Author Topic: Case Study: I Need Advice on Long Term Goals  (Read 1699 times)

jakequitter93

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Case Study: I Need Advice on Long Term Goals
« on: June 28, 2017, 09:55:03 AM »
Hello!

I am currently 24 years old employed as a Sys Admin. For the past year I have been telecommuting full time, and will be for the foreseeable future. I have been following the MMM blog since 2012.

My bi-monthly pay stub:
Gross pay = $3006.10
401K contribution = $180.37
401K employer 5% match = $150.30 
Fed Tax = $511.28
Medicare = $43.06
MN State tax = $173.80
Social Security Tax = $184.11

Filing status is 0.

Net pay is roughly $3000 to $3200 per month. I get a bonus paid out on the second check of each month that varies.
My pay is currently $24.50 per hour. There is always opportunity for overtime that I take advantage of. I also take extra on call shifts from employees that donít want to do them. An on call shift can add anywhere from $100 to $500 per week to my paycheck, but it varies with the amount of calls I receive during that week. I get to clock into work whenever I am working on an after hours call, and all that time is counted as overtime.

My salary is likely to increase significantly over the next 5 years at this employer.

I have thought of potentially starting a side business to generate extra income, but with my work schedule extra part time work would be difficult.

Monthly Net Income total = $3100, approximately.
2017 Year to Date Gross Salary: $31,824 (January through June)
Projected Gross Salary for 2017: $64,000


Monthly Expenses:
Dental = $30
Medical = $41
Car insurance = $90
Car fuel = $12 ( A tank of fuel lasts me 2 to 3  months on average)
Cell phones = $15 on average using Ting
Groceries = $50
Dining out = $30 (Maybe once or twice a month, drinks with friends)
Amazon Prime = 99$ for 2017, but I recently cancelled my subscription so it will not renew next year.
Personal hygiene = $20
Total approximate expenses = $288

Those figures assume that I donít have unexpected spending.  I might buy an occasional concert ticket, or have a Dr. bill.


Assets:
Savings Account = $103,649
2010 Scion XB = purchased outright
401K = $20,357

Debts:
None

Since I telecommute full time my car mostly sits in the driveway. I have driven less than 400 miles during the first half of 2017. My car insurance should go down a little bit when I turn 25. I have thought about getting a beacon from my insurance company that will track my driving. It could potentially save me up to 40% on my insurance, but I do not have a cell phone that will run their required app. ďI still use a BlackBerry, go ahead and laughĒ

I have a Wells Fargo credit card that I pay in full each month.

My expenses are generally very low. I lived with roommates up until 1 year ago. For the past year I have been living with my parents. 


My Questions for You:

The reason I have so much cash sitting in a savings account is because my long term goal when I started was to purchase a house. The suburb of Minneapolis near my work where I want to buy is experiencing a housing bubble. A 200K house in 2015 is now worth 260K to 300K. They are selling the same day they go on the market. On top of all that volume of houses for sale is at a 14 year low. Home prices in general are up and I am getting priced out of neighborhoods all over the Minneapolis suburbs.

Since I telecommute should I look into buying a cheaper house further out from the city? (Approximately 20 miles from work?)  I think I will be able to telecommute as long as I donít accept some type of management position.  The unknown of this one worries me.

Should I continue saving money living with my parentís and buy a house with cash somewhere next year? I could live in that house saving up a down payment on a second house. This would allow me to wait out the housing market. I could potentially use the first property as a rental property to generate income.

I really want to move out of my parentís house this year. Should I rent somewhere and wait out the housing market? Average rent is $1100 to $1300 a month. I could still save quite a bit of money living frugally.

Also, I have over 103K sitting in a savings account. Should I start investing my current income? How much? Is there any reason to save more money? ďIE buy a house with cashĒ If I should start investing in this current market where should this money go?

I need some kind of plan. I kind of feel like this real estate bubble has kicked the can out from under me and I am losing sight of what my long term goals are. I am in a pretty unique situation and I donít want to screw anything up.

Please let me know if you have any questions!

Thanks in advance for any advice that you are able to provide.

2Birds1Stone

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #1 on: June 28, 2017, 10:05:09 AM »
With such a huge cash buffer and high income I would strongly urge you to consider maxing out your 401k and Roth/tIRA accounts.

In terms of housing, I would milk your situation as long as possible. Buying a house should not be viewed as an "investment" unless you plan on doing a lot of diligence and want to be a landlord.

