Author Topic: Case Study: 23 Year-Old Mustachian's Course of Action  (Read 1462 times)

konijo

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Case Study: 23 Year-Old Mustachian's Course of Action
« on: March 19, 2017, 02:52:17 PM »
Case Study: 23 Year-Old Mustachian's Course of Action

Hi, everyone. I'm a first-time poster, but I've been following MMM since late-2015 and have since "seen the light". I'm hoping for some advice on what my plan should be for myself and my family's future.

Life Situation: I'm engaged and planning to get married in November of 2018. I live with my mother (rent free!) in order to maximize savings. My fiance lives with her parents w/ her 3 year-old son. She stays at home to take care of her son, and we plan for her to homeschool once he's school-age. She receives child-support, but I don't take that into account as it is meant only for his expenses.

I currently have a 750 credit score. I've never had a late payment or carried a balance, so the length of my credit history is the only thing preventing it from being 800+.

Our plan is to purchase a home with a 20% down payment in August of 2018 in the $120-140,000 range ($24-28,000 DP). I am planning to spend ~$3000 for the wedding in Nov. 2018 (non-negotiable). Also, my fiance's mother is a realtor, so that's a huge plus once we start looking for a home. Anyone that lives around Atlanta knows the predicament that comes about when you think about the commute. The closer to the city you get, the rougher the area, but the further you get from the city, the wmore traffic you must deal with. Also, we have to stay somewhat close to my fiance's son's father to make it easier on us for visitation and whatnot.

I save ~$225/week, more if I can. Currently I'm working 60 hours weeks and putting all the extra money into savings. As my pay increases, so will savings.

I currently file as single with no dependents in the state of Georgia, 23 years old.

Gross Salary/Wages: (Currently make $12.90/hour, 40 hours a week. Overtime work is fairly common, but not guaranteed. I'm an apprentice inside wireman out of IBEW Local 613 in Atlanta. Roughly every other week I have to miss a day of work for the apprenticeship school and only get 32 hours. After taxes and what goes to the Union, my take-home averages to about $343/week. This coming October, and every October until I become a Journeyman in Oct of 2020, my pay will increase to the per-hour amounts as follows:

Oct. 2017- $14.15
Oct. 2018- $16.40
Oct. 2019- $19.40
Oct. 2020- $29.00

As of now, I don't contribute to a retirement account. All of the money I save is put into an Ally MMA account at a .8% interest rate in order to save for a 20% down payment on a home. My thought-process for using the MMA account is the liquidity of the asset and the fact that the home-saving is "short-term".

Current amount in savings: $10,088.12

Taxes: I'll have to look at the specifics for 2016 once I get home, but again, I file as single and 0 dependents.

Current expenses:

-Food- I spend about $60/week on food, give or take. I have a nasty habit of buying energy drinks because I routinely find myself nodding off on the long-traffic filled commute home in the afternoons. I do this off and on, usually when I'm working OT. It's a "hair-on-fire" issue I need to address. My fiance and I sometimes find ourselves getting fast food, but not often, but it's still something to correct.

-Gas- About $60/week as well. I commute to Atlanta for work, 36 miles one-way to the job site I'm currently working on.

Assets: 2004 Ford F-150, current KBB value: $2400, 2006 Jeep Liberty, KBB value: $5300. Both are paid for. Both were bought years ago, before I saw the fallacy of such a purchase.

Debt: No debt! When I found MMM in December of 2015, I owned a Harley that I was making payments on and began dumping every spare cent to paying it off immediately. I owed ~$7000 at the time, with 5 years left on the loan. I paid it off in 6 months. I then sold it and used some of the money for my fiance's engagement ring and put the rest in savings.

Specific Question(s): So, generally, what do y'all (I'm from Georgia, give me a break) think of the case study, but specifically, what should my plan be after I purchase the home and get married? Our plan is to either put all the extra money into paying the mortgage off early or into index funds (whichever makes more sense depending on our mortgage rate).

