Case Study - DC -> CA

[shinn497]

DC -> CA?

Life Status: Single and shy (so I will be single for a while). 31/m. No dependants. Lives in Herndon, VA. Which is a Suberb of DC.
Gross Salary: 78k paid semi monthly
Pre-Tax deductions: None for now(I will explain below why).
Other Ordinary Income: None
Investments (Securities and Real Estate): None
Post Tax income: 4.7k / month
Current Monthly Fixed expenses : Rent 700$ Food 300 Misc 100
Assets: 8$ in betterment
Liabilities: ~16k in debt -- 1.5k medical expenses, 13k student loans, 2k credit card, .5k mosquito debt (late bills and stuff)

Notes: I am following the dave Ramsey method of getting out of debt and then getting a 3 - 6 Month emergency fund. This means suspending everything, includnig investing my company match, in order to get out of debt. I even moved to a tiny apt near work and haven't even bought a car. My only expenses are rent and staying alive. So I can throw ~3.5k to 3.7k a month at this debt. Already I have paid of 14k since sept. From there on I am weighing a couple of options.

One of the biggest factors is I really really want to move back to CA and perhaps even buy a house out there. I just love it there (I can't stand DC) and my profession (Software engineering/ Data Science) is well paid. However, I currently work for a company I love, in a secure (although underpaid) position. My plan right now is to try and lobby for a higher salary and if not switch jobs after my stock options vest ( which is a little bit less than 2 years). However, since I am in debt, I want to wait for that to end and I can be more confident negotiating.

My biggest question is should I save for a house and if so how? I understand that housing in CA is insane and that is just something I could deal with. While I am single and have a terrible dating life I have some reasons for wanting a house. Inflation hedge on living expenses would be nice. The ability to make extra income from room mates and/or airbnb is also cool. I also really really want a garage to do projects in.

My plan of attack after debt freeness is to dance...then max out roth 401(k) and Roth IRA, and even throw the rest into an index. I like betterment as I have read both their white papers on tax loss harvesting and tax advantaged accounts and they are awesome. I have also followed some case studies that make them look good. The roth 401(k) would be in FUSVX/FUSEX which betterment recommends as that will not cause a wash sale since they do not hold SP500 ETFS (their large cap ETFs are value tilted SP500 which are considered distinct from a normal SP500). I have done some thought and I see no evidence to really do anything more advanced than that. Since I do not believe it is worth it to attempt to beat the market. I am a bit worried about being completely into securities and was thinking about having a small short term investment for short term savings (car/trips etc etc) that is bond tilted.

Ok so here is where things get interesting and also where I have a crisis of choice. I am ok putting a lot of money into my employers tax advantaged accounts rn since I don't ever plan on setting roots in DC. I would only attempt to get a residence if I moved or changed jobs. When that happens I could rollover the roth 401k and early withdraw contributions. This is important since I also follow DR's advice for mortgaging a house (15 year at 25% of take home) So I would need a significant amount of that. In the 5 years it takes for my roth IRA to become withdrawable, I am pretty confident I could have enough of a downpayment on a small but affordable house (houses in LA are like 250k to 350k at the low end and I am ok with that).

When that happens I could get roommates/airbnb that may even cover the cost of the mortgage. I am also thinking that getting to a paid off house that is also generating income pretty much means you are FI.

There are some caveats:
- I don't think this is a requirement but it would help a lot if I my income increased.
- I think I would also have to research getting houses under market rates. And also how to find ideal spots for rent/aibnb.
- Having a lot of my net worth in the stock market is a bit worrysome. But, as MMM be flexible. I mostly want the house for a garage but even that might happen before getting one.
- DO I really want to live in a cheap house in LA?
- Shit could happen.

But yeah any thoughts on the latter half? I am most interested in how to find real estate deals. I am also intersted in ways of increasing income, both within my job, outside through side hustles. I have both machine learning skills and some cloud computing and web dev (although I could work on this more) experience. So I think a lot is possible on that end. I spend a lot of time browsing indiehackers.com. I am a little bit interested in reducing the volatility of my portfolio. But honestly, even though I love math and stocastic differential equations, I don't want to get into seeking alpha or stock trading. I just don't think it is worth the risk. I am also not interested in methods that involve credit, including churning for points. I just have a bad history with debt and can't emotionally handle dealing with it ever again (outside of a reasonable mortgage).

[ysette9]

Woah, you have a lot going on there. I think you need to slow down.

Great job throwing money at your debt and getting that out of the way. I think you should be contributing to your 401(k) up to the match because that is free money you are missing out on.

