Case Study: Optimizing for the future

[noknow]

Life Situation: Age 30, Single, 0 children, in Denver, $0 debt, no car and loving it

Gross Salary/Wages: $100,000/yr + 2% raise per year + 10% Bonus/yr, new job

Individual amounts of each Pre-tax deductions
401k 4% work match - $20,0000 (S&P 500 Index Funds Black Rock) only cheap funds available at work,
IRA - $20,0000 (Vanguard TD Fund)

Current expenses: Total yearly expenditures (2017): ~$23,000

Item           Average/M over 12Month Std(±%)
Apartment   $600   
Recreation   $99   
Health/Fit   $225   
Clothes   $21   
Phone Bill   $50   
Transporta   $132   
Food/Groc   $675   
Other   $278   
Average Total   $2,080             22

Currently rent a room out of house since it’s dirt cheap.

All health insurance is covered by my work.

Bank:
Checking/Debit: ~ $300
Savings (Emergency) Wells Fargo (yuck!) <1%: $5000
High Yield Savings (APY: 1.5%) Barclay’s: $28,000

Total NW including Retirement: ~$73,000 :(

Liabilities:
* $0 liabilities. Paid off all my student debt.
* Three credit cards with $40,000 limit total and just use it to buy small things and pay it off immediately.

Would like to be FI in 15 years.

Specific Question(s):
1) I would like to buy rental property in 5-7 years, would it be wiser to stick my cash savings in a 5 year CD or do stocks?

2) I live in downtown Denver, HCOL. Are my expenses optimized?

3) Does my allocation look ok? I want to invest aggressively but also want to save for property.

4) Family has gotten on me about buying a house. But look at my freaking expense for renting. The average rent in my area is $1400/month. I’m paying $600/month saving and investing the difference. I feel like I could ride this out for a while until I decide to do rental property. In other words, I’m in no rush.

Any recommendations are welcome. Thank you.
 

[Calvawt]

With those expenses and bringing home $5-6k each month, you should be able to save up a sizable down payment in no time.  I wouldn't worry about the allocation of the mutual funds right now, just make sure they are broad and low fee.  Your expenses for a large metro area are really pretty low.  I would consider putting most of the down payment into index funds, but may would disagree with that.  Keeping it all in cash or 1% savings accounts just loses to inflation.  I see online accounts up to about 1.6% now though, so if you keep most of it there you would be in good shape.  I would say that make sure you are maxing the IRA and 401k every year and consider starting a taxable account as well.

I think you could be FI in way less than 15 years if you don't buy too large of a house.

[GOFU]

 Those numbers for health/fit ($225) and food/groc ($625) seem oddly high. That's $850 total for those two items alone. I think Mr. Money Mustache pays about half that for groceries for his family of three. That's nearly $10,200 in after-tax money, so at a 15% marginal tax rate you have to earn nearly $11,500 just to pay for those two things. Something is off there.

Also, $278 per month, $3,336 annually, is a lot of "other." That's too much money, and too high a percentage of gross income, to not be able to categorize it. You may have a leak there.

If you want to be FI in 15 years you need to save and invest about 50% of your earnings. Mr. Money Mustache wrote about this. http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

At $100k of income as a single dude you should easily be able to accomplish this within 15 years if you are disciplined with the consumption/expense side of the ledger. Run the numbers over at Dave Ramsey's calculator. https://www.daveramsey.com/smartvestor/investment-calculator

Build in a good margin of safety to weather the vicissitudes of fortune.

[noknow]

With those expenses and bringing home $5-6k each month, you should be able to save up a sizable down payment in no time.  I wouldn't worry about the allocation of the mutual funds right now, just make sure they are broad and low fee.  Your expenses for a large metro area are really pretty low.  I would consider putting most of the down payment into index funds, but may would disagree with that.  Keeping it all in cash or 1% savings accounts just loses to inflation.  I see online accounts up to about 1.6% now though, so if you keep most of it there you would be in good shape.  I would say that make sure you are maxing the IRA and 401k every year and consider starting a taxable account as well.

I think you could be FI in way less than 15 years if you don't buy too large of a house.

I was doing some reading and it looks like a good rule of thumb is to invest in stocks when you're looking at least a 10 year horizon. Since I'm looking ~5 year looks like CDs are better?

Those numbers for health/fit ($225) and food/groc ($625) seem oddly high. That's $850 total for those two items alone. I think Mr. Money Mustache pays about half that for groceries for his family of three. That's nearly $10,200 in after-tax money, so at a 15% marginal tax rate you have to earn nearly $11,500 just to pay for those two things. Something is off there.