You already have more than enough for a 20% downpayment to avoid PMI, paying cash is not going to yield you the best returns on your investment, and will skew your net worth entirely toward real estate. Keep reading and learning here, for now I would hold off on any big decisions other than maxing out tax advantaged/deferred space.

Great job so far!
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DarkandStormy

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #2 on: June 28, 2017, 11:52:34 AM »
Your cash is losing value as you sit on it.  I would strongly consider/recommend having minimal cash on hand (enough to cover a couple months expenses, max) if you can move it to a readily-liquid investment (i.e. able to transfer it to your bank account within a day or two).

We just went through a similar housing dilemma last fall and into winter - supply is on the decline (in part because people stopped building new houses after '08 for awhile and new construction has not caught up).  It might look like a bubble, but it also might be the market catching back up after the downturn.  Much like the stock market, it's going to be difficult to "time" the housing market.

Like you mentioned, you're set up well.  If you are worried about the stock market being at the top, you could consider a mutual fund mix - for example, VWINX or VSAGX with Vanguard are part bond, part stocks.  Take a look at the portfolios - they're on the conservative side so you won't get huge returns.  Just an idea if you want to beat the 0.1% (I'm guessing) interest rate on your savings account.

It also depends on how you view the house.  Do you want to put work into it and try and flip it in a few years?  Do you see yourself living there for 10 years? 20 years?  These are all factors you should consider.

If it's really about not living with your parents anymore, I would try to find a house (and not rent) with 20% down, and perhaps on a short loan with mortgage rates still so low.  I'd put whatever cash you have left after closing towards investing - and again, your AA will depend on your risk tolerance.

Just my $0.02.

Skills Barterer

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #3 on: June 28, 2017, 01:52:15 PM »
I would max out my Roth IRA contributions starting now as well as your 401k, and if you can enroll in an HSA sometime I would do that too. 
I also agree with the previous posters about not looking at the potential home purchase as an investment.  Your money can be put to work in a number of places to set you up nicely a few years down the road, but max out those tax advantages now. 

Did you take the std tax deduction last year?   

Travis

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #4 on: June 28, 2017, 04:56:34 PM »
You're very young, making a good salary, and have few expenses.  Now is the perfect time to build up your retirement accounts.  Max your IRA and increase your 401K contributions. See what you have left over after this and recompute the numbers for moving out and living on your own.  There's really no rush with buying a house, but time is the one thing you can't get back when it comes to investing.

VoteCthulu

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #5 on: June 28, 2017, 05:34:43 PM »
I wouldn't buy a house at this point, an apartment is far more flexible and can give you a feel for what to value if/when you buy a house.

There are apartments in the suburbs for $800-900 a month if you're willing to love outside of downtown, or if you get another roommate you could save even more money.

jakequitter93

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #6 on: June 29, 2017, 06:27:07 AM »
Thanks Everyone!

Yesterday I opened a Vanguard Roth IRA and allocated the maximum of $5500 to the account. 3000 is going to VTSMX index fund. The other $2500 us unallocated at this point. Any advice on what to buy with that amount? Maybe something more volatile?

I also reached out to my HR department about changing my contribution to my 401K. I figured out if I contribute $980 per pay period for the rest of the year I can max it out. Since I don't need that money that is what I am going to do. Hopefully they are able to get the change put in place before my next pay day on July 13th.

I'm also taking everything into consideration on housing. I'm certainly in no hurry to buy the wrong house. Going back to a roommate situation is sounding like it might be the way to go. There are still other options to consider though. 

scrunchythief

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #7 on: June 29, 2017, 06:33:04 AM »
Could you rent somewhere further out if it's cheaper there, and then move when you find a house in the price range you want?  Though if you're willing to go the roommate route, then you may have better luck closer to the city. 

With the side business idea, I would keep an eye out for opportunities on a smaller scale, even if you don't have time for a whole part time job.  My dad is a programmer and while working full time for a company he started doing side gigs for people he met through work.  That grew into a full fledged business that he now has to put very little time into and he spends most of his time fishing or renovating his house. 

