Author Topic: Case Study - where to put my surplus?  (Read 1419 times)

carozy

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Case Study - where to put my surplus?
« on: October 22, 2018, 10:12:47 PM »
Life Situation: Single filing, no dependents, age 39, live in a small studio in SF Bay Area, CA alone.

Gross Salary/Wages: $62,000 annually, paid bi-weekly (26 paychecks/year)

401k contributions: 16% (just upped this from 1% last payroll period)

Adjusted Gross Income: Approximately $3,000 a month but some months I'll have an extra paycheck.

Taxes: $7000-$8000 annually I believe, although now that I'm contributing more to my 401k that should go down.


Current expenses:

$1400 rent (this is rent on the slightly low side for a small studio in my area.  I've had roommates all my life and only recently chose to live alone.)

$32 electricity

$29.99 internet (introductory rate for a year, and then I will switch to Sonic)

$22 cell phone

$250 groceries

$320 dining out

$120 Bart (public transit like the metro)

$158 car payment

$60 gas

$66.65 car insurance ($399.88 paid for 6 months with Progressive)

$32 medical

$35 gifts for birthdays

$40 Christmas

$25 fun stuff/books/movies/plays/etc.

($what's left over goes to savings or buying expensive stuff like courses, med bills that came up, car maintenance, a bike, etc.)


Assets

emergency fund: $3000

Vanguard IRA (rolled over from a previous 401k): $53,745.83

current 401k: $4,620


Liabilities

2007 Prius - 9.9% car loan, payments at $158/month for 36 months, 31 months left to pay off or pay off amount right now $4246.67.


My wants:

I want to start investing.
I want a larger emergency fund.
I want my car paid off.
I'd love to have a house or tiny house but house - out of my price range in my area.  Tiny house - where to put it?  I'm thinking I could move to Fresno, CA, which allows tiny homes somewhat but that is more a dream idea than something I am actively working toward...at the moment.

Looking at this, I should have more saved.  I went many years without saving for retirement (no 401k offered and not making very much, but still...)  Looking back over the last year, I had medical expenses, car expenses (maintenance and new tires), and I purchased 2 expensive online courses to advance my career options.  One of them was interesting but I haven't figured out how to apply it (a novel writing system) and the other I'm in the middle of completing (a UX Designer course).  I will also be purchasing a bike likely next week, under $400.  I also need to stop dining out so much!

My Specific Question(s): How am I doing?  How can I improve?  What steps would you recommend for me.  I want to start investing in a Roth IRA but would it be better for me to pay off my car first?  Or build up my emergency fund?  Or do the Roth and use it as an emergency fund?  That is what I am leaning toward.  I would appreciate your insight, comments, and help from a Mustachian perspective.  Thanks!

Freedomin5

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Re: Case Study - where to put my surplus?
« Reply #1 on: October 23, 2018, 05:32:07 AM »
Pay off your car!!!! 9.9% interest rate? On a car that youíve had for 11 years?!  Thatís CRAZY! Paying off your car loan is like a guaranteed 9.9% savings/return on your money.

After you pay off your car, drive it into the ground. Do not upgrade. Do not ever have a car loan again.

Your food expenses (groceries and eating out) are also very high. You spend about the same as we do for our family of three.

After you pay off your car loan, then follow the investment order found here ó> https://forum.mrmoneymustache.com/investor-alley/investment-order/
« Last Edit: October 23, 2018, 05:34:07 AM by Freedomin5 »

singpolyma

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Re: Case Study - where to put my surplus?
« Reply #2 on: October 23, 2018, 05:47:36 AM »
Do not use "what's left over" for vehicle maintenance! If you're going to own an expensive luxury item like a car or house you need to *plan* for maintenance expenses. You don't have anything "left over": 100% of your income is spoken for by your hair-on-fire debt now and your savings later. Expenses are a concession you make to be able to live.

carozy

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Re: Case Study - where to put my surplus?
« Reply #3 on: October 23, 2018, 07:05:42 AM »
Pay off your car!!!! 9.9% interest rate? On a car that youíve had for 11 years?!  Thatís CRAZY! Paying off your car loan is like a guaranteed 9.9% savings/return on your money.