Also, $278 per month, $3,336 annually, is a lot of "other." That's too much money, and too high a percentage of gross income, to not be able to categorize it. You may have a leak there.

If you want to be FI in 15 years you need to save and invest about 50% of your earnings. Mr. Money Mustache wrote about this. http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

At $100k of income as a single dude you should easily be able to accomplish this within 15 years if you are disciplined with the consumption/expense side of the ledger. Run the numbers over at Dave Ramsey's calculator. https://www.daveramsey.com/smartvestor/investment-calculator

Build in a good margin of safety to weather the vicissitudes of fortune.

Thanks Gofu I'll take another look. There is crud that I haven't broken down in other (gifts, vacation, etc.) That is a value averaged on a per month basis with a wide STDEV sorry it's not included.

I do eat out for lunch and occasionally for Dinner. I have found it extremely hard to be consistent with getting my own food, for a single guy. Any tips?

[GOFU]

I have found it extremely hard to be consistent with getting my own food, for a single guy. Any tips?

Yes, buy and cook your own food.

Single guy is no excuse. To be financially independent you must be disciplined.

Over 15 years, cutting out the restaurant meals and saving another $300 month in index funds will accomplish the goal of getting you to a FI amount of money.

It will also probably save you at least 15% on your waistline over that time.

I know what it costs to eat out in restaurants. It is bloody expensive. You are pissing your money away. Every dollar you piss away is another brick on the sled of bricks you are dragging while progressing toward your goal.

Do a 60 day experiment and keep close track of the money. I bet you never go back to pissing it away. In fact, do that with all your expenses and I bet you cut out a huge swath.

[boarder42]

so you have 73k now - lets get all that invested if you invest 73k in VTSAX go read this to understand why (http://jlcollinsnh.com/stock-series/)

and you save 60k a year which is probably on the lower end of what one could save - in 10 years you will have 1MM dollars compounding at 7% a year you can play around with this calculator.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

so 1MM will get you 40k a year in spending - well above what you currently spend and get you there 5 years ahead of what you want - as a high earner with your timetable i wouldnt bother with real estate. 

to hit your 23k in spending this would take - 6 years to reach assuming normal market returns.

You need to get that 23k invested immediately IMO -

if you're hell bent on being a landlord - go to biggerpockets read all that and figure out how to buy property the correct way - in your area i would say its highly unlikely you find property that meet the minimum requirements and you'll likely come out far ahead with investing.

[GOFU]

so you have 73k now - lets get all that invested if you invest 73k in VTSAX go read this to understand why (http://jlcollinsnh.com/stock-series/)

and you save 60k a year which is probably on the lower end of what one could save - in 10 years you will have 1MM dollars compounding at 7% a year you can play around with this calculator.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

so 1MM will get you 40k a year in spending - well above what you currently spend and get you there 5 years ahead of what you want - as a high earner with your timetable i wouldnt bother with real estate. 

to hit your 23k in spending this would take - 6 years to reach assuming normal market returns.

You need to get that 23k invested immediately IMO -

if you're hell bent on being a landlord - go to biggerpockets read all that and figure out how to buy property the correct way - in your area i would say its highly unlikely you find property that meet the minimum requirements and you'll likely come out far ahead with investing.

The decisions and the math really do not to be complicated. boarder42 just gave you the road map.

[noknow]

I have found it extremely hard to be consistent with getting my own food, for a single guy. Any tips?

Yes, buy and cook your own food.

Single guy is no excuse. To be financially independent you must be disciplined.

Over 15 years, cutting out the restaurant meals and saving another $300 month in index funds will accomplish the goal of getting you to a FI amount of money.

It will also probably save you at least 15% on your waistline over that time.

I know what it costs to eat out in restaurants. It is bloody expensive. You are pissing your money away. Every dollar you piss away is another brick on the sled of bricks you are dragging while progressing toward your goal.

Do a 60 day experiment and keep close track of the money. I bet you never go back to pissing it away. In fact, do that with all your expenses and I bet you cut out a huge swath.

