Author Topic: Cross Sectional Perspective  (Read 915 times)

lateralwire

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Cross Sectional Perspective
« on: May 15, 2018, 07:01:16 PM »
I found MMM about 2 or maybe 3 years ago, and I've really enjoyed this site. I've learned a lot, and I'm really committed to this low-expense lifestyle. As a side note, I really like my job, so I'm not really looking to retire early - but I just like the idea of saving a lot more.

I now find myself in a situation where I'd like to get an informal poll of the folks on this website about what I should do about TWO main issues:
  • Dining out expenses given my situation, and
  • Maintaining debt vs saving for unexpected issues.

Dining Out

I am single, mid 30s, and I live in a a city with what I would call a moderate but increasing cost of living. I'm the kind of person that has several close friends and tend to do generally low cost activities. I want to have friends and a social life. Part of social life in my city is the many amazing craft breweries.

What I'd like to know is this: what do other single men in their 30s in a medium to large metro budget for dining out and/or fun money (alcohol, dating, etc.)?


Maintaining debt vs saving for unexpected issues

First, a little background:

Last year, I paid off all of my debt except for my mortgage, and it was a glorious month being debt free. Then I found out that my bathroom needed to be renovated, and for reasons that are beyond infuriating to me, I couldn't just repair the one thing that needed to be fixed. It was water damage that insurance wouldn't cover (because NC laws suck), and I had to take out a HELOC to pay for it. I then started budgeting a significant portion of money each month to pay it down. I did this because it was my strategy for paying of my credit cards and it worked.

The issue is that I did not add money into savings, and I was not prepared for some unplanned expenses, and thus my HELOC is going to be restructured to accommodate the expenses.

I've realized the error of my ways, and I'm obviously going to start saving a lot more money rather than fanatically paying down debt. With my current plan I figure I can probably save about 25-30% of my take home pay and still pay off my HELOC within 5 years. However, I could definitely pay off the loan much faster, and, there will be a point sometime next year where I could just use all of my savings to pay down the entire loan... but that would again leave me with no savings, albeit a much improved cashflow.

So these are my questions:
  • When saving money, assuming a start from basically nothing, at what point do you start diverting a larger % of income towards paying down debt as opposed to keeping cash savings for emergencies and investing the rest?
  • How much do you keep on hand in cash for emergencies OR what % do you allocate towards cash savings if you haven't reached the amount you want to keep on hand for emergencies?

Thanks in advance for your time and feedback!

lateralwire

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Re: Cross Sectional Perspective
« Reply #1 on: May 15, 2018, 07:12:27 PM »
I typed all of that and then realized I had another question:

I have a boat load of equity in my home, and I could sell it and come away with a decent amount of cash. So much so that I could afford to take a job in a smaller city that pays less money, but that also has a lower cost of living, and probably buy a house in cash or perhaps a very small loan. My income would be lower, but I would potentially be better off financially due to the increase dollar amount of savings.

Important note: I am an avid biker, and I would not choose to live in a suburb strictly for the financial benefit because I value walkable and bikeable neighborhoods and the free nature of active transportation (as opposed to a driving commute of any length).

My question is: would you make the move to a new city just to save money?

lhamo

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Re: Cross Sectional Perspective
« Reply #2 on: May 15, 2018, 07:32:03 PM »
It would be helpful if you provide more details, including:

Total amount of HELOC
Income
Rough monthly budget

NC is a fairly low-cost area.  And you like your job/lifestyle in your current city. I would not move just to cash out of the house.

lateralwire

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Re: Cross Sectional Perspective
« Reply #3 on: May 15, 2018, 08:13:32 PM »
HELOC is at $15k

Take home pay is about $46k, so roughly $3.7-$4.5k per month. I budget about $2.4k in expenses, so assuming no unexpected costs, I will be able to save about $1k-$1.7k per month. I could go higher in terms of savings, though, but likely at the expense of a social life to some extent, which is why I'm wondering what other people in my situation budget for these things.

The move would also be for career opportunities, not specifically for the cash out. Cashing out would really be more of a highly tangible result of pursuing career opportunities elsewhere. That being said, you are right. I like where I live so it's not high on my list of priorities. I'm just curious how much weight other people put behind those types of opportunities.

It's probably worth noting that I live in Charlotte, which is inexpensive compared to DC and ATL, but increasingly expensive for the Carolinas, which is where I would stay if I left this city. I bought during the recession and thus have gained significant equity from everyone else's COL increase while keeping mine lower than most.
« Last Edit: May 15, 2018, 08:16:18 PM by lateralwire »

Linda_Norway

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Re: Cross Sectional Perspective
« Reply #4 on: May 16, 2018, 04:42:36 AM »
Have you considered what it costs to rent in your current city? Could you rent a smaller place? Can you rent out a room in your current house? IF you believe there will be a housing bubble burst in the next few years, maybe cashing in your equity now is smart.

If I were you I would continue spending some time with friends at breweries with good beer. Maybe one night a week? And not 10 beers a night...
Or you can just buy some interesting bottles of beer and drink at someone's place, if that is cheaper than at a café.
But you can also consider brewing beer at home. This is not difficult and not a big investment for a hobby.

Some experts says that an emergency fund should be somewhere between 3 and 6 months of salary. You do not necessarily need to keep it in a bank account. If you put your money in an index fund, you should be able to sell it and have it in you account a few days later. Most big expenses can be planned a couple of days ahead.

Mr. Green

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Re: Cross Sectional Perspective
« Reply #5 on: May 16, 2018, 09:18:01 AM »
NC and craft breweries? I would have guessed Asheville.

