Author Topic: FIRE away!  (Read 1682 times)

Eventuality

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FIRE away!
« on: May 20, 2018, 07:50:00 PM »
I'm new to the world of Mustaches as of a few weeks ago and am intrigued by the idea of FIRE. Please help me figure out how to start growing my mustache!

I'm an RN employed full time, 28 y/o, reside in a LCOL area. My long-term SO is also employed full time in IT and we split expenses 50/50 but otherwise do not combine finances at all. No kids but we are thinking about trying in the next few years. During FIRE, I would probably still work around 1 shift per week just to keep my skills up to date. I'm good with managing basic budgets but I know ZILCH about investing. How do I make my money work for me?

Salary - ~ $53,000 pretax (paid hourly so paychecks vary slightly) - salary will likely increase to $60,000 within 5 years. This is more than I've ever made so I feel like I'm rolling in dough even without being a spendthrift!

Average monthly gross:
$4417

Average monthly deductions:
Tax - social security - $269.30
Tax - state - $170.45
Tax - medicare - $62.99
Tax - federal - $473.40
Group legal plan - $16.51
Vision insurance - $6.80
Dental - $7.38
Health insurance - $115.38
Disability insurance - 50% - $9.69
Life insurance 1x salary - $3.25
Roth 403b contribution (set at 10% of paycheck) - $447.39 (Employer matches $ for $ up to 3% so I'm technically contributing 13%)


Net Income:
$2834.42 from job
$400 from SO in monthly rent

Total net income:
$3234.42

Monthly expenses:
$710 - mortgage
$50 - home owners insurance
$225 - property taxes
$50 - house maintenance, gardening, etc
$55 - water/electric/sewer
$21 - heat
$7.50 - trash
$175 - groceries
$30 - Internet
$5 - Netflix
$40 - cell phone (I have an extra line on my mom's plan)
$45 - car insurance
$50 - car maintenance (average over the course of the year)
$75 - gas
$50 - medical expenses (average prescriptions and doctor's visits due to a chronic health condition)
$50 - massage
$400 - horse (a big chunk of change, but I love her and she's not going anywhere!).
$200 - student loans
$100 - entertainment, drinks, eating out
$10 - Amazon prime
$10 - gym (I actually use it!)
$10 - malpractice insurance
$150 - miscellaneous - clothing, a bad Amazon Prime habit, that heated yoga class that a friend was just burning to try, etc...

Total: $2243.50

*Note: cost of utilities is halved since we split them 50/50.

Assets:
Savings account/emergency fund - $6k
Checking - $1k
Roth IRA through Fidelity - $4k
Roth 403b through employer - $9k
House - ~$190k
Car - $3500
 
Total: $213,500

Liabilities:
Home loan - $136k
Student loans - $4k (I'm currently working on my BSN which is required by employer, so interest on loans is deferred until January 2019 and repayment doesn't actually need to start until then, but I thought I'd knock them out early. All are subsidized).
Credit card -$0 - paid off at the end of every month. Credit score is 779.

Total: $140k

Net worth: $73,500

Assuming I crunched my numbers for my monthly expenses right, I have almost $1000 extra/month to play with now that I've build my emergency fund, etc. What do I do with the money??? FIRE away!

Notes: The house is a new build (<10 years) that I've been living in for several years (had a rent to own agreement and just bought outright) and has had virtually no maintenance in that time - minus the basic stuff like a new shower head that we're handy enough to do ourselves. I drive an 15+year old Subaru with relatively low mileage that I should be able to squeeze at least another five years out of before it becomes too expensive to maintain. I have basically accumulated all of the net worth in the last year after graduating from nursing school except for the Roth IRA. I've had some miscellaneous expenses this year like closing costs ($1900), sending the horse to training ($1000) and buying new tires for the car (winter and all-season - $900) that I paid outright that shouldn't be happening again in the year to come.

Freedomin5

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Re: FIRE away!
« Reply #1 on: May 21, 2018, 04:32:23 AM »
The Investment Order thread should be helpful to you: Investment Order

nurseart

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Re: FIRE away!
« Reply #2 on: May 21, 2018, 05:29:31 AM »
Hello and welcome from a fellow nurse!

Sounds like you have really great habits in place already.

Freedomin5 is right, you should take a look at the investment order. I'd also read https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/.

That article should help you gauge where you are and your goals. Maybe you will read it and think WOW! Could I really FIRE that soon?! I am going to cut all expenses that aren't 100% critical, pick up extra shifts and work weekends for that sweet shift dif plus OT combo.

Or, maybe you will think eh I'm happy with how my budget and work/life balance is now and follow the investment order for the extra $1000 a month. Tip: go ahead and take that 1000 out as you get paid automatically, don't wait to see what is left over.

MrsWolfeRN

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Re: FIRE away!
« Reply #3 on: May 21, 2018, 06:09:20 AM »
Welcome to the forums!  It looks like your base expenses are low, but you could maybe optimize a few things. Your 403b is probably the best place to park your $1000/month, but it is worth doing some reading first and deciding what is best for your situation. You are on a great path, just avoid the temptation to inflate your lifestyle as your income increases.