Another question I have is whether or not I would file taxes with 1 dependent (fiance's son) once we are married. Currently, my fiance's father has the little one as a dependent since my fiance has primary custody but lives in her father's home.

Also, my employer doesn't offer a 401(k), but the Union does offer a pension that the employer must contribute a certain amount dependent on how long you've been in the Union that requires 20 years to be vested.

Thank you! If I forgot anything, or if there are any questions, let me know! I look forward to hearing back from the MMM community!

Laura33

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #1 on: March 19, 2017, 07:20:51 PM »
First, I think you are off to a great start.  I like your plan, but what I really like is how much you are thinking in terms of your long-term plan and working and saving your ass off to get there.  That's the attitude that is going to get you to your goals moreso than any specific decision right now. 

So my first specific advice is to save more than you think you need for the house -- even after closing costs and downpayments and all that, you may need deposits for utilities and you will definitely find things that need fixing/buying/replacing immediately (and likely many other things you *want* as well).  As just one example, when DH and I bought our first home together, it was a brand-new townhouse, so we thought we were in great shape.  The day we moved in, we realized:  brand-new townhouses don't have any window coverings!  So that was another $1800 we hadn't counted on spending right away, even for really cheap versions.  Your story will be different, but count on there being *something*.

Also, maintenance -- homes require stuff.  Mowing, caulking, ladders to clean gutters, water heaters, dishwashers, washers/dryers, you name it.  Plan to dedicate ongoing monthly savings to maintenance and periodic equipment replacement. 

Then emergency fund.

Other than that, really, the key is going to be not increasing your lifestyle as your income increases.  Looks like you have a pretty massive income jump coming in a couple of years.  If you can continue to live on the same income and put that extra towards savings, you will be in awesome shape.
Laugh while you can, monkey-boy

SwordGuy

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #2 on: March 20, 2017, 07:04:17 AM »
First of all, it sounds like you have a good head on your shoulders.  Congrats!  Keep up the good work and you'll be well off.

If we hit an economic downturn, what's the likelihood that you would not find work, or that your hours would be cut?

How much is rent vs the mortgage?

Could you soon-to-be wife work part time at different hours from you (to avoid child care costs) if need be?  Does she have any marketable job skills or income earning skills?

I ask this because it looks like you will be using most of your savings as a down payment.   And your expenses will be going up with a new family to take care of.   What happens if you end up with a 2nd child and the associated expenses?

How would you handle the worst case situation?   No work for 6 months?   Half work for 6 months?   Back in 2001 we moved to NC from Atlanta.  Then 9/11 came a few months later and there was no work for me in NC.  I ended up commuting to DC each week for 4 years.   Dear God but did that get old.

I remember a friend of mine from high school who was a welder.  He said he could find all the work he wanted as an apprentice because he was cheap - but as he moved up the compensation ladder he found it harder to find work.

Half of all marriages in the US fail - and money problems are the root of a lot of those failures.   

So make sure you've got a good sized nest egg to cover you once you commit to a home.   You don't want to contribute to some landlord's stock of rental homes via a cheap foreclosure purchase.  (And thanks to the two couples here in NC who so generously contributed to the stock of foreclosure homes for me to purchase from the government afterwards.)

I guess, in short, make plans for the good times and fallback plans for the bad times.  Make sure the risk from the bad times is mitigated enough that they only delay, not totally derail, your forward progress.

Best of luck!


zolotiyeruki

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #3 on: March 20, 2017, 08:45:50 AM »
...

Half of all marriages in the US fail - and money problems are the root of a lot of those failures.   
...
A lot of wisdom in this post, except for this point--at one point, divorce rates were projected to hit the 50% mark, but actual divorce rates peaked in '79 and have never come anywhere near the 50% mark.  Also, there are LOTS of factors that are correlated with increased or decreased risk of divorce.

In any case, konijo, it's great that you've already got a good perspective and have a plan for how you'll proceed.  I'm curious--if you know you're going to get married, is there a particular reason you're waiting another 18 months before tying the knot?