After you pay off your car, drive it into the ground. Do not upgrade. Do not ever have a car loan again.

Your food expenses (groceries and eating out) are also very high. You spend about the same as we do for our family of three.

After you pay off your car loan, then follow the investment order found here ó> https://forum.mrmoneymustache.com/investor-alley/investment-order/

I've had the car 5 months, but you're right - I should pay it off pronto.  I've just readjusted my budget in YNAB to focus on that.

And you're also right about my groceries and eating out.  I've been sailing by blindly on the food front, so I'm going to make that a priority to get that under control.  Just recently I rediscovered the 99 cent store has a lot of groceries very cheap, so I'm going to start using it.  Thanks for the "kick in the rear" to open my eyes to my situation!

carozy

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Re: Case Study - where to put my surplus?
« Reply #4 on: October 23, 2018, 07:08:41 AM »
Do not use "what's left over" for vehicle maintenance! If you're going to own an expensive luxury item like a car or house you need to *plan* for maintenance expenses. You don't have anything "left over": 100% of your income is spoken for by your hair-on-fire debt now and your savings later. Expenses are a concession you make to be able to live.

You're right, I should.  I decided to put $100 / month to car maintenance.  My last car maintenance took care of the tires which were expensive, so hopefully I can save money going to a regular car mechanic instead of the dealership.  I need to learn a bit more about what all needs to be done because I felt very overcharged at the dealership.

cchrissyy

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Re: Case Study - where to put my surplus?
« Reply #5 on: October 23, 2018, 10:08:35 AM »
definitely attack the 9.9% interest first

it's great you increased the 401k withholding. I think the next obvious move is to confront your high spending on food. 

but as far as where to put every surplus dollar you can find? right now the answer is send it to that car loan until it's gone.  It's only $4k but 9.9% is omg for a car loan. make it go away.

carozy

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Re: Case Study - where to put my surplus?
« Reply #6 on: October 23, 2018, 10:37:11 AM »
definitely attack the 9.9% interest first

it's great you increased the 401k withholding. I think the next obvious move is to confront your high spending on food. 

but as far as where to put every surplus dollar you can find? right now the answer is send it to that car loan until it's gone.  It's only $4k but 9.9% is omg for a car loan. make it go away.

Yeah, it was a personal loan that I used for the car.  The credit union wouldn't give me a car loan because the car I wanted was too old.  I'm going to concentrate on getting it paid off first, pronto!

EDIT: And the food - yes I'm getting better on not going out (just recently) so I'm going to also focus on that.  And using the dollar stores because surprisingly one of them has a lot of organic options.
« Last Edit: October 23, 2018, 10:38:45 AM by carozy »

DoNorth

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Re: Case Study - where to put my surplus?
« Reply #7 on: October 23, 2018, 11:16:46 AM »
Looks like everybody has good recommendations on the car.

I used to be the director a Habitat for Humanity in Michigan.  A lot of our affiliates built tiny homes.  If you're in SF county, your income would qualify since it's less than 80% of the Area median income.  Good way to get involved in your own project, learn some new skills, build sweat equity and end up with a 0% or close to 0% mortgage in a HCOL area.

https://www.habitatgsf.org/what-we-do/own-a-home


WheresMyMule

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Re: Case Study - where to put my surplus?
« Reply #8 on: October 23, 2018, 11:32:25 AM »
Do not use "what's left over" for vehicle maintenance! If you're going to own an expensive luxury item like a car or house you need to *plan* for maintenance expenses. You don't have anything "left over": 100% of your income is spoken for by your hair-on-fire debt now and your savings later. Expenses are a concession you make to be able to live.