Thanks for the inspiration. I'll try my best. Can you recommend any good resources for cheap food. I live in the city with no car so I can't go to Costco.

so you have 73k now - lets get all that invested if you invest 73k in VTSAX go read this to understand why (http://jlcollinsnh.com/stock-series/)

and you save 60k a year which is probably on the lower end of what one could save - in 10 years you will have 1MM dollars compounding at 7% a year you can play around with this calculator.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

so 1MM will get you 40k a year in spending - well above what you currently spend and get you there 5 years ahead of what you want - as a high earner with your timetable i wouldnt bother with real estate. 

to hit your 23k in spending this would take - 6 years to reach assuming normal market returns.

You need to get that 23k invested immediately IMO -

if you're hell bent on being a landlord - go to biggerpockets read all that and figure out how to buy property the correct way - in your area i would say its highly unlikely you find property that meet the minimum requirements and you'll likely come out far ahead with investing.

I would like to diversify my assets, hence buying a rental property. I don't like the idea of putting my eggs in one basket (the market). But I wouldn't just be buying it for myself, because I think that would be a waste. I know that a home is a bad investment in itself, it will cost me in taxes, repairs, etc. But as an investment property, I think there could be a benefit. I work in software, so in the future it will be possible for me to move to location that has LCOL. I think there is an economic advantage to this assuming I can keep my current salary.

Plus in my mind, there is something about being a guy in his 40's renting...I also do want a family at some point, maybe later 30's.

[GOFU]

Can you recommend any good resources for cheap food. I live in the city with no car so I can't go to Costco.

Just go to the grocery store. Forget Costco unless you happen to tag along with a friend. The difference between what a singleton would spend at Costco and what you will spend at a regular grocery store is negligible and not a reason to eat out. The important thing is to keep your ass and your wallet out of restaurants.

Being single is a big advantage here. You only need to buy the things and the amounts you know you will consume. Easy prep and easy clean up with no waste. You will find it is actually easier than going to a restaurant all the time.

Think about that road map given to you by boarder42. A million dollars at age 40 and financially free. Are you really going to trade that for all the shit you're spending your money on? Don't answer. I wish you every success. 

[GOFU]

http://www.budgetbytes.com/

Also, I think most grocery stores and even Amazon deliver to your door.

[boarder42]

the stock market is diverse if you want exposure to real estate buy REITs b/c again those will likely be more efficient than trying to find a rental property in your current location.

if you're going to buy a house for yourself thats fine and a non unreasonable choice but your question was how to FIRE in 15 years and i gave you the road map to do it in much less time

[noknow]

Should I buy into VTSAX with how high the market is currently? Seems a little scary?

[boarder42]

Should I buy into VTSAX with how high the market is currently? Seems a little scary?

Yes you should. You can't time the market. Read bob the world's worst market timer. Invest it all now.

[civil4life]

I think you are getting great advice here from the group.  I doubt you need much of an EF.  You do not own a car or house, which are the ones that would be the biggest concern besides losing your job.  Since you are high income I recommend to take the fullest advantage of the tax shielding avenues.  Here is the investment order link https://forum.mrmoneymustache.com/investor-alley/investment-order/.  This will help you figure out what order to maximize your money. 

I would seriously only consider rental and home if you really want them.  They are a ton of work.  The amount you are saving and your high level of income it is really not necessary for you to invest in these other revenue streams.  You would probably be better off finding some other sort of passive income.  Maybe something based on a hobby.

If you really want the house or rental, why not consider doing both in one.  You are in that situation now renting a room.  If you do go buy a house, look at the potential for roommates.

What else are you wanting down the line...travel, marriage, kids, etc. 

I am horrible with food too.  Learn to cook a few simple meals.  When you cook make large batches and freeze leftovers or eat for lunch the next day.  Learn to shop the sales and then plan your meals around what is on sale.  Also, if you have roommates you could work with them to maybe have each of you plan a meal a day each week.

Good Luck

[dollarchaser]

Can some of the doubts be tied to energy and finding an outlet more personal than work?
The thing I have learned with financial plans is putting this on auto pilot gives you a restless feeling. Can it be this easy? What more should I worry about?

Sort through feelings and money as two different things. THAT will keep you busy while your money goes to work for you.

[noknow]

Should I buy into VTSAX with how high the market is currently? Seems a little scary?

Yes you should. You can't time the market. Read bob the world's worst market timer. Invest it all now.

If this is the article you're referring to (http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/) it's pretty good. However, it makes no mention of the net investments over smaller time intervals (10, 20, etc.). Does this apply to me since the articles is looking at a 40 year window?

