Author Topic: Help Me Become FIRE  (Read 1711 times)

BayBao

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Help Me Become FIRE
« on: January 06, 2019, 03:18:27 AM »
Hello MMM family! Iím relatively new although Iíve been following MMM throughout 2018 on and off and made some progress with my financial situation. For 2018, I was able to save $4,000 (emergency fund) and pay off $1K in credit card debt and $3K in personal loan (taken out for a family member who was then unable to pay it back). I would like more input on where else I can save and whether I should use some of my emergency fund to pay off debt or invest it into a Roth IRA.  For background purposes, I am a 26 year old single mother of one living in California. I just started at a new company in August 2018 which allowed me to contribute into a 403B (I currently have 1K; 6% contribution every paycheck). I know I should have been able to save more or at least paid off more debt in 2018, but I was feeling burnout from school, work, and being a single parent so I took a few more vacations than I should have.  Iím hoping to pay off both credit cards if not at least half of the combined credit card debt by the end of the year.  I would be more than happy to hear any suggestions on what I could do to help me become FIRE (fingers crossed itís not too late).  Thank you!

Baseline yearly income: $34,382 gross (varies due to shift/weekend differential, OT; for 2018, I made a little over 41k)
Monthly Net Income: $2,400 (estimated; Iíve been taking home more)

Rent: $550.00
PG&E: $30-$60
Cell Phone: $35
Car Payment: $230.83 (I still have $6,864.86 on $9K car loan)
Car Insurance: $89 (I just switched from AAA this month to save $60)
Health Insurance (medical/dental/vision): $150.61 (deducted from paycheck)
Food: $300 (may be less or more; trying to stick to a budget)
Gas: $80-$100
Internet: $10
Credit Card #1: $187.000 ($6,826.68)
Credit Card#2:  $27.00 ($840)


Total monthly costs: $1589


former player

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Re: Help Me Become FIRE
« Reply #1 on: January 06, 2019, 04:08:05 AM »
Hello and welcome to the forum and the way of the Mustache.  At 26 you are in great shape to work towards FIRE: lots of people here will tell you they wished they had found out about FIRE at your age instead of much later.

Congratulations on your progress in 2018: saving $4k and paying off $4k in debt is great progress.  I'm guessing you've learnt your lesson about never lending money to anyone ever again, whatever their sob story?  "No." is a complete sentence.

Your budget looks pretty badass to me (although I'm not in the US so others may have better opinions).   My suggestions would be:

1) make sure you understand what your tax position is: sorting last year's taxes out early will stand you in good stead

2) you don't mention the interest rates on your 3 remaining debts: the financially most advantageous route is to pay the highest rate debts off first but once the interest rate goes below about 4% you can look at putting your extra money into investments instead, and

3) well done on contributing to a 403b: it is probably worth your looking up (if you haven't already) to see how your contributions are being invested - you should be looking for it to be in a low cost index fund, and if you are unsure about what your options are (I find the names and info for different funds absolutely baffling) then the wise people of Investment Alley will be able to help you out.


MrThatsDifferent

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Re: Help Me Become FIRE
« Reply #2 on: January 06, 2019, 06:00:03 AM »
Hi, congrats on your journey and starting your own business. Thereís some things from your budget that are missing, so not sure if they are relevant:

I donít see expenses for your childóactivities, childcare, etc
I donít see expenses for travel or your interests
Anything regarding a HSA or 529 for savings for the kid
Anything regarding child support
Anything regarding tax refunds for having a kid

Since you have your own business, how many things can you make business expenses and get the write-offs?
« Last Edit: January 06, 2019, 12:47:14 PM by MrThatsDifferent »

dmmms

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Re: Help Me Become FIRE
« Reply #3 on: January 06, 2019, 07:46:06 AM »
Are you counting health insurance twice? If it comes out of your paycheck that you state as net, you don't need it as an expense also!

Unless there is a match on your 403b (& what are you invested in as these are often expensive annuities!), you would be better served in a ROTH due to your salary. I don't think you need the tax benefits of the 403b.

I would continue to add to an emergency fund (to $6000, 6 months' expenses) after your debt is paid off as you are a single earner household; the ROTH would also continue to build your EF but work for you too!

& CONGRATULATIONS!!! :)

BayBao

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Re: Help Me Become FIRE
« Reply #4 on: January 06, 2019, 09:23:56 PM »
Thanks for all the replies! I was in a rut about my next steps but you guys have helped to steer into the right direction.

2) you don't mention the interest rates on your 3 remaining debts: the financially most advantageous route is to pay the highest rate debts off first but once the interest rate goes below about 4% you can look at putting your extra money into investments instead, and
The interest rates on my credit card are high since these were the first cards I opened right out of high school. I don't remember the exact percentages but they range from 18-25%. My car loan would carry the least interest rate at 7%. And yes! I definitely learned how to say "NO" and not feel guilty in 2018. Unfortunately, it has been a costly lesson. Thank you! :)