You're right, I should.  I decided to put $100 / month to car maintenance.  My last car maintenance took care of the tires which were expensive, so hopefully I can save money going to a regular car mechanic instead of the dealership.  I need to learn a bit more about what all needs to be done because I felt very overcharged at the dealership.
You may want to put more in there - I think Prius batteries are very expensive to replace, and yours is getting to the age where it might be looming sooner rather than later.

affordablehousing

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Re: Case Study - where to put my surplus?
« Reply #9 on: October 23, 2018, 11:44:29 AM »
I think you're doing fine. The car loan is a no brainer, but you've figured out how to live in SF fairly efficiently. If you're considering moving to Fresno, why not Sacramento or Chico? More cottage/tiny home options there and the weather is better with the summer evening breeze.

If you want to stay in SF, I would suggest you turn your comparatively low income (I think the median income in SF now is $105K) into an asset. You would qualify for subsidized tax credit housing, which would be affordable and available to you forever, if you can get into a unit. You could likely rent a 1br for $1650 in a new building with nice amenities. And the rent would only go up with increases in area median income. If you want stability in SF, that would be the way to go. Just a thought if you don't end up wanting to move to the country.

carozy

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Re: Case Study - where to put my surplus?
« Reply #10 on: October 23, 2018, 12:23:52 PM »
Looks like everybody has good recommendations on the car.

I used to be the director a Habitat for Humanity in Michigan.  A lot of our affiliates built tiny homes.  If you're in SF county, your income would qualify since it's less than 80% of the Area median income.  Good way to get involved in your own project, learn some new skills, build sweat equity and end up with a 0% or close to 0% mortgage in a HCOL area.

https://www.habitatgsf.org/what-we-do/own-a-home

Thank you for sharing that.  It's a good idea.  I live in Alameda County, so I just checked their requirements, and I just barely meet their maximum income requirements.  I've printed the paperwork and I'm going to look into it further.

Thanks again!

reeshau

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Re: Case Study - where to put my surplus?
« Reply #11 on: October 23, 2018, 02:26:51 PM »
After the car, I would also suggest that you increase your emergency fund.  Understanding that your rent increased with no roommates, you now have just over 1 month's expenses.  You should target 3-6 months.

carozy

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Re: Case Study - where to put my surplus?
« Reply #12 on: October 23, 2018, 05:32:28 PM »
I think you're doing fine. The car loan is a no brainer, but you've figured out how to live in SF fairly efficiently. If you're considering moving to Fresno, why not Sacramento or Chico? More cottage/tiny home options there and the weather is better with the summer evening breeze.

If you want to stay in SF, I would suggest you turn your comparatively low income (I think the median income in SF now is $105K) into an asset. You would qualify for subsidized tax credit housing, which would be affordable and available to you forever, if you can get into a unit. You could likely rent a 1br for $1650 in a new building with nice amenities. And the rent would only go up with increases in area median income. If you want stability in SF, that would be the way to go. Just a thought if you don't end up wanting to move to the country.

Thanks.  I live in the East Bay, not SF, but lived in SF for 9 years and while I enjoyed it, my job and life are over here for now.  If I am able to transition my job into tech and move back to SF, I'll consider your advice...although I might (hopefully) not need it since I would theoretically be making more money.

Thanks also for the recommendation for tiny homes areas - I didn't realize Chico and Sacramento also have tiny homes.  I meant the kind on trailers, not just small homes/cottages, although I am open to that.  I'll have to look into those areas also.  I've got my hands full financially right now with paying off the car and beefing up the emergency fund.  Affordable housing for regular wage earners is a common problem and complaint in my area.  It makes us more open to alternative housing.

carozy

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Re: Case Study - where to put my surplus?
« Reply #13 on: October 23, 2018, 05:50:03 PM »
After the car, I would also suggest that you increase your emergency fund.  Understanding that your rent increased with no roommates, you now have just over 1 month's expenses.  You should target 3-6 months.

Yep, good idea.  I will build it up after the car is paid off.

carozy

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Re: Case Study - where to put my surplus?
« Reply #14 on: October 23, 2018, 07:24:23 PM »
Do not use "what's left over" for vehicle maintenance! If you're going to own an expensive luxury item like a car or house you need to *plan* for maintenance expenses. You don't have anything "left over": 100% of your income is spoken for by your hair-on-fire debt now and your savings later. Expenses are a concession you make to be able to live.