Are both cars titled in your name? Is there a reason you're holding on to both?

In terms of "what do do after getting married and buying the house," I'd say 1) you need an emergency fund, and then 2) stash money towards retirement.  If you file your taxes Married Filing Joint (which you should, especially if soon-to-be-DW is a SAHM), you'll definitely be in the 15% tax bracket, and very possibly the 10% bracket.  So max out a Roth IRA.

konijo

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #4 on: March 20, 2017, 04:03:08 PM »
Thank you for the replies!

I'm accounting for the stash. The range for the house purchase is whatever I can afford at the end of the day after the wedding and having an emergency fund. The good news is that we're already stockpiling all the necessities for the home, and have been for about a year. Getting rid of your dishes? We'll take them! Getting a new silverware set? What'cha doing with the old one? I've already got a washing machine, dryer, fridge and dishwasher stashed at my dad's for when we get the home (the dishwasher was a brand new Maytag, retail for over $400, that an office space tenant didn't want when the space was renovated, score!).

I'm not too worried about losing my job. The company I work for is the one that my dad has worked at for the last 25 or so years, so I'm pretty set. I'm not counting on it, but I'll probably get a van and become a foreman not too long after I turn out of the apprenticeship program, which means a take-home van and gas card. It always pays to work harder than those around you... Furloughs do happen, though, but I'm hedging my bets by just having a stash and being financially smarter than all the other "I bought a new TV, a pack of cigs a day, and Moe's for lunch 3 times this week" guys who complain about being broke by Friday.

I've contemplated renting, but in the areas we are considering, you'll pay almost double to rent vs. a mortgage. I'd like to live closer to Atlanta, but the "better/safer" areas are those that are being turned into very wealthy communities. Buying up property, demolishing the homes and rebuilding  $500,000-1,000,000+ homes, and pushing the lower-income folks outside the city is the growing trend, and had been for the last 10 or more years.

As for the delayed wedding, my SO and I want to have a home before the wedding, which I am still saving for, as well as saving for the wedding itself, the emergency, etc.

The truck is in my name, the Jeep in hers. I of course need one to get to work, and we both prefer that she has something for when I'm not home. One day, once we're FIRE, we will probably drop to one vehicle since I won't be working!

I will definitely be filing joint. So maxing a Roth, and then putting the rest into a "general" index fund account (Vanguard VTSAX), is the best bet for us?

Thanks again for the replies! I've been meaning to post a case study for ages. I'm glad I finally pulled the trigger!

SwordGuy

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #5 on: March 20, 2017, 04:19:03 PM »
It looks like the two of you are making some very good decisions.  Bravo!

FYI, I looked up the marriage stats.   Apparently it's down to 40% for first-time couples.  :)   

It seems like both of you have good heads on your shoulders, so I would say your odds are significantly better!!!

http://www.divorcesource.com/ds/main/u-s-divorce-rates-and-statistics-1037.shtml

zolotiyeruki

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #6 on: March 20, 2017, 07:09:34 PM »
Thank you for the replies!

I'm accounting for the stash. The range for the house purchase is whatever I can afford at the end of the day after the wedding and having an emergency fund. The good news is that we're already stockpiling all the necessities for the home, and have been for about a year. Getting rid of your dishes? We'll take them! Getting a new silverware set? What'cha doing with the old one? I've already got a washing machine, dryer, fridge and dishwasher stashed at my dad's for when we get the home (the dishwasher was a brand new Maytag, retail for over $400, that an office space tenant didn't want when the space was renovated, score!).
I'm not sure what exactly you meant by the bolded section above, but it sounds worrying to me.  Banks are more than willing to lend you a lot more than you can afford, and realtors have a vested interest in getting you to buy a more expensive home.  Better to determine what you actually need in a home first, and stick to that religiously.

konijo

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #7 on: March 21, 2017, 01:55:57 AM »
I already know what I can spend on the mortgage, so I won't let a lender talk me into more than what I can afford. I just mean that, if I only have enough for X amount of home saved, while still having enough for the wedding and an emergency fund in the bank, then that's what I'll get. If I have more saved and am able to make a bigger down payment on a higher value home and still keep the monthly mortgage payments the same, then I'll go that route. Having a realtor in the family will help a lot on digging through the muck and find a good deal for us.

