Author Topic: Case Study--Need Some Advice  (Read 1271 times)

kukrik

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Case Study--Need Some Advice
« on: May 08, 2019, 03:15:43 PM »
Life Situation: 24 years old, no student debt (Graduated in 2017), works in the real estate industry, lives with parents still in the Denver metro area. No kids, no dependents. Currently commutes by car 38 miles round trip to work, but have been trying to bike/take the train (currently free with my student pass still)

Gross Salary/Wages: $40,000 (take home pay is $2700 a month)

Currently have about $700 in a Roth IRA I opened last month.

Taxes: was in a lower tax bracket for 2018, got a tiny refund, not significant this year.

Current expenses:
     Live with parents so $0 in rent
     Currently spend about $100 in groceries a month (food subsidized by still living at home)
     Utilities $0
     Restaurants/Alcohol: $200 a month
     Clothing: $75
     Dog: roughly $100 for food/vet bills so far
     Car Insurance: $110 a month on a paid off 2009 Toyota Camry hybrid with 145,000 miles
     Gas: $60
     Gym: $25
     Rec league basketball: roughly $25 a month (also adds 10 miles of driving a week)
     $30 for haircuts right now but want to use UMGD to cut this out
Total: $725 per month

Assets:
$700 in Roth IRA opened last month
$5,800 in Betterment General Investing Account (90% index funds, 10% bonds)
$2,000 in Betterment Safety Net
$2,100 in Fundrise account
Another $1,500 in a Betterment savings account that I plan to use for my wedding next summer

Liabilities: No debt

I pretty much save all the money I don't spend on these expenses unless I get suckered into a night out with friends or decide to treat my gf to a nice date when she is in town.

Specific Question(s): My commute sucks, but I can cut it down by riding my bike to and from the train station. This will add about an hour commute time per day, to the point I am commuting 3 hours a day. I can read on the train, and I view the biking as exercise, so it isn't terrible. But I have thought about moving out of my parents house (I mea, I would rather live on my own, but not having to pay rent in Denver is nice). Would moving closer to work be a bad idea since I save so much on rent? Is there anything else I am missing here? Also, I have spoken with my dad about going in on a rental property, like a duplex, where I would live in one side and rent out the other. But we haven't really found many viable options for this yet. Any recommendations?
« Last Edit: May 08, 2019, 03:18:07 PM by kukrik »

Slow&Steady

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Re: Case Study--Need Some Advice
« Reply #1 on: May 08, 2019, 03:30:16 PM »
My 2 cents....

Moving out will have the following impacts on your budget
Rent: Increase ALOT (especially with a dog)
Groceries: Increase
Utilities: Increase
Gas: Decrease
Savings: Decrease
Will you need to pay extra for parking in an apartment?
Are you going to cook as much as your parents currently do or are you going to end up eating out more?


Riding the bike/bus will have the following impacts to your budget
Gas: Decrease
Gym: Decrease (you will get plenty of exercise with biking and basketball)
Basketball: Decrease (go buy a $25 ball and find a park and friends)

You are planing to get married in 1 year.  Live with your parents for 12 months, ride your bike/bus, save money, find an apartment for you and your spouse to move into together next summer.  Since you only mentioned the wedding/SO in 1 spot on your OP I am assuming that your plan is not to move in with your SO at this time and therefore you would need to move again next summer after the wedding?  Moving twice in 2 years would suck.

ysette9

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Re: Case Study--Need Some Advice
« Reply #2 on: May 08, 2019, 03:33:18 PM »
I agree that you should keep living with your parents and bank as much money as you possibly can for the new future.

Iíd also recommend against Fundrise or wealthfront or whatever Robo advisor you have, in favor of a simple fund or two at Vanguard.

Freedomin5

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Re: Case Study--Need Some Advice
« Reply #3 on: May 08, 2019, 04:59:51 PM »
I also agree you should stay put. Youíre trying to justify lifestyle inflation, and the only reason youíre giving is that it will add one hour of exercise to your day.

You should also take a look at the Investment Order thread. Your taxable accounts seem to have quite a bit of money in them, whereas your retirement account doesnít have much money at all. I understand you just opened your IRA last month, so now is a good time to learn about Investment Order.

