Author Topic: Case study: just graduated, practically no savings  (Read 1521 times)

indiaink1

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Case study: just graduated, practically no savings
« on: September 21, 2017, 11:35:33 AM »
Life Situation: I'm a 23 year old single female, just finished grad school in May and joined the workforce. I have no debts thanks to scholarships/jobs/my parents.  I live in a college town/city in the Midwest with a pretty high COL for the region - mostly in the form of rent/housing.  I live about a mile from work and bike everyday/bus in really bad weather.  I have a horse that I keep <6 miles from me and take one lesson/week, this is pretty non-negotiable as I've had the horse for 10 years and this is my passion.  I also have a dog and a cat.

Gross Salary/Wages: $52,275

Individual amounts of each Pre-tax deductions: I put 5% into a 403(b) and after a year my employer will also put in 10%

Adjusted Gross Income: My take home is currently ~$3100/month

Current expenses:
Rent: 1075 (including pet fees, water/sewer/etc)
Electric: ~25
Internet: 20
Horse: 900 (including board, lessons @ 60 each, and vet/farrier)
Food: ~150 (including eating out)
Gas: ~40, depends how often I visit my parents (they live 40 miles away)
Car insurance: 100, will become 60
Rent insurance: 10
Misc: I budget 50 and typically don't spend anything

Additional yearly expenses: probably about 300 for the dog and cat (vet), 750 for horse insurance, and 500 for car (repairs/registation/etc)

Assets: 2002 Buick Lesabre worth about $1500, horse worth about $15-20000. I have $2500 in a savings account and $1500 so far in my 403(b)

Liabilities: None

Specific Question(s): Vet services are expensive and I want to have an emergency fund for that (the horse insurance covers anything horse-related up to $7500 but I would like to be able to self-insure as it requires mortality/loss-of-use and I'm only interested in major medical. And next year my horse will be in the "older" age group where premiums go up). 

Also, my car is a POC at 215,000 miles, only 22 mpg, no AC, and is starting to rust and I would like to replace it next year. It has died twice on me while driving, although I think we fixed the issue, but repairs are starting to add up.

My question is, I can save about 700/month right now, what should I prioritize? I would also like to achieve FI of course but I feel like I need to focus on other things right now, but as a statistician I know the power of compounding and saving more money now.  Is there anything I should be doing differently to try to save more money and achieve all of these goals?
« Last Edit: September 21, 2017, 12:04:59 PM by indiaink1 »

marty998

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Re: Case study: just graduated, practically no savings
« Reply #1 on: September 21, 2017, 03:29:16 PM »
I'm a 23 year old single female,

The random thought occurred to me whether the mechanics of FI should be different if you are male or female in this day and age.

You should appreciate that, should you want to be FI, you need almost $400,000 in capital to generate enough passive income to pay for your love of horses. In no way am I saying give it up, but $400k will be a starting point in terms of figuring out goals.

You might actually get some help from your horse if it is of good breeding stock :)

General advice is to put more effort in than your peers and increase your income - you seem to have landed a great job/career immediately on entering the workforce - ride it as far as you can, and take advice/mentoring from those above you.

Laura33

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Re: Case study: just graduated, practically no savings
« Reply #2 on: September 21, 2017, 06:42:08 PM »
So you are spending over 30% of your take-home pay on the horse, which really constricts what else you can do with your money.  Can you at least cut the lessons and just enjoy riding?  That would help.

Otherwise, it's pretty simple:  sounds like you are going to have significant cash needs for the next few years (new car, emergency fund, horse self-insurance fund).  So compile cash.  And when you do need that new car, buy another cheap POS that doesn't require a loan or deplete your EF -- you can't afford both a horse and a nice car, so given the cost of keeping the non-negotiable horse, everything else needs to stay as cheap as possible. 

You seem very aware of the fact that choosing to enjoy the horse now means delaying retirement.  This article may help quantify that impact:  http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/.  Your 5% retirement savings will have you retiring at 89; adding the employer 10% match once it vests brings that down to 66.   If you put the 30% that goes to the horse into retirement instead, you'd be looking at more like FIREing at 51.  So that's the true cost of the horse:  15 years of work.  Again, totally your choice -- just make it in full knowledge of the tradeoffs.

