Author Topic: Case Study, anything I could do different  (Read 1016 times)

Jeffwa365

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Case Study, anything I could do different
« on: September 27, 2018, 08:40:45 AM »
Hi, Iíve been a mmm reader since I was 17. Luckily I learned all of this early to avoid costly mistakes at a young age. My goal for FIRE is to own a paid off house and have investments generating about 2500 a month. I plan on working after hitting that goal I am just looking for tips for anything else I could do differently to always improve.
Currently I live with my roommate and attend school full time. I donít have expenses for school thanks to awesome grandparents who I love dearly for this. I have a decent job paying 45k a year before taxes. I have no debt once so ever.

Age: 22
Income: 45000. Take home is 1420 every 2 weeks. 26 weeks a year
Expenses: Rent 550, insurance 42, Phone 25, WiFi and streaming 45, renters 5, gas 35, electric 30, groceries 100, restaurants 100, misc 250, help out mom 250.

That equals 1362 a month on expenses. It varies about a 100 bucks month to month but this is my yearly average. I spent about 1200 a year on vacations not included in budget. That is about 17,500 a year on my expenses. Remember Iím a college student who splits expenses. Once I graduate I estimate my income will increase to 60k+ in about 4 years. That is savings of 19420 a year.

Accounts: savings 1000
ROTH IRA 652
Wealthfront investments: 5800
Individual account: 12000 and 6000 on margin with a rate of 3 percent a year. Which makes holdings of 18000

I know some of the downfalls of margin but being at a young age Iím okay playing with some risk in my investments I donít need to withdrawal this money anytime soon. I just received this income boost this year in March. Before I was making 30k a year. I donít want to get a new job because I am able to work on my own schedule and attend school for this wage. At 22 this seems to be a really good gig considering my boss pays me this salary for attending a certain amount of classes. If I start to struggle in classes he makes me take off work and still pays me to catch up in classes. My boss is extremely nice and it would be hard to find this anywhere else if I want to attend school.

Any tips?

reeshau

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Re: Case Study, anything I could do different
« Reply #1 on: September 27, 2018, 01:37:44 PM »
You certainly seem to be ahead of the curve organizing your financial life--congrats on that!

Your budget seems to cover base things, but is missing a number of typical services and sinking funds.  Perhaps they are covered by your "misc" category, which is your #2 category.  (By the way, that's a hint that you should break it down more)  things like clothes, grooming/haircuts, travel/vacations/entertainment, and transportation/car/bike/train.  Knowing these better will help you make better decisions when your life changes, such as when you consider moving or buying a house.

Your savings balance seems low--you have less than 1 month's spending in reserve.  If you couldn't work for some time due to illness or injury, or encountered a major expense, you would be in trouble.  Shoot for 3 month's expenses--it won't be a stretch.

I hope you understand the risk of a margin account.  If the market is down, it's not just the margin at risk--your broker will call for cash, or sell your stocks at the worst time to get their money.  I can't think of a single Mustachian, or for that matter a single FIRE'er, who got there by putting their account on margin.  If you want to learn while playing, fine do a bit--no different than P2P lending or cryptocurrencies,  but 30% of your taxable account puts you in danger of wiping out at the next big market drop.  And, looking at 10 years since the last one, you are closer to a big drop than you are to a bonanza that you double up on because you are levered.  This is the dumb item on a smart list; there is no need to try and be that fancy.

boarder42

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Re: Case Study, anything I could do different
« Reply #2 on: September 27, 2018, 01:52:49 PM »
1. get rid of wealthfront its a waste of the fees.
2. get rid of the margin its not worth your time

3. what are you invested in inside each account - should be index funds - since you're on margin i assume you're trading stocks actively.  good way to end up broke. 

erutio

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Re: Case Study, anything I could do different
« Reply #3 on: September 27, 2018, 03:11:30 PM »
1. get rid of wealthfront its a waste of the fees.
2. get rid of the margin its not worth your time

3. what are you invested in inside each account - should be index funds - since you're on margin i assume you're trading stocks actively.  good way to end up broke.

Do what @boarder42 said.  With the funds, open a Roth IRA at vanguard or fidelity, put $5500 all in VTSMX now.  Get ready to put in another $5500 into VTSMX on Jan 1st 2019.

Does your employer offer a 401k or equivalent (403b)?

Jeffwa365

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Re: Case Study, anything I could do different
« Reply #4 on: September 28, 2018, 03:40:55 PM »
My holdings include amazon, Apple, Netflix, and the rest is VTI and very little vxus .. As I get older I will buy in to those things but I donít estimate Iíll need this money for at least 20 years so to me it makes no since to own bonds right now. The margin Iíve had for 1.5 years and have generated about 7 percent after the interest cost. The margin will be gone in 2 months it was more of a short term play but in the grand scheme of things it wouldnt generate much yearly so I agree itís better to just get out of that. The only reason why I have wealthfront is no fees up to 20k! So Iím good in that department I am NOt trading stocks activlly. I only own Apple and amazon and Netflix but those were my first stocks ever and Iíve just be riding the up wave with all those companies. Iíll probaley break down my budget more in the misc to improve on that part maybe I can save an extra 100 bucks a month if I break it down more. Thanks !

boarder42

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Re: Case Study, anything I could do different
« Reply #5 on: September 28, 2018, 04:00:53 PM »
Wealth front could be costing you more due to the funds you're in it's better to learn and diy.