Author Topic: Aspiring Mustachian - Seeking advice regarding saving vs. investing  (Read 435 times)

Crease

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Good morning Mustachians!

I am so happy to have found this website and this community. It is perfect timing too--I am a young 30 and about to begin my dream job. I'm also somewhat obsessed with personal improvement. On this note, I'd like to get a consensus regarding an appropriate save/invest ratio for my specific circumstances. This is my situation:

Annual Salary: $ 125,000

Monthly Expenses: $ 2,900
  • Rent: 1,500
  • Utilities: 75
  • Internet: 30
  • Cell Phone: 60
  • Transportation: 125
  • Food: 400
  • Doggo: 125
  • Gym: 70
  • Households: 150
  • Miscellaneous: 150
  • Student Loans: 200 (pre new job)

Cash: $ 14,000

Student Loans: $ 140,000
  • Fn 1: The loans are a mix of Direct Subsidized, Direct Unsubsidized, and Direct Grad PLUS.
  • Fn 2: The loans are distributed evenly across interest rates ranging from 5.4 % to 7.2 %.

Available Credit: $18,000
  • Chase Slate: Zero balance, $ 3,000 limit, 17.75 % APR
  • World of Hyatt: Zero balance, $ 5,000 limit, 17 % APR
  • Barclaycard Visa: Zero balance, $ 10,000 limit, 27.75 % APR
  • Fn 3: These are legacy cards from my full-time student days.

Strategy: This is where I need help. I'm terribly risk adverse and feel compelled to maintain "enough" cash to cover unforeseen emergencies or long-term unemployment. What is "enough" I just don't know. I also feel urgency to begin saving and investing for retirement. And of course, the student loans. In short, I don't have a good sense on how to allocate my new paycheck. Thoughts? Thank you in advance :)


« Last Edit: November 09, 2017, 08:46:58 AM by Crease »

Maenad

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Re: Aspiring Mustachian - Seeking advice regarding saving vs. investing
« Reply #1 on: November 09, 2017, 08:52:16 AM »
https://forum.mrmoneymustache.com/investor-alley/investment-order/

Generally, you start with 6 months' living expenses in an emergency fund and then start attacking debt and investing.

Crease

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Re: Aspiring Mustachian - Seeking advice regarding saving vs. investing
« Reply #2 on: November 09, 2017, 09:44:30 AM »
https://forum.mrmoneymustache.com/investor-alley/investment-order/

Generally, you start with 6 months' living expenses in an emergency fund and then start attacking debt and investing.

Maenad, thank you for the link. This is a great resource!

rubybeth

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Re: Aspiring Mustachian - Seeking advice regarding saving vs. investing
« Reply #3 on: November 09, 2017, 11:20:31 AM »
6 months of expenses at $2,900/mo is $17,400, in savings account a 1.25% is not a great way to get out of debt. I think you'd be better of throwing more money at the higher interest student loans. Maybe it would help you to figure out your deductible on insurances--medical, auto, etc. that you'd be on the hook for in case of a true emergency, and also estimate how much in unemployment you'd receive in case of a layoff, and estimate your emergency fund goal from there. While my DH and I were paying off our student loans, we kept between $5-10k in cash to cover things, and we ended up being able to replace both of our aging vehicles out of those funds ($6-7k vehicles) when we needed to while we were still aggressively paying down debt. I think your $14k in cash is likely just fine, if perhaps a bit much--can you knock out any of the student loans by tapping that?

Also, you don't mention if your job has a 401k match--even when you have debt, it's a good idea to at least contribute enough to get any matching funds--it might be around 3% or 3% but that adds up over time.
"Done is the engine of more." - the Done Manifesto

Wayward

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Re: Aspiring Mustachian - Seeking advice regarding saving vs. investing
« Reply #4 on: November 09, 2017, 12:29:02 PM »
https://forum.mrmoneymustache.com/investor-alley/investment-order/

First, congratulations on landing your dream job!  +1 on the link regarding investment order 

1.)   I would say you already have enough saved for the “emergency fund” step.  Your checking account is just the first stop of your money, make sure to give those dollars a job, I don't believe in keeping much in checking personally.  If you would like to optimize this further I would suggest opening an Ally bank account (currently 1.20% interest rate) and keep a month or two worth of spending in it, it’s better than 0 and only takes a couple days to transfer back if you need it.  Also, if you don’t mind some upfront work, check out how to get 5% interest savings here: https://financialpanther.com/netspend-account/
2.)   Make sure you contribute up to any employer match for your 401k, who doesn’t want free money?  Traditional may be the way to go to considering your income
3.)   Keep tracking your spending diligently.  There are some items you mentioned that could be reduced.  If you are single perhaps finding a roommate or two?  Food and household costs seem high for one person, etc.
4.)   Beware lifestyle inflation!  It’s easy to get caught up, especially making 125k, but your student loans need to die a quick death before you can focus on retirement savings.  Throw any extra money at them NOW, interest compounding against you is the enemy.  Check out https://undebt.it/?lang=en to see if the snowball (lowest interest rate first) or avalanche (highest interest rate first) method would be best for you.