 You didn't say if you and SO are married or not and what his/her salary is, but it is worth it to look up your marginal tax rate and decide if traditional is better than Roth for your 403b.  Check out this article on traditional vs. Roth:
https://www.madfientist.com/traditional-ira-vs-roth-ira/

Also regarding your 403b, take some time to find out who manages it, what funds it is invested in, what are the expense ratios, and are there any additional fees. The following website will help you learn more about these things:

 http://jlcollinsnh.com/stock-series/

Next look at your insurance: for example that vision plan costs $163 every two years, are you getting that much out of it? Do the same calculation for the dental, life, and disability plans as well (how many months do you get at 50%?). Can you increase the deductibles on your car and homeowners insurance?

What does that group legal plan cover? It looks like you have a private malpractice insurance plan as well, so I am just wondering if these things overlap.

Raenia

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Re: FIRE away!
« Reply #4 on: May 21, 2018, 07:10:48 AM »
Assuming you're unmarried/filing singly, I'd most likely recommend switching your 403b from Roth to traditional contributions, to save on taxes.  I'd also increase your contributions.  I understand wanting to have some extra income floating around to cash-flow one time expenses, but you don't need 1k/month for that.  I'd put about half of it into your 403b.  Continue contributing to your IRA as well.

What are the interest rates on your student loans?  With the interest being deferred until next year, it may make more sense to invest rather than paying the loans off early.  On the other hand, if you prioritize the warm fuzzies of being debt free outside the mortgage, you'll be paying them off in ~2yrs at the current payment.

Eventuality

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Re: FIRE away!
« Reply #5 on: May 21, 2018, 04:25:30 PM »
Thanks everybody! I will take a look at the investment order thread. I've already read the "Shockingly Simple Math Behind Early Retirement" ó that was one of the articles that encouraged me to post my case study and see where I was at.

I am unmarried/filing singly for tax purposes. I need to dig in more to what the group legal plan covers - I knew it when I signed up for it but I'm forgetting some of the details right now. I have contacts and get new glasses, so the vision plan does pay for itself (w/ good coverage). The car insurance will be going cheaper soon since I'll be losing the collision insurance on the car in July.

I picked Roth over a traditional contribution because I figured I'd rather pay taxes now while I'm working with a higher income than later when I'm retired.

I have two loans, one with an interest rate of 4.45% and about 2500 owed and the other with an interest rate of 4.26% with 1500 owed - so not too bad. Both are fixed rates. I prioritize warm fuzzies of being debt free - even if it's not logical all the time.

Should I start looking into investments that would offer quarterly dividends, or anything like that? I've heard Vanguard has some good funds.

Eventuality

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Re: FIRE away!
« Reply #6 on: May 21, 2018, 04:27:45 PM »
ETA: I'm big on work/life balance and I'm MORE than satisfied with working 3 twelve hour shifts a week. :)

gpyros85

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Re: FIRE away!
« Reply #7 on: May 22, 2018, 03:12:34 AM »
Will you keep the horse when having kids? My wife had a Tennessee Walker but didnít find the time between being stay at home mom and horse.

Also, your taxes will benefit greatly when married and even more with kids!


I got you saving 43% of your gross or $1885/monthly, is this accurate?

poniesandFIRE

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Re: FIRE away!
« Reply #8 on: May 22, 2018, 07:03:39 AM »
Horse trainer here, so just piping in from that angle. I think I'd up the emergency fund just a touch more. I'm sure you know how quickly a horse emergency eats money. ;)

Then I'd definitely clean up those two small loans. It wouldn't take you long and I agree about the value of being debt free. Then get rocking on investments.

I'm impressed your horse expenses are so low at $400/month. Is that a super accurate number? You're doing well on that front if that's everything!

Eventuality

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Re: FIRE away!
« Reply #9 on: May 22, 2018, 09:15:53 AM »
Thanks everybody! The horse will likely stay when having kids - both my SO and I have retired family members locally who would be willing to and are capable of watching kids, which helps immensely.

My saving rate was about 35% averaged out - some one-time expenses came up (like buying a house!) and I took money out of savings to cover that.

I agree on the horse emergency front - I've been in horses about 20 years so I know how it goes! I've made peace with the idea that if the horse were to require colic surgery or something like that, I would put her to sleep instead. I also have enough wiggle room in the monthly budget right now that I can cover a lot of things out of pocket without touching the emergency fund. 

The $400 is typical for monthly horsey expenses - pasture board is $250 and includes everything except for grain at $15/bag/month, $40 for a trim every 6 weeks, and typical annual vet expenses/dental averaged out over the course of a year, plus $5 a couple of times/year for deworming off from the results of a fecal test.

I own all the horse stuff needed at this point, so not much shopping going on either, unless mare-sy decides to destroy another blanket! Then it usually goes into the miscellaneous shopping budget.

Freedomin5

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Re: FIRE away!
« Reply #10 on: May 22, 2018, 10:55:46 PM »
Thanks everybody! I will take a look at the investment order thread. I've already read the "Shockingly Simple Math Behind Early Retirement" ó that was one of the articles that encouraged me to post my case study and see where I was at.

