pay you 60% of your current salary if you are disabled, and you’ll need every cent.
Unless you’ve got someone who depends on you (children, elderly parent) for financial support, you typically do not need life insurance. If you do have a dependent, talk to an accountant to figure out how much life insurance you need. It may be a lot (like $1 million or more).