Side note: Can you share your grocery secrets, please?  I've got our 2.5 person family's down to $200-250 per month, but I've never gotten a single person's under $30 a week. 

jakequitter93

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #8 on: June 29, 2017, 06:47:51 AM »
My grocery secret is that I don't really need to buy all that much living with my parents. They always have an abundance of essential groceries in the kitchen. I only need to buy specialized items since I eat a low carb diet. Usually one $50 Costco run per month has me covered. (Almond Milk, Protien Bars, Almonds)

It would go up if I lived on my own, but I only eat between 1300-1500 calories per day depending on what I'm doing. It's still relatively cheap though. Probably around $30 per week as you mentioned. Eggs are also insanely cheap in my area right now. I'm not even sure how anyone is making a profit off of them.
« Last Edit: June 29, 2017, 06:50:56 AM by jakequitter93 »

Laura33

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #9 on: June 29, 2017, 07:02:58 AM »
Since I telecommute should I look into buying a cheaper house further out from the city? (Approximately 20 miles from work?)  I think I will be able to telecommute as long as I donít accept some type of management position.  The unknown of this one worries me.

Should I continue saving money living with my parentís and buy a house with cash somewhere next year? I could live in that house saving up a down payment on a second house. This would allow me to wait out the housing market. I could potentially use the first property as a rental property to generate income.

I really want to move out of my parentís house this year. Should I rent somewhere and wait out the housing market? Average rent is $1100 to $1300 a month. I could still save quite a bit of money living frugally.

You are in a great position here.  One option you don't list:  what about renting farther out where you could afford a house? If you are used to living near the city, living farther away will be a major lifestyle adjustment; better to try it out for a year and see whether you enjoy it out there (and to get more insight on the possible jump to management) before you commit.  Added benefit that the rents are probably cheaper out there, too.  That will also give you a year to figure out what your "real" expenses are once your parents aren't covering so much, which in turn will help you pinpoint how much house you can afford without cutting into your savings too much.
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DarkandStormy

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #10 on: June 29, 2017, 07:45:02 AM »

Yesterday I opened a Vanguard Roth IRA and allocated the maximum of $5500 to the account. 3000 is going to VTSMX index fund. The other $2500 us unallocated at this point. Any advice on what to buy with that amount? Maybe something more volatile?

I've been very happy with the VGT (Tech) and VHT (Healthcare) ETFs, though tech is getting it in the shins this month - oh well.

If you want mutual funds though, at $2,500 you're stuck to basically the Target date funds.  I would go Target 2060 in that case - it's the latest year they have available, so it has the smallest allocation to bonds.

But you could definitely look at ETFs.  You only need to have enough funds to buy one share of an ETF - of course you can buy more.

Skills Barterer

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #11 on: June 30, 2017, 09:00:33 AM »
Thanks Everyone!

Yesterday I opened a Vanguard Roth IRA and allocated the maximum of $5500 to the account. 3000 is going to VTSMX index fund. The other $2500 us unallocated at this point. Any advice on what to buy with that amount? Maybe something more volatile?

I also reached out to my HR department about changing my contribution to my 401K. I figured out if I contribute $980 per pay period for the rest of the year I can max it out. Since I don't need that money that is what I am going to do. Hopefully they are able to get the change put in place before my next pay day on July 13th.

I'm also taking everything into consideration on housing. I'm certainly in no hurry to buy the wrong house. Going back to a roommate situation is sounding like it might be the way to go. There are still other options to consider though.

Very nice!  I really like VTSMX... if you bought 5500 of it this year and max it next year, you could then move over to VTSAX which is what I like even more.  I would get ETF's as you dont need to withdraw money any time soon so you can save on expenses. 

Also, on the roommate thing.  Before I got married I almost always had a roommate.  I knew all of them long before they moved in... didn't really need roommates but the extra money was obviously a boost.  I think the key is not sweating the small stuff even though you own the home and it can work out great for everyone.

Hang around and keep posting your progress! 

bhleigh

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Re: Case Study: I Need Advice on Long Term Goals
« Reply #12 on: July 19, 2017, 02:05:48 PM »
Food for thought: if you are priced out of buying single family homes, what about buying a duplex, triplex or quad? With the cash you have on hand, you could easily afford the 20% down and closing costs. Then live in one unit while the other unit covers the mortgage. This way you could move out, only increase your housing expenses slightly, and have an investment property for the future. 

A quick search on Realtor.com found this place for $435k...
http://www.realtor.com/realestateandhomes-detail/2636-Dupont-Ave-S_Minneapolis_MN_55408_M82112-34330

Just an idea to consider. If not your cup of tea, stay home as long as you can and bank the money (401k, IRA, mutal fund, etc.) now.
« Last Edit: July 19, 2017, 02:09:06 PM by bhleigh »
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