*Not at all precise -- the first two figures are % of gross, and the latter is net; you should do the actual math yourself.
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RidetheRain

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Re: Case study: just graduated, practically no savings
« Reply #3 on: September 22, 2017, 09:56:59 AM »
You might want to think about lowering your horse costs with some skill increasing. I had a roommate that was low on cash at one point and learned to shoe her own horse. It took some cash upfront and some time to learn, but learning the skill meant she didn't have to pay a farrier as much (I think she still bought the shoes from a professional, but fit them herself) and she was able to pick up a client or two. Also - trimming and braiding are skills worth having. I don't see that in your line-items, but if you show at all (which I'm guessing because of the lessons?) you might be able to pick up a client or two on a show weekend and save yourself the cash for that too.

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CrispKale

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Re: Case study: just graduated, practically no savings
« Reply #4 on: September 22, 2017, 01:25:47 PM »
Hi indiaink1, based on the information given if it were me in this situation hereís what I would do:

Divide the $700 working capital into three portions and put them to work right away.

1.   $230-- increase your current 403b contribution by $230 a month that should bring you close to a 10% contribution on your part, with your employer joining you soon that will give you a total of ~20%.

2.   $230--open a vanguard or fidelity investment account and start saving $230 each month into this new emergency fund. Goal for account will be a minimum of four months expenses:
Expenses currently about ~$2410 so 2410*4=~$9640.

An unexpected car breakdown is an emergency so in the future if your current car can no longer be fixed use some of the funds youíve saved in this account to buy another beater car and keep saving until the $9640 is hit again.

3.   $240-open a second vanguard or fidelity investment account for your FI fund. Once youíve hit your emergency fund account goal (it will take about 3 Ĺ years) move that $230 a month portion over to your FI fund. That will eventually have you saving  ~$470 each month towards FI.
------------------------------------
I didnít see any information about rent sharing, could you bring your rent down by having roommates?

I also had a friend who wanted a horse but could not afford the boarding so negotiated with the sables to work off her charge. She cleaned stalls, cleaned gear, etc. instead of paying full board price. Iíd also as suggested above just ride for fun leaving off your lessons until youíve saved a little more. Have you checked if your stable will work with you?

I can see youíre an animal lover have you considered a side hustle as a dog walker or pet sitter?
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Wayward

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Re: Case study: just graduated, practically no savings
« Reply #5 on: October 13, 2017, 10:39:00 AM »
In my opinion, you are actually doing very well Ė no debt, good starting salary, time, and lots of opportunity. 

I am also a passionate equestrienne, although I have never been able to afford my own horse.  Personally, until I get my debt emergency resolved I cut out all luxuries, including my riding lessons, but work at the barn for extra cash and get to ride for free or even get paid to ride other peopleís horses (so I still get to pursue my passion)!  I have known people who work at the barn to pay off part or even all of their board, which would save you a bunch of money.  You didnít mention your riding discipline, but would it be possible to find local shows that offer cash prizes?  Have you considered giving lessons to other people on your horse?  Or finding someone to part-lease your horse?  Can you ride other peopleís horses for cash?  As others have mentioned, learning skills such as shoeing, braiding, grooming, even learning to become a trainer/instructor in the future could help you make horses lucrative, not just expensive! 

Your rent is high, have you considered getting a roommate or two to share the cost?  In a college town it should be quite easy.  If you could find an affordable house/apartment to rent, perhaps you can get down to a zero-net rent?  Do everything you can to earn extra money and learn skills on the side.  Also, I would recommend starting to put some money aside each month for an emergency fund (~$1,000) and another to purchase a used car, perhaps one under $5,000 when the time comes.

Good luck on your journey!

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Meesh

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Re: Case study: just graduated, practically no savings
« Reply #6 on: October 14, 2017, 10:34:37 AM »
ok so setting aside your horse (you are active but haven't been responding so I'm guessing that's why), you need to start budgeting the bigger expenses. You don't have 700 a month because you still have to pay 300 vet, 750 horse and 500 car annually. So set aside 25/month vet, 63/month horse and 42 car. You have 600 (3100-2370=730-130 annual=600) to save assuming that 50/month misc includes things like Christmas and clothes etc. Try a budgeting tool like mint or ynab.

Your expenses are high for your position so you'll be saving for an emergency fund for awhile. You mentioned you want to get rid of the horse insurance but didn't say how much you thought it would cost without it, footing it yourself. You need to research this but since you are worried about major medical which tends to cost a lot and you can't say for sure when this will happen to save up for it, I'd say you can't afford it since you'd have to double up for a few years in the mean time and you can't because: priority one is your emergency fund.