I am unmarried/filing singly for tax purposes. I need to dig in more to what the group legal plan covers - I knew it when I signed up for it but I'm forgetting some of the details right now. I have contacts and get new glasses, so the vision plan does pay for itself (w/ good coverage). The car insurance will be going cheaper soon since I'll be losing the collision insurance on the car in July.

I picked Roth over a traditional contribution because I figured I'd rather pay taxes now while I'm working with a higher income than later when I'm retired.

I have two loans, one with an interest rate of 4.45% and about 2500 owed and the other with an interest rate of 4.26% with 1500 owed - so not too bad. Both are fixed rates. I prioritize warm fuzzies of being debt free - even if it's not logical all the time.

Should I start looking into investments that would offer quarterly dividends, or anything like that? I've heard Vanguard has some good funds.

Lots of people here are big fans of Vanguard's index funds. I believe VTSAX is a general favorite, as well as some of the other funds (not American, so not as familiar with all the American Vanguard offerings).

Laura33

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Re: FIRE away!
« Reply #11 on: May 23, 2018, 10:57:05 AM »
I picked Roth over a traditional contribution because I figured I'd rather pay taxes now while I'm working with a higher income than later when I'm retired.

To start with, why would you prefer to pay higher taxes now than lower taxes later?  Please look hard at traditional vs. Roth.  You will save on taxes now, which will allow you to invest more for the same hit to your budget; and when you FIRE, there are ways to convert that traditional account to a Roth while paying minimal or even zero taxes. 

Second, please prioritize investments over paying down low-interest-rate debt.  I know there is a huge warm fuzzy of being debt-free, but what you are not seeing is how much money you are giving up by doing that.  Just one super-simplified example:  say you owe $10K at 4.5% interest, which is due to be paid in one lump sum 10 years from now.  Over 10 years, that means you will owe about $2500 in interest (so you will need to pay @$12,500 10 years from now).  So if you pay it off today, you save $2500.  So, yay, right?  OTOH, if you put that same $10K in a tax-deferred account and average 7% returns, you'd have almost $20K in ten years -- so you could then take $12,500 of it of that, pay off the loan, and still have almost another $7K left!  So you end up with significantly more money even though you continue to carry that debt for longer.

Third, you do not need to focus on funds that pay dividends.  Dividends are a way to generate cash from your investments, but you do not need that right now -- you want to reinvest all of that income from your investments into buying more shares of stock anyway, because that's how you make money long-term in the market.  So just look for a basic index fund (I like VTSAX), and throw your money there and ignore it for the next decade or two -- it WILL go up and down, but that's why you have your emergency fund and other money for your shorter-term needs.

And along those, lines, fourth, you are making a very very common mistake:  you are assuming that "one-time" expenses, like tires, are really just one-time expenses, so you don't need to worry about them going forward.  The reality is that even though you may not need tires next year, you may have a car repair, or a roof leak, or a tree that needs to be removed*, or a friend's wedding you want to go to, or a washing machine that needs replacement, or any of a thousand other things that happen in life.  So you need to dedicate part of your monthly income to plan for these sorts of expenses -- the predictable unpredictable things, the things you know are going to happen, you just don't know when.  Set up a separate account -- some folks call it a sinking fund, Michelle Singletary calls it a "life happens" fund -- and put a hundred or two hundred bucks in it every month until you get to the point where you have a sufficient cushion to cover stuff like this that comes up (I think you can reasonably judge by last year's non-house-purchase expenses, so around $2K).  Then spend and replace as necessary.

Fourth, one very specific suggestion:  take a close look at your disability insurance.  Find out if it is short-term or long-term disability.  Make sure it is "own occupation" insurance (i.e., if you are permanently disabled, you get paid as long as you are unable to do your current job, vs. being kicked off disability if you can work at any job anywhere).  And if it is long-term disability and "own occupation," see if you can increase your coverage to 60% -- and if you have the option, make sure you are paying for it in post-tax money.**  Your biggest financial risk right now is you losing your income stream by becoming disabled, so make sure you are appropriately protected against that risk.

And good luck!  You are off to a strong start; if you can just nail down a few of these tweaks here and there, you will be in fine shape. 

*Ask me how I know.  $2300 quote to remove giant old dying oak tree in my backyard.  Ugh ugh ugh.

**If you pay for disability insurance with post-tax money, the benefit is tax-free.  This is why disability insurance typically maxes out at 60% of income, because that tends to be about the same as your current income after taxes. 

Eventuality

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Re: FIRE away!
« Reply #12 on: May 23, 2018, 09:02:20 PM »
Thanks guys!

I have some add'l number crunching to do. My emergency fund is also my "oh sh*t" fund which gets replenished up to the 6K as needed if I need to pull money out for any reason.

The disability insurance is long-term (up to 60 months) and kicks in after 90 days. Thankfully, I also have substantial long-term sick leave that can be used to cover the period until the long-term kicks. Unfortunately, the 50% is the max that my employer offers (I already increased it from 40%). I am able to work at another job as long as the earnings with disability insurance don't exceed my 100% calculated salary - then the benefit is reduced accordingly.