I suggest you focus like mad on getting all of your debt gone, and then work on building up your savings/investments. If you want to move to CA, start looking now for jobs. It sounds like you are probably grossly underpaid for your profession so moving to a tech central is probably a good way of breaking that cycle. Get your LinkedIn profile updated, toggle the switch that tells recruiters you are interested in opportunities, and start casually looking.

I think it is way too early for you to get so worked up about the thought of maybe buying real estate in CA. Get a job here, get moved, see how things turn out. Real estate in places like Silicon Valley and LA really only make sense if you are in for the long haul. People here will pretty much universally push back on the notion of 15 year mortgage with 25% down. It is great if you can do that, but the numbers don’t make sense.
Mortgage rates are cheap enough that you are better off with a 30-year and 20% down and investing the difference. Play around with cFIREsim.com and run scenarios and you will see for yourself.

As for investing, stop thinking so hard and just pick a lazy portfolio (do your reading on Bogleheads wiki) and call it a day.

[MDM]

I think you should be contributing to your 401(k) up to the match because that is free money you are missing out on.

+1

One can quibble about math vs. psychology when debating whether to pay more on a $10K 6% loan or a $1K 5% loan, but giving up a 100% return on a 401k match to pay even a 20% CC debt is more than quibbling.

[shinn497]

I wouldn't get into a house at 15 year and 25% down. I would get into a house at 15 year and mortgage payment that is 25% of my take home pay. E.G. get a mortgage that is so small that it can be paid off easily, even in the event of shit happening.

The company match I've thought about. And economics is behavioural. So the faster I get rid of debt the better. Even if it means missing the match. I don't know how to put this. But going 100% of what I can is just more fun and more effective I think into getting me to do it. Since paying off debt any other way is not fun (Which is probably why i waited to do it in the first place).  Also real talk guys my match is 50 percent on 6%. That is 141  dollars per month or 2k total since it is 14 months to pay off. That isn't that much.

I do get about not putting the cart before the horse. I am just super certain I'm going to be out of debt by july. So I'm thinking of what to do after that. Really the first step is the throw everything into investments and go from there. And a lot more is open after that.

[ysette9]

I wouldn’t be forgoing the 401(k) match in your situation, but it is your life to live, and if you think it helps you stick to your plan of getting out of debt, then more power to you. Good luck with that.

I think your goal of buying real estate and keeping it within a certain budget of your income is laudable. I still believe you need to find that next job, move to CA, get settled in, and then start thinking about real estate after you are very certain that is where you want to be and that your career is stable. I can’t predict where you may end up exactly, but the best jobs for your line of work are likely in high cost of living areas, where a $250k house hasn’t been a reality in two decades. I’m not trying to dash your hopes and dreams, just encourage you to focus planning on two or three steps ahead and not six.

[shinn497]

Yeah I def think I shouldn't put the cart before the horse. Sorry about that I can get a bit carried away.

I'll focus on just getting this debt paid off first, update you guys, and then come back for more questions.

[Ben Kurtz]

I see you have a dream of moving back to CA, and you've stated that you don't like DC, but have you given any thought to other destinations with a good tech job market? I've heard that Austin, Denver, Salt Lake City and some other places in the heartland have good jobs and good quality of life, with reasonable cost of living. Once you've paid off the hair-on-fire portion of your debts (everything beyond the student loan), it might pay to take a week or two off and travel those areas to get a sense of the possibilities.

I'd also suggest splitting the difference on the loan repayments: Pay off the overdue bills, medical debt and credit cards bills as a first priority, foregoing even your 401k contributions. But once you are left with just a student loan, back off a bit to start funding your 401k to the match limit, and divert a tiny stream of cash into an emergency savings account. For most people, having a single debt that is reasonable size and interest rate, with long payment terms and is for a respectable purpose, is not too uncomfortable. At least, attack all the other debts first and then come up for air when you just have the student loan left and see how you feel at the time. I think you should have a plan to eliminate the student loan within 2 years or so, but once you're just down a student loan you don't need to give up free money for the sake of retiring it in 1 year instead of 2.

You acknowledge being shy, and you should think long and hard about how you can push yourself in that department. Join a public speaking class in the evenings at a local community college? Join a club devoted to a hobby or interest you might have? Having self-confidence and good communication skills will help with negotiating salaries and business deals, which will have great long-term effects on your financial position. It will also help with attracting girls, which implicitly seems to be another thing on your mind (based on some of the points made in your original post).

