Author Topic: Case Study: Think I'm doing well, but looking for outside opinions  (Read 1866 times)

bostonengineer

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Hello Everyone. Using an alias, but have been on this forum for years. I've been following the MMM lifestyle fairly well for a while now and want a sanity check.

Life Situation: 26 y/o cohabiting with girlfriend in apartment just outside of downtown Boston. I'm an engineer that works 20 miles outside of the city and just finished my Masters. I drive approx. 30 min to get to work. Girlfriend in school currently for Masters.

Gross Salary/Wages: $85k, net pay ~1,850 bi-weekly (401k taken out) --> company offers 6% match
                              I max 401k and RothIRA each year

Current expenses:
Rent: $1,000 (I split with gf, but I pay more because I work full-time)
Car Payment: $394
Car Insurance: $105
Car Tax: $88
Gas: $75
Groceries: $250
Medical: $25 (Healthy and rarely go to doctor)
Utilities: $20-$50
Restaurants: $100
Alcohol: $150
Dogs: $70
Miscellaneous: $150

Total: $2,307

Assets:
Savings Account (1% interest): $6,000
Checking Account: $4,000 --> I keep a buffer to avoid overdrafts, etc...
RothIRA: $27k
401k: $86k
HSA: <$1k

Liability:
Subaru SUV (Loan)
Payment: $394/month (@2.9%) for ~3 more years
Estimated Value: $21k
Owe: $13k

Is anything totally amiss with what I'm doing above? I try to prioritize the normal investment avenues (401k/roth).

I like my Subaru as I'm an avid outdoors enthusiast that needs the space and AWD capabilities. I've been considering trading it in for an electric vehicle, but having only street parking and the less space/AWD performance has dissuade me. I could theoretically just pay the car off within the next two months, but the low interest rate and current market performance doesn't make sense to do so.

I would like to accelerate my investment accounts as I'm not wanting to work until I'm 55. I think I'm pretty well on the right path with my net worth being north of $125k at this point.

Let me know what you think!!

nereo

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #1 on: August 13, 2017, 08:17:47 AM »
1) why the alias if you are already a regular member?

2) overall you are doing very well for your age/income. Alcohol is very high and counterproductive; we buy the better spirits, invite friends over for cocktails and never come close to that amount.

3) the subaru SUV.  Just stop with the excuses. If it's important to you fine, but we are also avid outdoor types and I can think of a dozen other vehicles you could buy used that won't cost you $394/mo for 3 (or more) years. This is your biggest money sink right now. 

No idea if your rent is reasonable for your area or not, but $1k to split an apartment is high for many areas.
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bostonengineer

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #2 on: August 13, 2017, 08:51:08 AM »
1) why the alias if you are already a regular member? Stupid me made my normal account with my name in it

2) overall you are doing very well for your age/income. Alcohol is very high and counterproductive; we buy the better spirits, invite friends over for cocktails and never come close to that amount. Sure it's high, but relative to my other expenses it's not outlandish. I'm a craft IPA fanatic that pays for the good local brews. I think for an unhealthy hobby it's OK. There are people on here that are super into food and can justify higher restaurant bills.

3) the subaru SUV.  Just stop with the excuses. If it's important to you fine, but we are also avid outdoor types and I can think of a dozen other vehicles you could buy used that won't cost you $394/mo for 3 (or more) years. This is your biggest money sink right now.  Please provide examples? For me, I've already invested the money and have special items in my car that would cost much more to sell/replace with a new car. I'm thinking special all weather floor mats, roof rack system, etc.. I obviously could get a cheap prius or a 10 year old subaru, but they just aren't as reliable or able to handle heavy snow conditions

No idea if your rent is reasonable for your area or not, but $1k to split an apartment is high for many areas. Boston is SUPER expensive to rent. We live in a suburb and it's that much. We pay $1600 a month for a 2 bedroom.

Bracken_Joy

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #3 on: August 13, 2017, 09:17:58 AM »
Are you doing awful? Absolutely not. Could you do better? Definitely yes. It's just a matter of if you want to. So keep all that in mind with my feedback- take what you need and leave the rest. It's your life and your goals.

You say you want to accelerate investments. Okay. Well, if you have an account around here, you know the steps =) Up your 401k contributions until it stings a bit, then adapt. Cut your alcohol (only drink at home), cut way back on restaurant spending, figure out what constitutes your misc ($150 for a single person is sizable). If you really want to accelerate things, deal with that subaru. We live in Oregon (kingdom of unmaintained dirt logging roads), and short of when we go hunting and need to haul an animal or when we sleep in the back of our truck for camping, we use a little 4 door commuter car to get to most of our hikes and for kayaking, etc.

