Author Topic: Case Study: 27. FI Lite pursuit. How to invest/allocate money in current area.  (Read 626 times)

zoochadookdook

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Hey all-so let me prefix this by saying I don't need much to live on. I drive a beater. A lot of my happiness comes from pursuing learning/hobbies/self-interests. I have no idea where I want to live/do in my future relationships/careers/what life goals I have-but a lot of my inability to consider those things seems to stem from financial worry.

I'm pursuing FIRE not to quit my job-but to continuing working-just on my own terms. I want to be able to explore business ventures/life choices and this baseline income per year would allow for this.

An issue I have is how to allocate funds with limited/no tax-advantaged accounts available. Also if in theory, I would be able to put 80/90% of my take home aside that would set me up in 4 years or so for FI/which limits the investment accounts.

Age: 27 as of may

Current income:
2800/month take home temporary/hourly 45hours a week with mandatory unpaid 1hour lunch. May have advancement to full-time salary/better benefits and pay in 3 months with ability to work from home 1 day/week.
1000-3000/Month take home working myself ragged on a side hustle. This ebbs and flows depending on how much I neglect my personal life (lol). I can comfortably expect min. 2k/month baseline+ if I don't have another job.

My expenses:
Base living with everything (mortgage, taxes, gas, food, 100 bucks exta, transport) $1500
Mortgage: 116k 30 year 4.25% fixed refi'd last month (although 3500 is in a escrow so seeing if i can wave that-no point paying it upfront)
House is valued at 180k mrsp

My current finances:
$61,200 cash, $18,300 business inventory (sold by end of month-I don't normally float over 10k), $27,000 roth ira (vanguard 2060 3k left to go for 2019), $5400 in vtsax taxable/random stocks.

Debt:
CC $1200 (on autopay)
Student Loans $13,200* Breakdown on these are 5500/3.76% 5500/4.45% 2292/5.05%. Total is 4.27% or 4.11% if the 5.05 is paid off.
I was between paying these off once interest starts next month or paying off the 5.05 and the 4.45 to get it to a lower amount/invest it.
Father private loan: $15,000. I just refinanced and this was part of the house loan originally. Strictly between us. No apr. Would like to pay back asap.

This leaves me $55,575 liquid (possibly $58,575 if i retract the escrow).
27000 in the roth ira.
Total:$85,575 after all debts paid off.

Assuming my measly 2800 base take home which is more than adaquete for me to live off alone-supplemented by my variable 1000-3000 part time income-worst case scenario is I'm saving $2500 a month towards FIRE/2800 is near 90%. I require none of the the extra income to live, it's really just in pursuit of this.

My question is fairly simple:

1) What to invest in? Assuming I would want to pull around 12k/year while in pursuit of other businesses/jobs. I know roths/401s have issues with age limitations and taxes pulling early so am I better off just lumping it into VTSAX and International/10% bonds and hoping for the best? I am not currently offered a 401k/tax-advantaged plan through employment. I am self-employed on the side so that may be an option. Obviously, the idea that I would be using this as part of living expenses to ensure baseline stability while offering flexibility to life choices/career/etc is the idea. It's not true FIRE by any means-more like partial FI

Any insight is appreciated!

actonyourown

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So many things I feel.

1. 2800 isn't really meager. Not sure where you are located but in many places in the US you are way ahead of others your age.
2. You say you don't know where you want to live but then say you have a mortgage. Kind of contradictory isn't it? Why buy if you need flexibility? Maybe rent is extremely high where you live but I find that unlikely with the cost of your home.
3. I would avoid owing family/friends money when I could clearly pay them back. I think you should absolutely pay your father back even though he might be ok with slow repayment. Likewise, if you are looking at possible FI, pay off the student loans. Guaranteed return + reduced expenses going forward is a win-win.
4. You in the end are asking how to make $12k/year starting at $55.6k. Let's do some quick math on the $12k

$12000/2.25%=$533,333.33
$12000/5%=$240,000
$12000/7%=$171,428.57
$12000/10%=$120,000
$12000/$55000=21.8%

So the math above says that if you want to reach your low threshold, you will need to save for several years to make savings account levels worth it or risk your FI in equities.

Ultimately, real estate might get you there faster but that is not very passive or for everyone. Whatever you decide, you are ahead of most of our generation, so keep up the good work and pay off your debts. You might be better off worrying about investments when you have full time employment as well so you are more stable.

zoochadookdook

  • Bristles
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So many things I feel.