Kl285528

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #8 on: March 21, 2017, 06:42:14 AM »
Taking a little different tack....
Man, you really do sound like you have your head screwed on straight, and have a great attitude and work ethic.
But why the hurry to purchase a house?
There will be a lot of changes you'll be experiencing as a newlywed, starting your life together, especially taking on parenting responsibilities day 1.
I would not add to that the added burden of owning a home. Someone your age is highly likely to want to move for various reasons and opportunities.
Plus, owning a home carries with it a set of hassles that a rental does not.
I would relax into my marriage for a few years before purchasing. Just my two cents.

barrelomonkeys

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #9 on: March 21, 2017, 08:49:25 AM »
Have you thought of opening a Roth and investing?  I didn't bother looking at them for quite a while since I thought that they were purely for retirement, and I needed to save up for our first house.  I really should have opened one long ago since it turns out you can take out all of the principal + up to $10,000 in any interest it accrues to buy your first house.  It's a lot better than .8%.

thatluckydog

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #10 on: March 21, 2017, 11:33:06 AM »
Looks like you are really setting up a solid plan! I would say to keep up the great work!

Here are my questions to add to your post:

What are you 3,5,10,20 (or custom time frame) goals for yourself and your family?

Besides home ownership (because it fiscally makes sense), what is it that you are saving for?
  • What are the numbers needed for the realization of that goal?
  • I would also ask what the visualization of that goal looks like?
On a scale of 1-10, how in alignment is your fiance with these goals?

thatluckydog

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #11 on: March 21, 2017, 11:44:06 AM »
Have you thought of opening a Roth and investing?  I didn't bother looking at them for quite a while since I thought that they were purely for retirement, and I needed to save up for our first house.  I really should have opened one long ago since it turns out you can take out all of the principal + up to $10,000 in any interest it accrues to buy your first house.  It's a lot better than .8%.

An important caveat to the 10k early distribution is that you must have had the Roth opened for over 5 years to not trigger the tax bill upon withdrawal. There is no penalty for the 10k distribution if the account is less that 5 years old. See page 30 of the attached 2016 RIRA tax rules. You must meet condition 1 and 2 of "what are qualified distributions" Grrr.... attachment exceeds allowable size. See IRS form 590b

konijo

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #12 on: March 23, 2017, 01:59:40 AM »
I don't see us moving for any reason other than possibly purchasing a different home once my income increased. Since we have to live close by in order to maintain the current custody schedule, and I already have everything laid out for me at my current company, I don't see us chasing any opportunities anywhere else. Also, I'm not worried about parenting responsibilities. I already took those on 3 years ago since the child's dad wasn't around. I have contemplated renting, mind you, but only if it made more financial sense (ie: renting in, or very close to, Atlanta and work), but my SO doesn't want to live too far from her family since they all get together multiple times a week. Still something to chew on, though.

My time-frame is retiring ASAP, although my FIRE date is well in the future compared to most people around here. For a good chunk, if not all of my working career, my SO will be a SAHM and doing the homeschool thing, so it's a lot harder to save for FIRE on 1 income, and a "smallish" income at that. I'm shooting for FIRE at 45-ish and $25,000/year in expenses (so, roughly $625,000 @ the 4% SWR). I know that's a long time from now, almost 22 more years in the future, but I think I can do it. I just have to keep my head down and keep moving forward. The best thing I can do is to save as much as I can and be there for my family. My SO and I have found that that's what makes us happier than any spending could ever get us. She's 100% up for the challenge, and saving is what allows her to do what she wants most, being a SAHM.