I won't get on your rent, I've seen enough boston rents around here to guess that's reasonable.

Next big question- future. Girlfriend. Will you marry? Combine finances? I read an article recently that was someone sharing an old friend's advice for his financial success. He said, "Same house. Same car. Same wife." A good partner, with similar financial values, will be a major foot up in your quest. A bad divorce or a spendthrift partner can spell disaster though. Talking about this ahead of time, planning, being positive you're on the same page, will give you just as good a return if not more as detailed attention to investments and budget line items and the like.

Also, looking back at the expenses, it seems possibly a bit bare? Are these actual averages pulled from Mint or YNAB or something, or is this your theoretical budget? Be sure you track every cent, at least for a time, so you know what the real picture looks like.
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Imma

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #4 on: August 13, 2017, 09:41:28 AM »
I agree with Nereo on both.

You are doing pretty well for your age: you have already invested a lot of money. You're quite young, if you can have more than $100.000 invested after working for maybe 5 years? then you're definitely on track to retire before 55. You don't have student loans or credit card debt, your spending is generally moderate.

I don't know much about cars, so I can't say if this particular car is worth all the money you pay for it, but there are a lot of arguments to be made against borrowing for a car and especially a luxury vehicle. As you don't spend much on gas, you probably don't drive a lot, which would make spending nearly $600 on a car each month even more questionable.

The car and the alcohol are obviously choices and you can afford them and probably still FIRE, but they are still massive wastes of money. I get that people drink special craft beers as a hobby, not 'to get drunk' and craft beers are expensive, but $150 is still a massive amount of money. I think it's quite likely you're drinking more than the recommended guidelines for alcohol consumption, especially since craft beers often have higher alcohol percentages. We once calculated the amount of alcohol in the Belgian beers my boyfriend likes to drink and we calculated that the alcohol percentage in one 330 ml bottle is about equal to three standard 250 ml glasses of pilsner. If you are using a 2 glasses a day/2 days of no drinking a week for men guideline (the standard advice in this country) it means the safe limit is about 3 bottles of craft beer a week.

Of course, it's all your own choice, but you are asking for advice and there are only two obvious things that really stand out in your case.

englishteacheralex

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #5 on: August 13, 2017, 10:58:19 AM »
1. Yeesh, dumb car. You can get so much car for $6k if you're willing to buy something made before 2010. Paying cash for cheap used cars that last has been our strategy for 15 years, and we're sticking with it.

2. Figure out the situation with the girlfriend and get moving on it. There's no mention in the case study if you guys are on the same page or have some kind of vision for the future or what. Significant others are a pretty big factor in money success or failure. Make sure you're not ignoring that fact. My personal philosophy is that once you find a person who's on the same page, you marry them and start working together as a team. Seems like there are people who make it work on a permanent co-habitation basis, so I guess that can be done. Dunno of anyone who has a kinda aimless cohabitation relationship who is also super intentional and focused on wealth-building. Just my judgy two cents.

3. And that's another big part lacking with the case study: vision. What's the end goal here? It's a lot harder to let go of a dumb car and a wasteful craft beer habit if you don't have a larger vision other than doing a good job with the retirement saving. You ARE doing a good job with retirement saving. So...whatever, you're fine. Why bother posting a case study? Have a big car loan and drink nice beer.

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MDM

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #6 on: August 13, 2017, 12:06:46 PM »
Is anything totally amiss with what I'm doing above?
Where does the other $11.4K/yr* go?

*Based on putting the numbers in the case study spreadsheet and assuming 7% for state tax.

Mustache_Wallace

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #7 on: August 14, 2017, 12:18:39 AM »
Doing better than me. I'm the same age with negative net worth and have been stomping around downtown Boston spending shitloads of cash each weekend for the past few months.

Alps

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #8 on: August 14, 2017, 05:21:18 AM »
I'm actually questioning the apartment. Why do you need a 2 bedroom if you're a couple? Sure it is nice for each person to have their own room, but considering that your girlfriend isn't even earning anything yet it seems quite luxurious.

Also "just outside" of downtown Boston seems like it would be very expensive. I think you could find a smaller place in a less expensive area. Your girlfriend could then bike to university (assuming that it's currently close to your place - if not then even easier).

bostonengineer

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #9 on: August 14, 2017, 07:41:12 AM »
Is anything totally amiss with what I'm doing above?
Where does the other $11.4K/yr* go?

*Based on putting the numbers in the case study spreadsheet and assuming 7% for state tax.

Not sure where you're finding the $11k? MA has pretty high taxes. I've simplified my numbers provided obviously and things line up on my actual statements. I have upwards of $800 each pay period in deductions for taxes, ss, healthcare, etc..