Best of luck :)
Play a game to pay of student debt with Givling, sign up with code RW411953!

Sign up for a 5% interest savings account with NetSpend here: http://www.mynetspendcard.com code 3230468760
(info at https://www.financialpanther.co/netspend-account/)

Crease

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Re: Aspiring Mustachian - Seeking advice regarding saving vs. investing
« Reply #5 on: November 09, 2017, 12:51:13 PM »
Thank you Rubybeth and Wayward!

It is comforting to hear those who have been through the grind say I have enough in the emergency fund. Factoring deductibles and unemployment insurance also helps to take the edge off the uncertainty, good idea Ruby.

Regarding rent expense, I share a small apartment with my wife in Manhattan where I also work (she's a full-time student for another 12 months). $ 1500 is about as cheap as it gets for a one-bedroom apartment there. In the next few months, I'm going to sort out whether there are savings to be had by moving to the outer boroughs or New Jersey. Rent is a bit cheaper in some spots out there but I worry the savings will be offset by the need to get a car or an additional public transportation pass.

Regarding food expense, I can probably do better. I'm eying apartments in East Harlem and Queens within walking distance to a Costco and/or Target. Right now I take the subway once a week to a Fairway where I load up on chicken thighs, vegetables, quinoa, and coffee. That adds up to about $90 right there. Bring lunch to work everyday, avoid Starbucks, and try not to eat out more than once per week. Still, I'm sure there's room for improvement.
« Last Edit: November 09, 2017, 12:55:24 PM by Crease »

Wayward

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Re: Aspiring Mustachian - Seeking advice regarding saving vs. investing
« Reply #6 on: November 13, 2017, 08:19:27 AM »
That rent is actually very reasonable for Manhattan!  I was born and raised in New Jersey, lived in Jersey City for college and briefly lived in Staten Island, NY (currently looking to relocate west for COL and quality of life).  When I was living in NY and working in NJ I always ended up owing money on taxes – had to pay taxes for NJ and NY State and city (the job refused to take out for city taxes).  So just make sure you consider the additional taxes!  Also, look into how much it will cost for public transit to and from the city, etc. per month.  I’m not sure if the difference in rent would make it more affordable than what you have now, but I do know many people who live in New Jersey and work in the city.

You may wish to check out this article about a woman who retired at 28 while living in NYC! https://www.forbes.com/sites/mayakachroolevine/2017/01/24/is-it-possible-to-retire-before-30-in-the-most-expensive-city-in-the-u-s/#7bf859f769e8 
Play a game to pay of student debt with Givling, sign up with code RW411953!

Sign up for a 5% interest savings account with NetSpend here: http://www.mynetspendcard.com code 3230468760
(info at https://www.financialpanther.co/netspend-account/)

rubybeth

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Re: Aspiring Mustachian - Seeking advice regarding saving vs. investing
« Reply #7 on: November 13, 2017, 02:06:51 PM »
I think $1,500 for rent in NYC also sounds reasonable, and it sounds like it means you can save on travel costs. Travel is also a time suck, so adding more time to your commute is not usually a good idea unless it would be offset by much cheaper rent, or some other advantage.

The other thing you didn't mention is disability insurance--for both you and your wife. It's likely an option via your employer. Short term disability and long term disability insurance may seem like overkill, but it's usually pretty inexpensive and protects you if you can't work due to everything from a broken leg for 6 weeks all the way to a cancer diagnosis. It would be another income protection if you both had this in place and knew how much it would pay (and in your wife's case, she would likely get a maternity benefit in case of a pregnancy--planned or otherwise).
"Done is the engine of more." - the Done Manifesto

reformingSucka

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Re: Aspiring Mustachian - Seeking advice regarding saving vs. investing
« Reply #8 on: November 14, 2017, 04:35:18 PM »
+1 congrats dream job and investment order. and the disability insurance.

But first: https://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/

How do you plan to pay off your student loans? From your post, it looks like you may have been on an income based repayment plan, and you're probably expecting that to increase with your increased income? If your credit is good, maybe look into refi your student loans at a much lower rate. Compound interest works in both directions..