Thanks!

CU Tiger

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Re: Case Study: 23 Year-Old Mustachian's Course of Action
« Reply #13 on: March 23, 2017, 10:06:47 AM »
You are saving almost $1000 a month right now, which is awesome! I commend you on your discipline. I know it may seem to you that saving for a wedding and a home is more important than saving for retirement, but every dollar you save right now will work SO MUCH HARDER for you than money you save in your 30s-50s. Just to get a start on retirement planning, especially if your to-be-wife does not ever plan to work, why not take $100-200 a month and funnel that into an IRA or a Roth for retirement. It may delay the time until you have your down payment, but thatís not the end of the world.

-Food- I spend about $60/week on food, give or take. I have a nasty habit of buying energy drinks because I routinely find myself nodding off on the long-traffic filled commute home in the afternoons. I do this off and on, usually when I'm working OT. It's a "hair-on-fire" issue I need to address. My fiance and I sometimes find ourselves getting fast food, but not often, but it's still something to correct.


I donít think this sounds extravagant. The underlying problem is that if you are nodding off in the car you are obviously tired. Itís really not normal to be that tired every day (Tired, yes. Nodding off in traffic, no.) Are you getting enough sleep? Do you snore a lot (could be sleep apnea)? Do you drink enough water? If you are dehydrated even a little bit, you can feel fatigued.
If you need a boost, at least get one of those five hour energy drinks that are small, and not one of the HUGE cans of Monster. That stuff is not good for you. But really, make sure that you get enough sleep by going to bed at a reasonable hour. Drink a lot of water, less soda, and make sure you have protein with every meal, rather than a bunch of carbs.

-Gas- About $60/week as well. I commute to Atlanta for work, 36 miles one-way to the job site I'm currently working on.
It is what it is for now, but when you look for a home and a job, do what you can to minimize your commute. Every time I have ever had to drive through Atlanta to get to the airport, the traffic makes me nuts. I lived there one summer when I was a bit younger than you are now, and my roommate and I searched until we found an apartment less than 10 minutes from our job. Driving there at rush hour is a nightmare.

Assets: 2004 Ford F-150, current KBB value: $2400, 2006 Jeep Liberty, KBB value: $5300. Both are paid for. Both were bought years ago, before I saw the fallacy of such a purchase.

Why do you need both? Which one do you use most often? Is one more comfortable/reliable than the other? If you sold one, you could take half the money you get and put it towards your retirement and half towards the wedding. In fact, either one would almost pay for the wedding you mentioned.

Specific Question(s): So, generally, what do y'all (I'm from Georgia, give me a break) think of the case study, but specifically, what should my plan be after I purchase the home and get married? Our plan is to either put all the extra money into paying the mortgage off early or into index funds (whichever makes more sense depending on our mortgage rate).
You need to put some money in the market if you ever hope to retire, early or not. Having a paid off house is the bomb (our must-have expenses are less than $1000 per month now that we no longer have a mortgage) but having investments is the way to grow your stash. Like I said above, start small, with $100 or $200 per month, deposited every month, and just keep going. My husband and I set up automatic deposits when we got married, and every month for the last 20 years, money has gone into our index funds. Bad month, good month, no matter what the market was doing or how our finances looked, that money automatically transferred over. We donít have to think about it or decide to do it. As we made more money, the amounts got bigger, but the point is that we have saved every month for retirement. The best time to start saving for retirement was yesterday, but the second best time is today!

Another question I have is whether or not I would file taxes with 1 dependent (fiance's son) once we are married. Currently, my fiance's father has the little one as a dependent since my fiance has primary custody but lives in her father's home.
When you are married, and you and your wife are married-filing-jointly, either you or the childís father could claim him as a dependent. If she has custody, it probably makes sense for you to claim him as a dependent, but thatís something youíll have to work out with the kidís father.




There are two ways to get enough: one is to continue to accumulate more and more. The other is to desire less. - G.K. Chesterton