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bostonengineer

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #10 on: August 14, 2017, 07:53:38 AM »
I'm actually questioning the apartment. Why do you need a 2 bedroom if you're a couple? Sure it is nice for each person to have their own room, but considering that your girlfriend isn't even earning anything yet it seems quite luxurious.

Also "just outside" of downtown Boston seems like it would be very expensive. I think you could find a smaller place in a less expensive area. Your girlfriend could then bike to university (assuming that it's currently close to your place - if not then even easier).

By outside of Boston, i mean 5 miles outside of downtown. The school is downtown and we are limited by distance to train stop, taking the furthest stop outside of the city, so she can get there. Biking isn't an option.

We got a two bedroom out of luck as the landlord was having trouble renting the place. You can't find one bedrooms for the price we pay for a two bedroom.



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Capt j-rod

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #11 on: August 14, 2017, 08:01:07 AM »
I am not a hardcore moustacian. If the car is your vice then so be it. At least its not a crew cab 3/4 ton p/u. If you decide to part ways with the car then at least you have a desirable model that you won't lose everything. Alcohol is another one. $40/ week sounds like a lot but Boston is pretty expensive. I think you are well on your way, but remember the more money you invest now the longer it has to work for you. My early 20's were wasted in a paycheck to paycheck waste. As long as you are aware of the money and where it goes then the rest is up to you. A simple goal that you should strive for is a 50% savings rate. That would require almost $500 in cuts. If the girlfriend is like minded in finance and things develop then it should be simple. 50% savings for one guy is pretty hard to do. At least you are looking for improvement and that in itself speaks highly.

DarkandStormy

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #12 on: August 14, 2017, 08:28:16 AM »
I see nothing budgeted for electronics.  Is that accurate?  No internet? No phone? No Netflix/Hulu?  No entertainment either?  Just checking is all.
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nereo

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #13 on: August 14, 2017, 08:45:43 AM »
Bostonengineer - I'm happy to follow up.

I'll couch this by repeating my initial analysis that you are doing quite well, particularly when compared to your peers.  Just perspective, I'm about a decade older than you and a former resident of Boston (first Back Bay, then JP). If you keep doing what you are doing you'll likely reach your goal of FI/RE in your early 50s, which meets your stated goal of:

Goal: I would like to accelerate my investment accounts as I'm not wanting to work until I'm 55. I think I'm pretty well on the right path with my net worth being north of $125k at this point.

...but, there's always room for improvement.  You can take this advice to heart or you can ignore it, dig in your heels, whatever.  Makes no difference to me.  I offer my opinion only in an effort to help.

Regarding the car - this is your biggest money sink, and your responses sound like tag lines the very convincing marketers sell us "better reliability / AWD performance / handle heavy snow loads"  the bottom line is that you bought a car now valued at $21k, when a car which would have equally suited your needs could have been purchased for half of that.  It doesn't need to be a 10y old vehicle with 150k miles... plenty of 3 y.o. vehicles with <60k to be had for under $10k.  And as others have indicated, you can get a LOT of car for ~ $10k.  Currently I live in snowy-ass Quebec and drive on unpaved roads in the winter.  Neither AWD nor a SUV-style vehicle are necessary for getting around (snow tires are).
Ultimately its up to you whether saving another $2-3k/year , ever year, is worth it to have a slightly shinier car.  For perspective, saving that much extra per year could give you another $200k by the time you turn 50.  This effectively could shave several years off your FI date.  Your call.

Regarding alcohol - I love craft beers too.  In fact, we went to threw craft breweries in Maine last weekend.  That doesnt' mean it needs to cost you so much or be so frequent. If this is $150 for you and your GF that's a fair bit; if its' just for you that's a ton.  Most craft beers can be bought for between $1.50-$3 per serving at a good craft beer store (not a pub).  A few cost more but that's often for 500ml or 750ml bottles.   That puts you somewhere between 50 and 75 beers/mo.  That seems more like a drinking habit than being a craft-beer aficionado. Again, you can decide this level of spending is fine and the costs are outweighed by the joy you receive.  Your call.  But we manage to try a few craft beers every week by drinking at home, going to breweries and not downing multiple 6-packs (or pub pints) on a regular basis. 

Regading lodging - ah I'm familiar with Boston, and your rent certainly is about average for that area.  That doesnt' mean it couldn't be improved, and I'd constantly be on the lookout for better options. My former roommates in JP still pay $850/room near the StonyBrook T. $150 less/mo might not seem like much ($1,800yr) but it adds another $75k-100k over 20 years (within your FI horizon).

Finally - why is there so little money in your HSA?  That should be your #1 bucket to invest in.