An e-fund's major job is to hold you until you can find a new job, that's why its calculated by living expenses..So how long would it take you to find another if you lost this one? Because right now you only have 1 month to get a new job. Some interviewing processes take months. After that one month you'd seriously have to consider selling your horse, which I know you don't want so start saving ASAP. Most say, you should have 6 months of expenses so you need 15,000 in cash. This will take you 21 months (15000-2500=12500/600=21) so I really hope you don't loose your job in the next 2 years.

This is not accounting for buying a new car. I'd get the cheapest you can find. In fact, I'd use it and keep fixing it until the repairs cost more than getting a new POS. Mine own dear POS is actually older than yours and that is my currant plan.

Quite frankly you are horse poor. So all your other expenses should be as low as possible. I'd seriously consider a roommate since you live in a HCOL college town. Why do you not have a roommate?

Once you have an e-fund to your satisfaction, next steps down FI would be 403b contribution up to match, HSA if you have one (you never mentioned health insurance?), and then an IRA. Keep in mind the more you put in these the less you pay in taxes.

https://forum.mrmoneymustache.com/investor-alley/investment-order/

Otherwise if you are really interested in FI early I'd consider a side hustle. You make a decent income but with your refusal to lower expenses the only other option is make more money.

You are in good shape, saving 20% net and 23yo. But this is MMM and a financial independence forum. For FI it's not enough. It might be fine for you though. You just need to crunch the numbers and decide if you are ok with your FI date. Check laura's link.

Goldielocks

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Re: Case study: just graduated, practically no savings
« Reply #7 on: October 17, 2017, 01:08:19 AM »
What strikes me as odd, is that you have no other hobbies other than the horse listed, with perhaps a touch of eating out.
Are you sure you don't do anything else?  Or desire to?  Own a cell phone?

Your pet (not horse) costs, other than the annual vet, don't seem to be listed -- how much do they eat? A dog, plus cat plus horse seems like a lot of pets for someone who just graduated.     Bus passes?

As others have said, your housing costs are 1/3 your total take home, then the horse is pretty much 1/3, then you have only 1/3 for food, medical, dog, cat, car, bus pass, eating out, entertainment, savings, clothing, christmas, travel, laundry, friend's weddings that you are invited to, no horse shows, etc.

The only reason you are above water right now is that you are single, no kids, not dating (or there are no dating costs shown), and not saving much of anything.... and just graduated, so not used to having much other expenses, ... or perhaps others in your life used to help out the low income student (you) in small but regular ways, but you will need to step up now that you are making good money.   Except that all of your money is tied up in horse + rent...

Some thoughts -- can you sell your car completely and give away your dog and cat, if they cost more than you listed and you want to keep the horse?   

Can you find another way to reduce horse and rent costs (by working at the horse stable, or moving to a cheaper property with acreage for the horse and you take on the daily chores for the horse?)

What do your relatives and friends say to you about your financial / money choices right now? 
How did you afford all of these animals last year?
« Last Edit: October 17, 2017, 01:16:06 AM by Goldielocks »

minnie76

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Re: Case study: just graduated, practically no savings
« Reply #8 on: October 17, 2017, 06:45:44 AM »
As a fellow horse owner, your $900/month expenses seem pretty reasonable.  I pay $775/horse for full board and training in the Midwest not including vet and farrier.  It wasn't all that long ago that I was making about $55k/year and with one horse too- however, my housing expenses were much lower than yours.  I actually purchased a house and rented out two bedrooms to cover my mortgage and utilities which left me with a lot more breathing room than you currently have.

A few things I did to decrease my horse costs were to teach lessons at the barn I keep my horses at.  They have an extensive lesson program and I would teach one evening a week and all day Saturday in exchange for lowered training costs.  I also worked for the barn (and still do even at almost 30 years old) at a lot of shows.  It dramatically cuts the cost of showing and teaches you a lot in the process.  Depending on what type of showing you do, braiding can be very lucrative also.  I have made thousands braiding horses over my show career so if you can develop that skill set you can offset a lot of cost there.

In terms of insurance, shop around for a company that might allow you to do major medical only.  I have worked with Jarvis and Markel in the past and I believe they might have an option for that.  Smartpak also has some supplements that have ColicCare eligibility which allows for $7500 in colic surgery insurance for a small fee if your horse is on some of their supplements which might be an option.  I don't personally use that but I know some people who do for older horses that are not travelling to shows frequently.

You should also do your own worming if possible.  It's super easy and the markup on having a vet do that is insane. 

I would prioritize saving as much as you can in an emergency fund.  The age and mileage on your car make it a huge liability that you need to be planning for.  Additionally, I know my horse insurance has a $1k deductible on medical which means you need to at least have that on hand. 