I get the sense that you are trying too quickly to go from zero to hero, having recently got on the frugality bandwagon: Plans to pay off all your debts, move across the country, buy a house in one of the most expensive housing areas in the country, etc., etc. There are lots of garages to tinker in between DC and California, and a lot of steps for you to consider in between. Pay off your debts, work on your confidence and public speaking comfort, and see how things go from there.

[shinn497]

I really am set on paying off my debts by august, that isn't something I want to discuss. Being debt free is super important to me. I have already paid of ~12k and it just feels so incredibly good. I can sleep better. Walk higher. I even think I might have gotten a promotion because my boss said my demeaner has been different this past year. So yeah. I'm not going to be in debt not a day longer than I need to with pretty much one Caveat, and thats a trip I have already had paid for since the beginning of this year. And like I said before. It is a 2k difference. After getting Debt free (which will be like in august) I'll be able to throw 3k+ per month into savings. So I don't see the point of futzing with a plan that has been working, and significantly improving my quality of life,  for a measely amount of money that is less than I could stash away in a month.

I am open to talking about other cities though. I actually have traveled to other places. LA appeals to me the most because I used to live there and have friends there. The LA culture can't be found anywhere else and there is jsut so much to do. I can't get enough of it. My social life there was incredible and I haven't come close to replicating it in DC. People here are way too grown up and serious for my tastes and I feel super out of place for this reason. As for the expense. Yes housing sucks, but I have found that expense is often what you make of it. Being single and spartan, I pretty much can get by with only spending money on housing and food. Which gives lots of flexibility with my budget in other aras, and that means a ton of opportunities to save. Given my time spent in LA, I totally think that if I moved there I could easily maintain a savings rate similiar to what I currently have. And I think of similiar things for other cities. The hard part is when you throw a house into the mix. Since LA's housing market sucks. 

The only other cities I've considered are SF, NYC, Austin, and Atlanta. I have traveled to every one of these, except Austin. I also have connections in all of those places. The east coast Cities ATL and NYC I'd go to if I had a good job offer but the culture of those places doesn't do it for me, esp. NYC. I think I'd have the same issues there as in DC. NYC is also more expensive so that isn't even an advantage. SF is the most expensive of them all, but is close to LA and has a lot of its own charm. My thought for this city is I would strongly consider it if I got an offer that made it worthwhile. Consequently I kind of want to try to see if thats possible. That really leaves Austin. So the caveat is I haven't been to Austin. But I really want to visit. I'm thinking of planning a trip after I'm debt free. I have a lot of friends that live in Texas and I think there are a lot of things to like about it without a lot of drawbacks. And it is close enough to LA that travel between the two is easier. 

So yeah. I'm sort of researching LA/SF/Austin really. With a preference in that order.

Now for dating. For get the shy thing. I mean I am shy but I do think that is something that can be worked on. The thing about dating is that I have gotten criticism from others that my current lifestyle wouldn't work if I had a family and had kids. At the age of 31, people tell me that that is something to consider. I find this incredibly annoying. Since you don't get into a rrelationship or have kids by accident. I pretty much have never met someone and just 'accidently' dated or gotten into a relationship with. It was something that took effort, drama, and work. I would strongly prefer to achieve my financial goals and be single than to have a gf/wife/family and fail at them. So I don't see a point in planning for it. Especially when being single has a lot of advantages that I regularly exploit (flexibility in choosing housing, ability to make drastic life changes, etc. etc. )

[shinn497]

Sorry if I seem salty for the last part. It has just been a thing that has been harping on me ever since I became a professional.

[shelbyautumn]

First off - congrats on paying off the debt so quickly. It's a great feeling and takes a lot of dedication!

My social life there was incredible and I haven't come close to replicating it in DC. People here are way too grown up and serious for my tastes and I feel super out of place for this reason.

I lived in the LA area until I was 23 and you couldn't pay me to go back precisely for this reason. Also the cost of living and traffic. Those suck, too.

For me and my personality, living in California and then in Colorado made me feel like my accomplishments were a lot more weighty than they were. All of my peers were/are still working in coffee shops so I felt awesome about owning a home and making $50k a year in a big girl job. Now that I'm closer to the east coast (I'm in Mississippi now), my friend group is WAY more ahead of me income and career wise and it is a motivator for me and my husband. They're all a few years older than me, but I can see what is achievable and I want their income (I'll keep my savings habits, though...they're all spendy). If I were still in CA or CO, I'd still be thinking I was doing great and my ambition would probably die down.

