Author Topic: Young and Trying to FIRE  (Read 591 times)

GratefulDeadBanker

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Young and Trying to FIRE
« on: January 23, 2019, 02:43:12 PM »
Hi Everyone, Long-time reader and first time poster. I discovered FIRE my senior year in college (graduated 2016) and have been on the path for close to 2 years. I am hoping to get an overall synopsis of how I am doing / a few questions answered which are below:

I am 25M, single. I live in the city and work in finance. College grad, no student loans (blessing).

Gross Salary: $75K + $10-15K bonus. Started the job in May and will receive the bonus in June 2019 along with a $5K raise.

Monthly income after taxes and after 6% match is $3,951

Assets:
Roth 401K (previous employer): $13.4K however, I did not vest ~$5K. Surprised they have not taken that out of my account?
Roth 401K (current employer): $11K with 100% of my first 6% matched.
Roth IRA: $11K Max every year.
Taxable Vanguard account: $2.5K want to use to purchase a car. Discussed below.
Total: $32.9K without the unvested portion.

Cash: $1.6K usually ~$4K but am paying off credit card debt.

Liabilities:
$2K in CC debt – This was $4.5K comprised of a $1.5K car maintenance bill and $3K in a once in a lifetime event/vacation I couldn’t pass up which all hit in December 2018. Usually pay off card every month.
Total: $2K

Expenses:
Rent: $1,360
Grocery: $300
Gas: $150
Car Insurance: $110
Utilities: $100 (gas and electricity)
Internet: $35
Season Tickets: $96 rabid sports fan. Pay whole cost at middle of year but is the monthly cost to make a charitable donation to my University + purchase tickets
Cell phone: $20
Parking deck for work: $88
Rental insurance: $15
Misc: $150. Probably the average.
Total: $2,424

I don’t necessarily budget as I save first, pay off bills, and have fun with the remainder.
My biggest priority is a new car. I have a 2005 Nissan Xterra with 186K miles. I recently had to make a $1.5K charge to fix it up and that is the last $ I plan on putting into it (I was not prepared to buy a new car when it broke down). MAYBE gets 15mpg as well. I have to have a car for work / wear a suit making it hard to ride a bike.

Question 1:  How I should save for the car? Before my vacation I was putting 25% into my Roth 401K + the 6% match (~$990 per month hitting the account), $240 Roth IRA per month, $200 taxable account a month. I have lowered the 25% to 6% and stopped making the payments into other accounts until I pay off my CC (will be paid off in the next month). What should I do after that to save + buy a car in the next six months? By moving my investments back to pre-vacation levels my cash level stays completely flat.

Question 2: How am I doing? Am I on track? I had $0.00 when I started working in February 2017. Are there obvious mistakes I am not seeing? Places I could be saving more?

Greyweld

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Re: Young and Trying to FIRE
« Reply #1 on: January 23, 2019, 03:09:09 PM »
Most of your expenses seem fairly reasonable. Depending on where you live and if it's feasible, you may want to find cheaper rent. I tried to keep rent under 1/4 take-home income rather than under 1/3 when I got my first place, but I lived in Buffalo where rents are pretty darn low, or were 5 years ago. Or maybe a smaller place close enough to work where you don't have to drive at all? Roomates?

Car insurance seems high for such an old car. Can you try switching providers? Do you have the opportunity for a safe driving class to get a discount? Bundle with renter's insurance for a discount?

Grocery budget also could be cut by a little. It's not insane though. Do you shop sales? Cut coupons? Go to Aldi or Costco or any cheaper-for-bulk kind of places? My fiance and I spend $300-$400 per month for the both of us when we're not focused on keeping it down, and we're not slender people, so it's not like we're eating very little. We even eat salmon sometimes! There are many threads across the forum on eating cheaply if you want to make cuts here.

'Misc' is always a category that should be looked at carefully if you don't know what it tends to be. Misc can be anything from things that you should have anticipated needing and planned for to eating out when you shouldn't.

I would definitely save for a car if you can before going back to piling up the 401k. If at 25% contribution your cash reserves aren't increasing, then you don't have the spare cash for a car payment. And it can be hard to know how the car change will impact your insurance costs. Hopefully you'll get a 30mpg+ vehicle though and can cut your gas costs in half!

Check2400

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Re: Young and Trying to FIRE
« Reply #2 on: January 23, 2019, 03:29:06 PM »
You're doing well having $33K saved by age 25.  You're already set to have a half million by traditional retirement age already!

Two points of clarification
The Roth 11K is total, and you max every year, right?  Not that you are 'maxing' at 11K a year, which isn't right.
The monthly totals, do they include the bonus or is that additional unbudgeted funds? 

Disclaimer, I've never had any experience with Roth 401ks, just regular 401ks.   I assume the roth option allows for post tax contribution up to the 19,000 limit and doesn't affect your roth IRA limit of 6000.  Let's skip over the CC as that is all but gone, but assume it depletes the Emergency fund.  I'll also assume bonus isn't in the monthly expenses.  Lots of assumptions on my end.

Sounds like you'll have a surplus of roughly 1500 bucks a month, and are contributing already about $500 a month to 401K.
So by April your Emergency fund will be back up to $4500 or so.  This is your 'start date' in my opinion.

First, max your 401k.  That is an additional 850 or so a month you're saving from the surplus.  Then max your Roth at $500 a month.  That leaves you with $50 a month surplus.  Not too much surplus, but you've got bonuses!  Use your bonus to buy your car, cash, according to MMM principals.  You can get a great used Toyota or other car for seven grand. 

What does this mean?  It means that in July, you'll be on pace to max all tax advantaged savings (unless you also have an HSA), your car expense is 'found money' and, best of all, you got a $5000 a year raise, or an extra 300+ a month to bump up the monthly cushion.

My favorite part about maxing all retirement options now is that it helps train your frugal muscles to live on what you have, you're saving almost $30,000 a year, and every single bonus or salary increase goes straight to you.  Use bonuses for life's speed bumps (cars, down payments, vacations, dating, etc.).  Use salary increases for enjoyment and taxable accounts.  If you spend every dollar extra over the next five years but still are maxing accounts, you'll be sitting at $225,000 at age 30.  If you save every extra dollar and continue to live on 2500/month, you'll be over half way to FIRE.

Your expenses are what they are.  I wouldn't worry too much about cutting expenses until you've automated your savings.  You are doing great and have shown responsibility, so I'll take the safe bet that you live to your means.  Follow this plan and your means means you're saving over 50% of your income.  Add in your bonuses to a taxable account going forward and you're looking at ten years til freedom. 

Triple7Stash

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Re: Young and Trying to FIRE
« Reply #3 on: January 23, 2019, 04:26:31 PM »
Disclaimer, I've never had any experience with Roth 401ks, just regular 401ks.   I assume the roth option allows for post tax contribution up to the 19,000 limit and doesn't affect your roth IRA limit of 6000.  Let's skip over the CC as that is all but gone, but assume it depletes the Emergency fund.  I'll also assume bonus isn't in the monthly expenses.  Lots of assumptions on my end.

Thought I would add onto this.  Yes Check2400 is correct, the roth 401k option allows for post tax contributions up to the $19k limit for 2019 and doesn't affect your roth IRA limit of $6k.  However, if you are tapping into the traditional 401k and the roth 401k from your employer, your total contribution limit for both of those accounts is $19k.