Raenia

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Re: Case study: just graduated, practically no savings
« Reply #9 on: October 17, 2017, 08:52:33 AM »
For your specific question of what to prioritize, start with an emergency fund of 3-6 months expenses.  Once you have that, I'd split it between short term savings (new car fund, horse medical fund) and long term savings.  I recommend using an IRA for your long-term savings.  For a more in depth look at priorities, see the Investment Order.  The other option for managing priorities is to create a 'sinking fund' for your car and another for your horse, and contribute a monthly amount to be treated as a budget line item.  Then your savings is whatever is left after those contributions, which should go toward long-term savings.

The short version:
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.         
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account with any extra.

ETA: Fixed wonky link.
« Last Edit: October 18, 2017, 01:13:59 PM by Raenia »

indiaink1

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Re: Case study: just graduated, practically no savings
« Reply #10 on: October 18, 2017, 01:00:32 PM »
Thanks for all your input! Regarding housing: in my city housing is in high demand near the college/hospital where I work so 12 month leases are standard, with September leases being signed as early as November the previous year. And it's a long story but I was originally going to live with my brother but he bailed on me last minute and I was able to switch to a 1br.  So next year I may look for something cheaper or find a roommate, but for now this is what it is.

The horse: I do dressage at the only dressage barn in town, but if I ever needed to I could move my horse somewhere else for $300/month and no lessons, lease the horse, or sell her very easily. Back when I was showing she was well-known on the local hunter/jumper circuit as a nice, safe, easy horse so that wouldn't be an issue at all. My horse is also barefoot, low maintenance, etc. And I haven't mentioned this before but if I were ever truly in a bind my parents would help me out temporarily, but of course I'd rather not have to rely on them.

What strikes me as odd, is that you have no other hobbies other than the horse listed, with perhaps a touch of eating out.
Are you sure you don't do anything else?  Or desire to?  Own a cell phone?

Your pet (not horse) costs, other than the annual vet, don't seem to be listed -- how much do they eat? A dog, plus cat plus horse seems like a lot of pets for someone who just graduated.     Bus passes?

As others have said, your housing costs are 1/3 your total take home, then the horse is pretty much 1/3, then you have only 1/3 for food, medical, dog, cat, car, bus pass, eating out, entertainment, savings, clothing, christmas, travel, laundry, friend's weddings that you are invited to, no horse shows, etc.

My work covers bus pass, I don't eat out or go out, never need to buy clothes (not into fashion and what I have now will last at least 3-5 more years), I save all my laundry for visits to my parents, only have 1 friend even close to marriage, Christmas means buying a few small gifts for parents/brothers. Dog and cat don't cost much(barring any emergencies!), probably <$10/month for food.  My mom also tends to give me half of her dog's food when she buys it in exchange for my services grooming, nail trimming, etc. (We have shelties and she doesn't like brushing them and is too scared to do the nails and brush teeth).

I do actually have other hobbies - I kayak on the river next to my apartment with the kayak I store in the complementary storage unit, hike the nature trail along the river, and bike to the barn/work.  My friends moved after graduation but I'm starting to get involved in free things like a local bike repair charity that comes to the farmer's market every week.  Even with friends I've never really been into "going out" I prefer to do free activities.

Basically what I'm saying is I can afford my animals/rent as they are right now but if anything significant were to happen I might not, hence wanting to build up an emergency fund. I'm not worried about my job as biostatisticians are in high demand at a research hospital. My masters program is constantly sending out job postings to alums.

I guess my main question was not so much that I want to continue justifying why I have a horse, dog, and cat, high rent, etc. but really: with my current expenses and possibility of car/animal/other emergencies, how much should I be putting in the 403b/457b/roth IRA vs emergency fund?  I am well aware that I spend a lot for these things and I can find ways to offset that.

Goldielocks

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Re: Case study: just graduated, practically no savings
« Reply #11 on: October 18, 2017, 01:43:40 PM »
Thanks for the reply.   I was not trying to get you to remove your one primary hobby, just pointing out that your budget list did not seem to be complete.  There are many case studies that are posted with only 80% of expenses listed and your category list is exceptionally short.  I still think that it seems to missing something, given that you have only a few months of trending.  Those (a cat&dog together for $100 per year plus $300 vet fees?) were just the first obvious ones that jumped out.  Another example -- did you spend ZERO to set up and move into your new space? no boxes, trashcans, towels, pictures, buying pizza for friends helping or anything?  If you truly moved in with zero extra costs, you need to be clear with yourself on why, and if that is sustainable now that you are on your own.

