Hello there-- first-time poster, but I’ve been lurking quietly on the forum for about a week now, and reading MMM obsessively for the past month. I am a recent college graduate, BSBA May 2016, and started my full-time job in October 2016. I was very amused and inspired to find the Mustachian/FIRE community; I did not know this lifestyle existed but I definitely had a little bit of this mentality in me all along, just now I am a full on, committed, convert.
Based on some rough calculations from MMM resources, I believe I can reach FI within 11 years. I was hoping to get some additional advice and guidance on things I can do better with regards to spending and investing.
Life Situation: Single, 22, 0 dependents, live and work in Northern NJ/Greater NYC HCOL area
Gross Salary/Wages: Pre-tax annual 57,000
(The following is based on a bi-weekly payroll statement from 3/3)
Current Pre-tax deductions: 18 (health, dental, vision insurance)
Taxable Earnings: 2,178
Tax Deductions: 531 (Federal and state)
Other Deductions: 193 (Roth 401k + Loan Advance 0% Interest)
Net take-home: 1,454
Rent – 800
Utilities/Internet – 75
Fuel – 100
Groceries – 125
Tithe – 200
Miscellaneous – 100
Monthly budget total – 1,400
Betterment Roth IRA – 18,100 (Allocation 90% stocks/10% bonds)
Vanguard Roth 401k – 1,100 (Targeted 20XX Retirement Index)
Savings/Checking – 2,500
Car* – KBB of 2,500 (fully paid)
Student Loans – 0
Credit Cards – Paid full every month
Current net worth: 20,300
Additional Savings/Investments FY 2017: 17,000 (Estimated for remainder of year)
Estimated net worth FY 2017: 37,300
Savings rate: 60%
(I ramble in this whole section, please feel free to skip to questions)
* Current expenses – My company reimburses me for gas, about 80-130 per month. Cellphone is paid for by my company. I can save on groceries/meals because dinner is normally paid for when we work late (which is often) and I will always have leftovers to bring home. No gym—I have a yoga mat and exercise at home. I did not specifically budget for discretionary expenses since I over-budgeted for most of the categories (such as utilities, only 55 last month), and since I can go weeks or even months without spending on unnecessary things/trips. Also took off about 2,400 from additional savings in summary just in case.
* Assets – IRA: Not very happy with myself about this; when researching Traditional vs. Roth 3 years ago (I’ve maxed out on three 5,500 contributions 2015-17), general idea was if you plan on earning more in the future, pick Roth. I was not in the early retirement mentality back then and deeply regret it. Now that my income will likely be lower once I reach FI, I wish I had taken advantage of the tax deductions.
401k: Same rationale when I started my Roth 401k; however I will stop contributing to that starting this next payroll deposit, and the rest of the year it will go into a regular 401k. My company contributes 25% up to 6%, which is also my current contribution.
HSA: Recently enrolled in this last week after reading Mad Fientist’s blogpost; maxing out at 3,400 a year so my bi-weekly take home should reduce by 162 for the remainder of the year.
Car: I drive around a second hand, fully paid-off, 2004 Honda Civic that I got for my 17th birthday (thanks, Dad!). He currently pays the insurance and it’s still under his name. He did not mind helping because he knew I was trying to pay off some debt, but in the next month or 2 I intend to take over the insurance. Should be about 100/mo. Also a side note, pretty recently (as in a little over a month ago pre-MMM blog obsession) I was very tempted to finance or… get ready… even lease, a cool new SUV like what all the other yuppies at work drive. Don’t worry, at this point I am 95% convinced I don’t need a new car. But unlike a true mustachian, I really must keep one around because my job in client services means I could have assignments up to 50 miles away, but at least I do get reimbursements for gas.
* Liabilities – Student Loans: Aggressively paid off all 12k within 7 months of graduation, 5 of those months were very minimal income only from nannying/server gigs. Looking back, they were low interest (3.2-4%) so a part of me regrets putting all my extra cash towards that instead of just setting up a payment plan and investing the rest. But I suppose I can sympathize with JL Collins’ preference for simplicity, and also might have been worth getting rid of my irrational mental anxiety of being in debt.
Credit Cards: Another story I’m not proud of, I accumulated about 6k in credit card debt from the time I graduated and moved out in May, to when my FT job started in October, due to rent/furniture/groceries/shopping/going out. I was young, naïve, and had major FOMO. They were on 0% APR (for first 12-21 months) so I never owed interest on them. I aggressively paid this 6k off too, as soon as I finished with my loans. As of the beginning of this month, I no longer have any debt (though my cash balance is rather low). Obviously, I intend to pay off my credit cards in full from now on, which should be very easy since I am fully debt free.
* Summary – I was very conservative in this section; I didn’t factor in the expected additional income from bonuses/promotion/raise which will happen in the fall. Within my field and role, it is very common that the pay increases are normally 5-8% a year and if I maintain spending at this level, I can probably reach FI earlier than the 11 years estimated.
I read MDM’s post in Investment Order, and I have a few questions about some of the suggestions.
0. Establish an emergency fund to your satisfaction – Done? ^Q1
1. Contribute to your 401k up to any company match – Done.
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield. – N/A
3. Max HSA – Done.
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level – ^Q2
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for an IRA, swap #4 and #5) – ^Q3
6. Fund mega backdoor Roth if applicable – N/A, I think?
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield. – Done (too soon, probably).
8. Invest in a taxable account with any extra. – ^Q4
^Q1 – I don’t know why, but I’m oddly comfortable keeping only about 1-2k in my savings for “emergencies.” I figure I have over 21k in available credit from my credit cards, and there’s always the investment accounts to tap into for real emergencies. (I technically lived on credit last year for 5 months before I started my job.) Is there any danger in this thinking?
^Q2 – A few sub-questions on this: A] Should I contribute to a Traditional IRA for 2018 and onward? B] Can I, or should I, move my 2017 contribution from the Roth to a Traditional within this year/asap? C] If so, are their taxes/penalties associated with doing that? D] Same for 2016? I think I read somewhere you can contribute up until the April 15 file deadline of the following year (so in a month) if I choose to move it.
^Q3 – Maxing on the 401k intimidates me because it’s around 18,000 that will go into a retirement account that I am not supposed to touch until 59. That seems problematic if I want to reach FI by 33. I saw Mad Fientist’s post on how to utilize retirement money before that age, read it a few times but it still doesn’t make sense to me. A] Would anyone be able to please explain it to me in more detail—possibly in a scenario that fits my case/plans? Especially about the Roth ladder, 72t, etc. Also confused since I started out with a Roth IRA account. B] What happens, or what should I do, with the current 1,100 in the Roth 401k that I foolishly contributed to before considering ER?
^Q4 – (A little related to Q3) If it were up to me, I am very inclined to put the remainder of my savings into a taxable investment account (probably VTSAX). A] Why shouldn’t someone aspiring for FIRE prioritize a taxable account? B] How do you, logistically, live off of your nest egg once your targeted balance is reached? Considering you have multiple investment accounts, IRA, 401k, HSA, Taxable, etc.
Yikes--did not mean to create this monster of a post. If you made it this far, I would sincerely appreciate your candid thoughts/advice/feedback. I’m young, new to this, and still learning so I would love to learn and absorb as much as I can from the experts. Thank you very much in advance.