You're right, I should.  I decided to put $100 / month to car maintenance.  My last car maintenance took care of the tires which were expensive, so hopefully I can save money going to a regular car mechanic instead of the dealership.  I need to learn a bit more about what all needs to be done because I felt very overcharged at the dealership.
You may want to put more in there - I think Prius batteries are very expensive to replace, and yours is getting to the age where it might be looming sooner rather than later.

Good point.  I'm hoping not driving much will help delay that.

DoNorth

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Re: Case Study - where to put my surplus?
« Reply #15 on: October 24, 2018, 07:54:38 AM »
Another option on the tiny home is to find a motivated shop class at a local high school.  Preferably one with a teacher who is/used to be a licensed contractor.  These are convenient fun projects for the classes because they can bring the trailer into the shop and frame, wire, plumb etc. all under cover.  Then they drop it off and can put decking or skirting around it if it's going to be permanent or semi-permanent.

I think you're doing fine. The car loan is a no brainer, but you've figured out how to live in SF fairly efficiently. If you're considering moving to Fresno, why not Sacramento or Chico? More cottage/tiny home options there and the weather is better with the summer evening breeze.

If you want to stay in SF, I would suggest you turn your comparatively low income (I think the median income in SF now is $105K) into an asset. You would qualify for subsidized tax credit housing, which would be affordable and available to you forever, if you can get into a unit. You could likely rent a 1br for $1650 in a new building with nice amenities. And the rent would only go up with increases in area median income. If you want stability in SF, that would be the way to go. Just a thought if you don't end up wanting to move to the country.

Thanks.  I live in the East Bay, not SF, but lived in SF for 9 years and while I enjoyed it, my job and life are over here for now.  If I am able to transition my job into tech and move back to SF, I'll consider your advice...although I might (hopefully) not need it since I would theoretically be making more money.

Thanks also for the recommendation for tiny homes areas - I didn't realize Chico and Sacramento also have tiny homes.  I meant the kind on trailers, not just small homes/cottages, although I am open to that.  I'll have to look into those areas also.  I've got my hands full financially right now with paying off the car and beefing up the emergency fund.  Affordable housing for regular wage earners is a common problem and complaint in my area.  It makes us more open to alternative housing.

carozy

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Re: Case Study - where to put my surplus?
« Reply #16 on: October 24, 2018, 12:13:48 PM »
Another option on the tiny home is to find a motivated shop class at a local high school.  Preferably one with a teacher who is/used to be a licensed contractor.  These are convenient fun projects for the classes because they can bring the trailer into the shop and frame, wire, plumb etc. all under cover.  Then they drop it off and can put decking or skirting around it if it's going to be permanent or semi-permanent.

There was a high school in my area that built a tiny home.  I've heard of that before.  It's not the building of the tiny house or acquiring it, it's where to put it that I'm not sure about, but it's a good idea to consider that option!  That would definitely save money in the building of it.
« Last Edit: October 24, 2018, 12:17:51 PM by carozy »

PizzaSteve

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Re: Case Study - where to put my surplus?
« Reply #17 on: October 24, 2018, 12:26:11 PM »
Pay off car is my advice, now that 401k is getting full match. 9% too much to pay on, if you have free cash flow.  Solid start.

Not sure why you need a larger emergency fund.  Other advice is good.  Great low cost organic food options in the bay area. Check out costco for basics like black beans and organic chicken and Berkeley Bowl or farmers markets for ripe produce like kale and cauliflour in $1 bags, and learn to make tastee soups for pennies.  Freeze in meal size portions.
« Last Edit: October 24, 2018, 12:31:37 PM by PizzaSteve »

carozy

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Re: Case Study - where to put my surplus?
« Reply #18 on: October 24, 2018, 02:20:05 PM »
Good idea on the soups.  I like soups.  Right now I've been into making Buddha Bowls.  I think soups will be next :)