1. 2800 isn't really meager. Not sure where you are located but in many places in the US you are way ahead of others your age.
2. You say you don't know where you want to live but then say you have a mortgage. Kind of contradictory isn't it? Why buy if you need flexibility? Maybe rent is extremely high where you live but I find that unlikely with the cost of your home.
3. I would avoid owing family/friends money when I could clearly pay them back. I think you should absolutely pay your father back even though he might be ok with slow repayment. Likewise, if you are looking at possible FI, pay off the student loans. Guaranteed return + reduced expenses going forward is a win-win.
4. You in the end are asking how to make $12k/year starting at $55.6k. Let's do some quick math on the $12k

$12000/2.25%=$533,333.33
$12000/5%=$240,000
$12000/7%=$171,428.57
$12000/10%=$120,000
$12000/$55000=21.8%

So the math above says that if you want to reach your low threshold, you will need to save for several years to make savings account levels worth it or risk your FI in equities.

Ultimately, real estate might get you there faster but that is not very passive or for everyone. Whatever you decide, you are ahead of most of our generation, so keep up the good work and pay off your debts. You might be better off worrying about investments when you have full time employment as well so you are more stable.

1. 2800 isn't really meager. Not sure where you are located but in many places in the US you are way ahead of others your age.

It's not a ton; I mean I'm in Michigan and could definitely live on more or less; but hey it's more than I need.

2. You say you don't know where you want to live but then say you have a mortgage. Kind of contradictory isn't it? Why buy if you need flexibility? Maybe rent is extremely high where you live but I find that unlikely with the cost of your home.

In the future. I purchased the house on the idea it made more sense at the time (the girlfriend and I wanted somewhere of our own to live). Was it financially the best decision? No. Has it motivated to me in terms of realizing the value of money and budgeting? Yes. Not opposed to selling or using it as a rental in the future. Rentals are pricey here though-it would be 1500/month or so plus utlities for this sort of home.

3. I would avoid owing family/friends money when I could clearly pay them back. I think you should absolutely pay your father back even though he might be ok with slow repayment. Likewise, if you are looking at possible FI, pay off the student loans. Guaranteed return + reduced expenses going forward is a win-win.

I plan on transferring him the money this week. I had to wait for my refinance cash out to come through and roll that into it. The student loans I haven't yet-simply because no interest started.

Thanks for the tips. I guess the only way to cut the time down is to sorce out higher income potential/lower living expenses at this point!

2Birds1Stone

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Cash-out refinance? Why?

Papa bear

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No 401(k) or other retirement vehicle?  If you have a side hustle, Iím assuming you declare this income, you should set up a SEPIRA or SIMPLE IRA to shelter mote income.


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zoochadookdook

  • Bristles
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Cash-out refinance? Why?

The way I purchased it originally I was self employed (through college). After AGI write offs (mainly due to my mileage); I didn't have enough to get a conventional mortgage. My father got a variable loan vs his 401k, I put 20% down and made payments on that loan. As soon as I got a new job and worked here 30 days I did a c/o Refi BECAUSE-there was no actual lien on the house. Paid off the 401k back loan and will be transferring him the excess 15k this week.

zoochadookdook

  • Bristles
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No 401(k) or other retirement vehicle?  If you have a side hustle, Iím assuming you declare this income, you should set up a SEPIRA or SIMPLE IRA to shelter mote income.


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Yeah I've done 3-4 years of self employed taxes where my agi was fairly low vs total gross (not sure if you contribute based on AGI amounts?). I set up a Roth years ago as that just seemed like one of my best options at the time? Apparently it wasn't lol

ginjaninja

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If you set up a Roth IRA you are able to use the principal without penalty at any time because you have already paid taxes.  The penalties come in when you take from the earnings early. 

You might be eligible for a Roth and that is $6k/year so I do not think it is your full answer but it does help some.

zoochadookdook

  • Bristles
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If you set up a Roth IRA you are able to use the principal without penalty at any time because you have already paid taxes.  The penalties come in when you take from the earnings early. 

You might be eligible for a Roth and that is $6k/year so I do not think it is your full answer but it does help some.

So i've had a roth for 4 years now- currently at 27k (3200 left to contribute in 2019)
Didn't know you could draw the principal whenever. That's good to know.

Papa bear

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You should really be maxing out your Roth and another retirement vehicle. Like a sep or simple.  Good that you at least did the Roth though!   


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