I would caution against all of the areas you've mentioned moving to, but that's because I have a really hard time justifying spending that kind of money on housing when I can get something WAY nicer/bigger/newer/safer for under $200k in the south. I would be shocked if you found something decent in a safe area for $250k in California. Do you really want to spend that much money on something like this https://www.realtor.com/realestateandhomes-detail/3959-Dwiggins-St_Los-Angeles_CA_90063_M19069-91232#photo0 or this https://www.realtor.com/realestateandhomes-detail/2212-Carlton-Ave_Pomona_CA_91768_M15234-15332#photo0? Those are real questions you need to ask yourself.

Just some food for thought. The grass is not always greener.

I agree with everyone else that says focus on the next couple years and see where you're at. Then you can decide to move.

[Ben Kurtz]

So yeah. I'm sort of researching LA/SF/Austin really. With a preference in that order.

Don't knock it 'till you've tried it.

I lived in Texas for a stretch and loved it. Visited Austin a number of times and it was terrific. If Austin is up on your radar screen, I'd highly recommend you pay a good long visit and get a feel for the place. Awesome opportunities, very reasonable cost of living, plus a great culture and environment. I'd move to Texas before California in a heartbeat.

[shinn497]

Ok I might check Austin out and think about that!

Oh I forgot to mention. I have never lived in LA proper. I lived in Riverside. Which is 50 miles east of LA. I often say I lived in LA since no one knows where Riverside is. I understand the traffic but never had to deal with it for commuting purposes.

Tbh I would only move to a city after I secured a job there. However, for my field, there is an advantage to living in a tech hub and moving there as early as possible. The more you network and get yourself known, the more opportunities there are (and the more money) . In tech you can use online methods for this, but there is an advantage to doing it in person. I am also just a social person and want to be able to cowork with other tech nerds as much as possible.

As for the peer group thing. I find money and your social circle to be very interesting. I got way more materialistic living in LA with the way people are. It was one of the reasons I messed up with money so much in the first place. In DC, however, that desire has quelled, which is why budgeting and saving is a lot easier here. In fact I think the environment I'm in now is definately the reason I am currently in the job I am in. Once I got here the mentality was that everyone had a good job and expected it of you, assuming you seemed decently intelligent.

I'm in this weird position now where I have two circles. A more professional one in DC and a younger more fun oriented one in LA (since I still visit there 4 times a year). And like among my LA circle, they think it is so strange that I can afford what I can and it is elevated my status a little bit. In fact, when I became more frugal, my LA circle was more empathetic and understanding but my DC one could not understand it. But honestly I'm just starting to be tightlipped about my financial circle among friends since people are sensitive about this sort of thing.

But yeah. LA housing doe. I mean I don't think it is that  bad but it is bad. I just looked Austin up on redfin and it seemed pretty sweet.

[shelbyautumn]

@shinn497 - I grew up in Rancho Cucamonga so I am one person that does know where Riverside is! I end up telling people I grew up near LA cause they look at me like I have 6 eyes and ask if Rancho is actually a real place. Your goals don't seem so outlandish now! You can get something much better in Riverside than you can in LA. I'll also admit that when I read your post I thought $250k was the top of your budget, instead of $350k.

Thumbs up on getting a job before moving! If you had a bunch saved and were moving to a LCOL area, it wouldn't be as big of a deal. I've done it a couple times and it always ends up working out.

I'd still have a hard time spending that kind of money on those kind of homes, but this is your life and you have to do what is right for you.

Why I feel the way I do: I just bought a 1600 sqft, 3bd, 2ba home that was completely renovated for $180k in the nicest city in Mississippi. Sure, my wages are less here, but only by about $5-10k. Maybe $15k max? To get a home as nice as I have now, I'd pay $600k+. That extra $15k a year isn't going to help me pay the $2500 difference in my mortgage payment or the $90k difference in my down payment. I could find something similar around $350k in Austin. That's not nearly as bad!

I definitely understand being tightlipped about being frugal and budgeting - it's uncomfortable when people don't get it. In the few talks I've had with friends, I've discovered that we're putting more into savings on $60k a year than they are on $160k a year. That is nuts to me. It's motivation to make more money but not let that lifestyle creep get to us! They might all have big fancy homes, new cars, and lots of toys - but I'll have freedom.

[shinn497]

Yeah I mean I'm less concerned on where I end up. But the biggest thing I want to save up for after becoming debt free is a house. It is just trying to determine how to do it and mix that in with a possible move. Since I really don't want to stay in DC.