I think you are getting great advice here from the group.  I doubt you need much of an EF.  You do not own a car or house, which are the ones that would be the biggest concern besides losing your job.  Since you are high income I recommend to take the fullest advantage of the tax shielding avenues.  Here is the investment order link https://forum.mrmoneymustache.com/investor-alley/investment-order/.  This will help you figure out what order to maximize your money. 

I would seriously only consider rental and home if you really want them.  They are a ton of work.  The amount you are saving and your high level of income it is really not necessary for you to invest in these other revenue streams.  You would probably be better off finding some other sort of passive income.  Maybe something based on a hobby.

If you really want the house or rental, why not consider doing both in one.  You are in that situation now renting a room.  If you do go buy a house, look at the potential for roommates.

What else are you wanting down the line...travel, marriage, kids, etc. 

I am horrible with food too.  Learn to cook a few simple meals.  When you cook make large batches and freeze leftovers or eat for lunch the next day.  Learn to shop the sales and then plan your meals around what is on sale.  Also, if you have roommates you could work with them to maybe have each of you plan a meal a day each week.

Good Luck

Thank you for the link.

I've always wanted to start a side business. My job is software, and so is my hobby. I've got good skills, I just need more experience before I'd feel comfortable doing side jobs. 

I've lived in other countries and traveled so much that honestly I don't want to travel any more. Marriage is something I want. I'm on the fence about kids...

I honestly just want another asset class to invest in. I'm also feeling social pressure family and friends to get real estate. Not rational I know. But there has to be other assets I can invest in besides stocks and real estate?

Thanks for the tip about meal planning with roommates, never thought of that.

Can some of the doubts be tied to energy and finding an outlet more personal than work?
The thing I have learned with financial plans is putting this on auto pilot gives you a restless feeling. Can it be this easy? What more should I worry about?

Sort through feelings and money as two different things. THAT will keep you busy while your money goes to work for you.

Yeah I guess I'm still finding out what I want to do with my time and energy while I'm not at work. Outside of work I lack focus/direction. I find my self programming, but also wanting to get into grant writing on the side, and many other things.
But overall that feeling of uncertainty about future outcome of investments is gut turning.

[civil4life]

I've always wanted to start a side business. My job is software, and so is my hobby. I've got good skills, I just need more experience before I'd feel comfortable doing side jobs.   

Software skills is an amazing area to start a side business.  You would be surprised how much knowledge you already have and how much more that is than the general public.  Most people who are looking for tech support have no idea how to do basic things.  It is not likely you are going to get some software genius because they are going to figure out their own problems.  Try starting small.  Put an ad on Craigslist.

Recently, I had some sort of virus or something on my computer.  I have no experience with any coding or anything beyond basic computer skills.  I spent a week Googling and trying to fix my issue.  I had tried nearly a dozen things.  I finally looked through Craigslist and found a guy that I took my computer too.  I explained to him everything I tried.  He was surprised.  He says most people would most likely not even try anything.  He took my computer and eventually found the issue.  It was nothing he would have expected.  He went above and beyond.  My computer was over 6 years old and was super slow.  He reinstalled windows and downloaded better malware protection and some other things.  I really appreciated the extra time he put in and I have saved his information and would definitely go to him again.  I think he originally charged me $25, but when he reinstalled windows he typically charges $40-50.  However he told me that he typically will start at $80 if it looks like someone who has the income. 

Just because you do not know everything about software does not mean that you do not know more than most of the people out there.

[ChpBstrd]

You're doing great on living expenses and packing away the savings at a pace that will mint you a millionaire if you can keep it up. It's also impressive how you don't own a car. All this will put you on the fast track to being FI, assuming you invest the savings (in stock indexes, not bitcoin ;)).

At this point, I'd focus on minimizing taxes (max out 401k and traditional IRA) and finding peace amid the relentless social pressures to buy houses, cars, restaurant food/drinks, etc. Ask yourself if you really are good with the roommate arrangement. If so, it's a win for you! If not, give some more thought to the idea of what you need and want. One option is to buy a small apartment building or duplex and live in one of the units. The ROI is almost tolerable when you throw in your own imputed rent. Then again, ask yourself if running a sewer snake or managing an eviction is how you like to work.

If you are restless, there are tons of nonprofits out there that could use some IT help. There's also meetup.com. Then there's always the exercise and fitness direction. Staying away from passive media and social media is so helpful.

Bear in mind that all 10 year plans made at 30 are tentative. For example, meet the right someone and your housing situation might change immediately. Or if your roommate does the same.... If you plan to FIRE in 10 years, does it make sense to move to rent for now and move to a LCOL area at that time?