I donít see expenses for your childóactivities, childcare, etc
I donít see expenses for travel or your interests
Anything regarding a HSA or 529 for savings for the kid
Anything regarding child support
Anything regarding tax refunds for having a kid
Since you have your own business, how many things can you make business expenses and get the write-offs?
I currently don't have a set budget for travel/activities. I usually give myself $200 every month to cover any activities we might want to do. Any left over money goes into savings. Vacations are only taken if I saved enough money to be able to pay for it in cash. I am fortunate to have family who help with childcare at very low costs ($100/month and dinner requests). My daughter is still young (6) so her expenses aren't high (about $200/year for clothes and school supplies). I no longer buy new clothes unless necessary so that expense is pretty much nonexistent. I do have a little over 1K saved for her as well. The thought of having an actual savings account for her hasn't crossed my mind, so thank you! I will look into that. Unfortunately, I do not receive any child support. As for tax refunds, I received a little over 3K last year and I used it all to pay down debt. I usually anticipate upcoming expenses (i.e. school, vactions, etc) and work OT to cover those expenses so that they don't interfere with my monthly expenses. I may need to rephrase my original post. I meant to say I started at a new company in August. I don't have my own business (yet!). Thank you! :)

Are you counting health insurance twice? If it comes out of your paycheck that you state as net, you don't need it as an expense also!
Unless there is a match on your 403b (& what are you invested in as these are often expensive annuities!), you would be better served in a ROTH due to your salary. I don't think you need the tax benefits of the 403b.
I would continue to add to an emergency fund (to $6000, 6 months' expenses) after your debt is paid off as you are a single earner household; the ROTH would also continue to build your EF but work for you too!
& CONGRATULATIONS!!! :)
Sorry, most case studies included the health insurance so I just added it in. Also, I wasn't sure if I was paying too much in health insurance but it seems like it's normal. My employer will match up to 6% once I've worked 1000hrs/1 year. I'm already at 900hrs so I'll be anticipating that match soon. Honestly, I don't know what I'm invested in. I'm making it a priority to find out tonight. I would like to keep my 403B because of the employer match. I don't want to pass on free money, but I definitely want a ROTH as well. Thank you!:)

Freedomin5

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Re: Help Me Become FIRE
« Reply #5 on: January 08, 2019, 06:56:37 AM »
Excellent work saving and working towards FIRE.

With credit card interest rates ranging from 18-25% (!!!!!!) make those your TOP PRIORITY! All extra money Each month goes towards paying those credit card debts As. Soon. As. Possible! Please, it hurts me to read those usurious numbers. Mathematically speaking, it makes sense to pay off the highest interest card first. But psychologically speaking you may want to pay off the smallest balance (I.e., card #2) first. Then throw all your extra money towards paying off the other card.

If you must take a vacation, find some way to take a free vacation (pack a picnic at a nearby national park perhaps? Or drive to a nearby beach? Be creative in coming up with fun cheap things to do). You currently donít have extra cash for costly vacations ó not until you pay off those credit cards!

Is there any way to transfer the balances to a credit card with a 0% interest? That might buy you some time to pay off the new card before the high interest rate kicks in.

Acastus

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Re: Help Me Become FIRE
« Reply #6 on: January 15, 2019, 12:34:55 PM »
It would help you and us to categorize your credit card spending and decide which items you will keep and which you will eliminate or put on hold for a while. Eating out, entertainment, day care, kid activities, and others are valid budget items. You just need to do them in moderation.

I second paying off the smaller cc debt now. It will reinstate your grace period so you don't pay interest on new expenses, with the understanding that you will definitely pay that card off every month.

civil4life

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Re: Help Me Become FIRE
« Reply #7 on: January 15, 2019, 02:44:42 PM »
Hello,

First it is great that you are doing all of this now.  I have 2 siblings just a bit older than you with similar incomes that are living paycheck to paycheck because they do not save their money.

First thing is the Credit Card Debt is a hair on Fire Emergency.  I would definitely see if you can get a balance transfer for both totals to stop the bleeding.  Check out Nerd Wallet for the current balance transfer offers.  https://www.nerdwallet.com/balance-transfer-credit-cards  If you can lump both of those together under 0% interest for 18 to 21 months you will be able to knock them out much quicker.  If you are able to get the balance transfer you would only pay the minimum due, however continue to save what would be needed to pay the balance in full when it is due.  Also depending on your current cards they may have balance transfer offers as well, but a new card would probably be the best option.  If you cannot get a balance transfer consider looking into a personal loan.

Based on your income you could be eligible for the Saver's Credit.  Basically the IRS gives low income earners a credit for saving for retirement.  Check it out here.  https://www.fool.com/retirement/2017/10/22/the-2018-savers-tax-credit-free-money-to-save-for.aspx

You may qualify for the Earned Income Credit (EIC).  Again this is a credit for low income earners.
https://www.efile.com/tax-credit/earned-income-credit/

Based on your current Income for 2018 you should run the numbers to see if putting some money into a traditional IRA will lower your AGI to qualify for the Savor's and EIC.  You have until the end of March to make contributions to an IRA for 2018.  Another thing you will want to look at ASAP.

On the forum there is a post about the investment order.  It is below for your reference.  However right now you are already taking care of exactly what you need to. 
https://forum.mrmoneymustache.com/investor-alley/investment-order/

It is great that you are putting 6% of your income into the 403b.  Is that the minimum you need to put in to get the full company match?  Until you have your credit cards and the car loans taken care of I would not put in more than the minimum.

As far as a 529 or other savings for your kid.  I think if you wait a little longer to get the credit card debt taken care of.
Another thing is a FSA for health and childcare expenses.  Usually you have to elect these when you elect your health insurance.

Along with paying off your debt the other biggest thing you can do is keep a very accurate account of what you are spending.  You really have no idea of what you are cutting unless you know what you are spending.  As you figure these out you will be in a better position to see where you can get extra savings.

Lastly for the food many of the people on here recommend budgetbytes.com for recipe ideas.  I like https://www.5dollardinners.com/recipes/ for low cost recipes.

You are heading in the right direction.  Keep us posted.