Learning, Sharing, and Teaching > Case Studies

Case study: just graduated, practically no savings

(1/4) > >>

indiaink1:
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?

marty998:

--- Quote from: indiaink1 on September 21, 2017, 11:35:33 AM ---I'm a 23 year old single female,

--- End quote ---

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:
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.

RidetheRain:
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.

CrispKale:
Hi indiaink1, based on the information given if it were me in this situation here’s 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 you’ve 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 you’ve hit your emergency fund account goal (it will take about 3 ˝ years) move that $230 a month portion over to your FI fund. That will eventually have you saving  ~$470 each month towards FI.
------------------------------------
I didn’t 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. I’d also as suggested above just ride for fun leaving off your lessons until you’ve saved a little more. Have you checked if your stable will work with you?

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

Navigation

[0] Message Index

[#] Next page