Personally, if I enjoyed my job but was also a frugal individual, I would save what I could but I wouldn't cut myself off from the activities I enjoyed. Enjoying your life now is important because you could die tonight. I didn't like my job but it paid extremely well so I gutted it out for a decade because I knew I could FIRE after that. If I was in your shoes I'd have probably been a little more freewheeling with my money as long as I was still satisfied with my savings. Unless you feel really driven to FIRE, having a job you enjoy, feeling like you're saving a healthy amount, and still spending a little money to enjoy life now sounds like perfection to me.

lateralwire

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Re: Cross Sectional Perspective
« Reply #6 on: May 16, 2018, 08:05:22 PM »
Haha, Charlotte flies under the radar on the craft brewery scene, but we actually have about the same number of breweries as Asheville, and we'll have more within a couple of years. It seems like a new one opens every month or so. Asheville just has more big names like Sierra Nevada, New Belgium, and Wicked Weed.

I've considered renting my spare room. Rando's from the internet are of no interest to me. I'm just to the point in life where I don't need the income (even though it would be nice) and where I don't want to deal with other people's crap unless its a wife or a maybe a good friend who needs a place to stay.

I've thought about renting my place out, but finding an equal or better living arrangement than I have now is next to impossible. Rents in Charlotte are insane for the most part. I bought during the recession, so my mortgage is considerably less than most people pay for rent here (like 2/3 to half the cost). I can also walk or bike to work, and to get to a part of town where the math works out puts me in a place where its financially feasible I'm in a place that is less walkable and bikeable, which is something I value.

I'm more interested in what other people budget for dining out and fun money expenses just for a frame of reference. I'm not unhappy with my rate of savings going forward.

I'm also interested in the tipping point between saving and paying off debt. Is it really just as simple as getting 3-6 months of expenses saved up and then paying down the rest of my debt?

I'd say I'm not driven towards FIRE. If I could get there it would be nice, but I have a 401(K) and pension, so FI is just icing on the cake if/when I get there.

fell-like-rain

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Re: Cross Sectional Perspective
« Reply #7 on: May 17, 2018, 07:07:50 AM »
I'm more interested in what other people budget for dining out and fun money expenses just for a frame of reference. I'm not unhappy with my rate of savings going forward.

I personally spend about $230 a month on food/drinks out, most of which goes to work lunches. Probably $60-70/month on music and theater tickets. Most of the stuff I do with friends/dates tends to be low cost or free, especially in the warmer months- outdoor film/theatre events, hiking, walking around, gallery showings, getting out on the water, free museum days, poetry slams, whatever. Or just having folks over to barbecue or cook a big meal or play board games.

formerlydivorcedmom

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Re: Cross Sectional Perspective
« Reply #8 on: May 17, 2018, 08:37:52 AM »
Is that $1 - 1.7k in monthly savings separate from retirement savings, or is that the total bucket you have for all savings/extra debt repayment?

Your second unplanned expense - was that also house-related? 

We've traditionally only kept a minimum amount of cash.  Savings has enough to cover insurance deductibles for house and car +  half the annual medical out of pocket (total of 1 month of expenses), and I have a separate savings account where I contribute monthly for property taxes, insurance, and vacations.  When a big housing expense comes up we liquidate part of the brokerage account.   We had a perfect storm of issues this year and the cash is pretty much decimated.  We also know our house is getting older and will start to need more maintenance, so my goal over the next two years is to get the cash accounts up to 4 months of expenses (without really sacrificing retirement savings). 

In your shoes, I'd build up a minimum level of emergency cash cushion - and that will be up to you to figure out how high that should be - and then split the extra evenly between building up the cash cushion and paying off the debt.  Unless your extra is supposed to also include retirement savings...

lateralwire

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Re: Cross Sectional Perspective
« Reply #9 on: May 17, 2018, 06:50:18 PM »
Good questions. I have a 401k and pension that I don't count towards take-home pay. My savings rate would be much higher if you counted those but I refuse to touch those accounts for anything or acknowledge they exist. I have a loan payment set up to pay of fthe HELOC balance in 5 years. So the $1k - 1.7k is strictly extra money that I can use for whatever I want. I could apply it to the loan, or I could save it... or both.

The unplanned expense is a new heat pump. Those are not cheap, and they are incredibly necessary in the South.

Linda_Norway

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Re: Cross Sectional Perspective
« Reply #10 on: May 22, 2018, 01:07:15 AM »
We eat out maybe once a month on average, sometimes twice. And that includes a quick burger sometimes when driving around dinner time. We mostly eat out at a pizza place or some cheap Thai food. Dining at a fancypants restaurant is once every couple of years.

former player

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Re: Cross Sectional Perspective
« Reply #11 on: May 22, 2018, 03:10:15 AM »
Here's my attempt at answers for you -

1.  Spend enough on socialising to maintain and perhaps increase your social networks.  As well as their emotional and social value, having a strong network of friends adds to your economic resilience - having people to call on in your own emergencies, or support in their emergencies, and people to celebrate your and their successes with, is a big part of a long-term successful life.  Plus, you are currently single.  I would budget for at least one or more social activity a week but do so in a way which I considered value for money.

2.  The Investment Order thread - https://forum.mrmoneymustache.com/investor-alley/investment-order/ - should be useful reading for you on the invest/debt conundrum.  Essentially it comes down to 1) having an emergency fund, 2) using tax-free investment space, 3) paying off high interest debt.  After that, do what feels best to you in your circumstances - which might be something other than the strictly mathematical.  And if you are saving, other than an emergency fund which is accessible, most of it should be invested rather than in a cash account.

3.  It sounds to me as though you made a good choice with your home, both financially and in location.  I think that's worth a lot in life terms.  There is considerable security in having low housing costs, and having equity diversifies your capital away from complete dependence on the stock market. Moving costs can be high, and moving also disrupts social networks.  I'd stay unless a work opportunity required a move.