I also donít understand the math. You take home $2700, spend $700, and claim to save the rest ($2000 per month or $24k per year). But you barely have $10k across all your savings. Is your job a new job? How long have you been taking home $2700/month?

kukrik

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Re: Case Study--Need Some Advice
« Reply #4 on: May 09, 2019, 07:54:43 AM »
I agree that you should keep living with your parents and bank as much money as you possibly can for the new future.

Iíd also recommend against Fundrise or wealthfront or whatever Robo advisor you have, in favor of a simple fund or two at Vanguard.

Why do you recommend against Fundrise and roboadvisors? Fees are low, provide diversification, automatic balancing. Not sure why a Vanguard fund would be any better.

I also agree you should stay put. Youíre trying to justify lifestyle inflation, and the only reason youíre giving is that it will add one hour of exercise to your day.

You should also take a look at the Investment Order thread. Your taxable accounts seem to have quite a bit of money in them, whereas your retirement account doesnít have much money at all. I understand you just opened your IRA last month, so now is a good time to learn about Investment Order.

I also donít understand the math. You take home $2700, spend $700, and claim to save the rest ($2000 per month or $24k per year). But you barely have $10k across all your savings. Is your job a new job? How long have you been taking home $2700/month?

First off, how was I trying to justify lifestyle inflation? I was asking about the pros and cons of moving closer to work against staying with my parents... not sure what you mean there. Also if I live with my parents my commute would be 3 hours and an hour of biking. So I am not using exercise to justify moving at all, it would actually be better to stay if I wanted to bike more. And yes, my job is a recent one, the last month. And I do understand that I should prioritize tax advantages accounts, which is what I have done since I opened one. But I am spacing my deposits in there over the course of a few months since $6k is the max per year. Should I just max out $6k in Roth IRA as soon as possible and then save in my investment accounts after over the rest of the year?

ysette9

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Re: Case Study--Need Some Advice
« Reply #5 on: May 09, 2019, 09:18:17 AM »
Fundrise total annual costs 1.0%
https://fundrise.com/pricing

Betterment fees 0.25%

Personal capital fees 0.79%
https://www.doughroller.net/investing/personal-capital-review/

Wealth front fees 0.25%
https://www.nerdwallet.com/blog/investing/wealthfront-vs-betterment/

Vanguard VTSAX expense ratio: 0.04%

For many of these Robo advisors you still have to pay the fund expense ratios on top of the management fees. I know 0.25% or 1% doesnít sound like much, but it matters over the long term.

Say you are contributing $6k yearly to an IRA and earning 7% average returns. After 30 years you will have $582,148 and will have paid $30,290 in fees at a 0.25% expense ratio. Invested at vanguard at 0.04% you will have $607,472 and will have paid $4,966 in fees.

Obviously this gets a lot more dramatic the higher the fees are. If you are paying 1% then after 30 years you will have $501,169 and will have paid $111,270 in fees.

There are other arguments about getting locked into stocks and investments that are hard to undue should you ever choose to move your knee elsewhere. Iím not as well versed on that side but I know I have seen discussions on these forums about it. Just keep your eyes open. You can get the same thing for less cost and less downstream hassle is all Iím saying.

kukrik

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Re: Case Study--Need Some Advice
« Reply #6 on: May 09, 2019, 09:37:03 AM »
Fundrise total annual costs 1.0%
https://fundrise.com/pricing

Betterment fees 0.25%

Personal capital fees 0.79%
https://www.doughroller.net/investing/personal-capital-review/

Wealth front fees 0.25%
https://www.nerdwallet.com/blog/investing/wealthfront-vs-betterment/

Vanguard VTSAX expense ratio: 0.04%

For many of these Robo advisors you still have to pay the fund expense ratios on top of the management fees. I know 0.25% or 1% doesnít sound like much, but it matters over the long term.

Say you are contributing $6k yearly to an IRA and earning 7% average returns. After 30 years you will have $582,148 and will have paid $30,290 in fees at a 0.25% expense ratio. Invested at vanguard at 0.04% you will have $607,472 and will have paid $4,966 in fees.

Obviously this gets a lot more dramatic the higher the fees are. If you are paying 1% then after 30 years you will have $501,169 and will have paid $111,270 in fees.