These are all personal decisions - but if optimized your car, reduced your alcohol and cut your rent you could easily save another $5k/year with little/no impact on your quality of life. That's the difference between retiring in your early 50s or your early 40s.
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MDM

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #14 on: August 14, 2017, 10:01:51 AM »
Is anything totally amiss with what I'm doing above?
Where does the other $11.4K/yr* go?

*Based on putting the numbers in the case study spreadsheet and assuming 7% for state tax.
Not sure where you're finding the $11k? MA has pretty high taxes. I've simplified my numbers provided obviously and things line up on my actual statements. I have upwards of $800 each pay period in deductions for taxes, ss, healthcare, etc..
The "After-tax investable" amount in the table below.  Perhaps I mistyped a number or two?

CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$7,083$85,000
401(k) / 403(b) / TSP / etc.$1,500At maximum$18,000
Employer Match$425$5,100
Subtotal 1$5,583$67,000
Federal Total Income (for IRS tax)$5,583$67,000
Federal tax$8242017 rates, S, stand. ded., 1 exempt.$9,889
State/City tax$367Guess, using 7.00% * (AGI - Exempt'n)$4,407
Soc. Sec. tax$439Assumes 1 earner paying$5,270
Medicare tax$103$1,233
Total income taxes$1,733$20,798
Income before other expenses  $3,850$46,202
Monthly Average Expenses:
Rent$1,000$12,000
Car Insurance$105$1,260
Car Maintenance, Registration, etc.$88$1,056
Dining (Lunch/Dinner/Etc.)$100$1,200
Electricity$35$420
Fuel/Public Transport$75$900
Groceries$250$3,000
Medical (Doctor, Hospital, etc.)$25Input to Itemized Deductions$300
Miscellaneous$150$1,800
Pets$70$840
Wine/Beer/Tobacco$150$1,800
Non-mortgage total$2,048$24,576
Loans:
Car$394$4,728
Other tax-advantaged investments:
Roth IRA$458At maximum$5,500
Total Expense$2,900$34,804
Total to invest$950$11,398
Summary:
"Gross" income$7,083$85,000
Income taxes$1,733$20,798
After-tax income$5,350$64,202
IRA+401k/403b/TSP/457$1,958$23,500
Living expenses$2,048$24,576
Non-mortgage loans$394$4,728
After-tax investable$950$11,398

bostonengineer

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Re: Case Study: Think I'm doing well, but looking for outside opinions
« Reply #15 on: August 14, 2017, 12:14:35 PM »
Is anything totally amiss with what I'm doing above?
Where does the other $11.4K/yr* go?

*Based on putting the numbers in the case study spreadsheet and assuming 7% for state tax.
Not sure where you're finding the $11k? MA has pretty high taxes. I've simplified my numbers provided obviously and things line up on my actual statements. I have upwards of $800 each pay period in deductions for taxes, ss, healthcare, etc..
The "After-tax investable" amount in the table below.  Perhaps I mistyped a number or two?

CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$7,083$85,000
401(k) / 403(b) / TSP / etc.$1,500At maximum$18,000
Employer Match$425$5,100
Subtotal 1$5,583$67,000
Federal Total Income (for IRS tax)$5,583$67,000
Federal tax$8242017 rates, S, stand. ded., 1 exempt.$9,889
State/City tax$367Guess, using 7.00% * (AGI - Exempt'n)$4,407
Soc. Sec. tax$439Assumes 1 earner paying$5,270
Medicare tax$103$1,233
Total income taxes$1,733$20,798
Income before other expenses  $3,850$46,202
Monthly Average Expenses:
Rent$1,000$12,000
Car Insurance$105$1,260
Car Maintenance, Registration, etc.$88$1,056
Dining (Lunch/Dinner/Etc.)$100$1,200
Electricity$35$420
Fuel/Public Transport$75$900
Groceries$250$3,000
Medical (Doctor, Hospital, etc.)$25Input to Itemized Deductions$300
Miscellaneous$150$1,800
Pets$70$840
Wine/Beer/Tobacco$150$1,800
Non-mortgage total$2,048$24,576
Loans:
Car$394$4,728
Other tax-advantaged investments:
Roth IRA$458At maximum$5,500
Total Expense$2,900$34,804
Total to invest$950$11,398
Summary:
"Gross" income$7,083$85,000
Income taxes$1,733$20,798
After-tax income$5,350$64,202
IRA+401k/403b/TSP/457$1,958$23,500
Living expenses$2,048$24,576
Non-mortgage loans$394$4,728
After-tax investable$950$11,398


Ah. I misread your initial post. Well in the past it was used to cash flow my Masters. As of late, I have been collecting and putting into my savings to eventually have a down payment for a house.


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