Few people will have the same spend pattern a year after graduating and of starting work at $50k/yr, you may, but if you are starting out not realizing exactly why you have so few expense categories, it will trend the wrong way.

Emergency fund suggestions:
$2000 general emergency fund.   This is enough to cover a lot of problems that may arise for you, and prevent any overage charges if you temporarily charge an urgent expense to a credit card and want to pay it off within the month.  In your checking/savings account.

$5000 animal emergency fund.   (You can choose more, but this would be a great place to hold.)  With my parents, if I went to ask for $4k  loan for a vet bill emergency, I would start to get the pressure that the animal was too expensive for me to support on my own and that it was time to sell...  I would not agree, and so, would want the ability to pay the first $5k out of pocket, without discussing it with them.  What is your point of "independence" on this issue?

$?? for job loss?  I will be honest, I never saved up $$ for job loss except as FU money later on.  This was despite having 3 times been hit with a 2-4 month job loss so far that could have been a lot worse.   I guess I was always willing to find ANY job if a large problem happened, and I could make things work on minimum wage for a while if needed. (kept rent and fixed costs low).  The $2k emergency fund would get me through up to 3 months.  Would you be able to handle a 3 month job loss with no severance?  What is your number for this line item?

Total: $7k to ??.

Retirement -- get the match. always.
Roth IRA -- you can use this for the $?? Job loss money above... up to you if you put the $5k animal medical here too, or if you need faster access to that.

indiaink1

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Re: Case study: just graduated, practically no savings
« Reply #12 on: October 18, 2017, 03:07:09 PM »
Thanks for your response!  My budget is indeed complete although I can see where you're coming from.  As a statistician who lives for data I can assure you that I have a spreadsheet with much more detailed categories going back more than the 2 years since I moved out of dorms, responsible for myself and my animals beyond a few things that I know what my parents spent ($750 horse insurance, $500 one-time dog dentist because my parents did not keep up with dog's teeth brushing while I was 600 miles away in college and as he was also a family pet for the previous 7 years they paid it), all while on a grad student stipend.  I was just trying to keep it simple here. I guess next time I know you guys really like to have all the details!

Why are my dog and cat so cheap?  Again, dog food is mostly free in exchange for grooming my mom's dog.  Even so, he would get $45 bag for 8ish months. Cat got $35 bag of food in May and still going for another few months.  These are not the budget foods, they are a highly rated brand. Turns out I was a little off on the vet, my dog recently had a $350 vet bill for his annual exam and cat will probably be $100. Dog is 10 and has a thryoid issue requiring twice daily pills and yearly blood test to renew the prescription. Cat is 3 years old so medical issues are hopefully a long way off.  Yes I'm aware the dog may have some major "old-age" illness in the next few years, but I don't believe in keeping animals alive if their standard of living will be significantly lower, I'm more the treat what you can and manage the pain sort of person.

For the roth: if you were using that to store an emergency fund how would you invest it? I do already have $2000 in a savings account for quick access but don't like the idea of earning only 1.2% interest beyond that.

Goldielocks

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Re: Case study: just graduated, practically no savings
« Reply #13 on: October 18, 2017, 05:07:56 PM »
Roth -- I would have it invested very conservatively for the emergency fund dollars. 

Something better than a savings account, but nothing that is likely to drop more than 5% in a year...   I choose Bond etf funds, myself, and they do go negative from time to time, but nothing I can't handle, and I get the dividends.   

Laura33

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Re: Case study: just graduated, practically no savings
« Reply #14 on: October 19, 2017, 07:18:47 AM »
I like the Roth as a temporary EF idea.  You can use it for emergency money while you are building up a long-term EF outside of the Roth.  While you need the Roth as an EF, you keep it in a money market or something similar.  Then over time, as you can save more and start building up your "real" EF outside of the Roth, you can transition the Roth money into VTSAX or something comparable.
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letired

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Re: Case study: just graduated, practically no savings
« Reply #15 on: October 19, 2017, 02:49:58 PM »
+1 the emergency Roth idea. I generally don't like the concept of  using the Roth money as an emergency fund, but you seem like a good candidate given your potentially high emergency expenses.

You could also check out higher-interest savings accounts at https://www.doctorofcredit.com/high-interest-savings-to-get/ . I'm in the process of opening an account (Insight) that will give me 5% on up to 5k. I also have a few Netspend-style accounts (5% on up to 1k). Note that there are slightly more hoops to jump through than with regular savings accounts, but it could be a good middle ground between a regular 1% savings account and having the money invested.