There are other arguments about getting locked into stocks and investments that are hard to undue should you ever choose to move your knee elsewhere. Iím not as well versed on that side but I know I have seen discussions on these forums about it. Just keep your eyes open. You can get the same thing for less cost and less downstream hassle is all Iím saying.

Got it, I understand. I worry about the auto balancing factor, though. MMM himself uses Betterment and has gotten good returns from its auto features. Does this factor in much? Because if I can get better returns, above the cost of the fees, would it not be worth it? Just further thoughts. I am not sure I have the knowledge yet to balance my own Vanguard funds effectively. Willing to learn, though. But I do like the hands off, peace of mind that Betterment gives me.

ysette9

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Case Study--Need Some Advice
« Reply #7 on: May 09, 2019, 09:44:30 AM »
I think MMM dabbles in things like Betterment but the vast bulk of his investments are in simple index funds at Vanguard.

There is nothing magical about rebalancing. What is your target asset allocation? At your age I think you could be totally fine with 100% stocks, in which case there is no rebalancing to do. Most people just log in once a year and adjust manually to get back to their target AA. It is simple and should take you five minutes. If that is too scary, then a vanguard target date retirement fund will auto rebalance for you for more than VTSAX but much less than robo advisors.

The very most important thing at your point starting out is to set up good habits. Get into good savings and investing habits do it is automatic. Set it and forget it. Donít stock pick, donít chase returns, donít get fancy. Just focus on keeping your savings rate up in a reasonable, broad, low-cost investment and then let time and your good habits do their magic.
« Last Edit: May 09, 2019, 09:48:26 AM by ysette9 »

kukrik

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Re: Case Study--Need Some Advice
« Reply #8 on: May 09, 2019, 09:46:49 AM »
Gotcha. Will have to consider that. Thank you.

ysette9

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Re: Case Study--Need Some Advice
« Reply #9 on: May 09, 2019, 09:47:00 AM »
For self education I recommend the stock series: https://jlcollinsnh.com/stock-series/ and Bogleheads wiki, in particular the investment startup kit.
https://www.bogleheads.org/wiki/Getting_started

mistymoney

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Re: Case Study--Need Some Advice
« Reply #10 on: May 10, 2019, 06:14:20 AM »
what is the plan after the wedding? Will spouse move to your area, or is that not yet decided?

If it is a - you look for work in my city and I look for work in your city and go with the best deal that comes up - I would agree with staying put in that uncertain environment.

On the other hand, I'm curious about the advice to stay put for over a year. While financially advantageous - is there no value placed on independence here?

kukrik

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Re: Case Study--Need Some Advice
« Reply #11 on: May 10, 2019, 07:51:11 AM »
what is the plan after the wedding? Will spouse move to your area, or is that not yet decided?

If it is a - you look for work in my city and I look for work in your city and go with the best deal that comes up - I would agree with staying put in that uncertain environment.

On the other hand, I'm curious about the advice to stay put for over a year. While financially advantageous - is there no value placed on independence here?

Yeah I get that completely, I think that at my age learning to live on my own is important (obviously). I lived on my own while away at college and for a year after college, but moving back to Denver it was much cheaper and easier to move back in with my parents. So I definitely save money. But I also value being an independent adult and learning to manage my own household... and my gf will move back here soon, so we had talked about one of us getting a place, but it's just so dang expensive when the alternative is rent free with my parents. I think I will save money for the next year before the wedding and then after/a little before we will find a place for us to live together after the wedding.

Slow&Steady

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Re: Case Study--Need Some Advice
« Reply #12 on: May 10, 2019, 08:24:53 AM »
what is the plan after the wedding? Will spouse move to your area, or is that not yet decided?

If it is a - you look for work in my city and I look for work in your city and go with the best deal that comes up - I would agree with staying put in that uncertain environment.

On the other hand, I'm curious about the advice to stay put for over a year. While financially advantageous - is there no value placed on independence here?

I don't think anybody recommended staying put for over a year.  I recommended staying put until OP and SO are ready to move in together, because moving twice in less the next 12-18 months is expensive, and I assumed based on the OP text that there was not a plan to move in together until around the time of the wedding.