40 yrs old just starting to grow my money 'stache

[braingrenades]

Hi everyone,

Turned 40 years old late last year and although I might be late to the 'stache party I might have an edge to help me make up for lost time. I'll give you guys the breakdown:

-I rent a 2 bedroom apartment where I have furnished the 2nd bedroom and rent it out. This covers about 80% of the rent, however, I pay the total bill for Internet as well as gas and electric (which is nominal).
-I do not have kids. I am not married. And from the statement above you can probably guess I do not own property or have a mortgage payment.

My big concern is that this lifestyle is likely to go away in the next year. I'm planning to get engaged and looking down the road at my future. Kids are likely in the next few years. Hopefully a house purchase can happen as well and I would prefer not to raise kids in an apartment complex (unless I owned the complex which I'm very open to do but in Southern California that could cost close to or over a million). I've read some posts here as well as some other books like Rich Dad Poor Dad and want to make smart financial decisions moving forward. I'm not tied up in any debt and really have no obligations/responsibilities (although my future wife will have student loans around $40K). I do have the skill set to get a higher paying job but that would also mean taking a job I would not be crazy about to go to 5 days a week 40+hours, etc. Currently I am bartending part-time which covers my frugal lifestyle with a little bit leftover to save. Starting last year I made it a point to start maxing out my Roth IRA contribution. Believe it or not where I bartend I also have an option to do a 401K. I have not taken advantage of this so far because I do not make all that much money, however, I would like to moving forward. Regarding the 401K I can save between 1% and 90% of my per-pay-period pay into the plan and the company will match the first 3% plus 50% of the next 2% (so if I save 5% of my salary the company will contribute 4% - maximum contribution limit for me is $18,000). Should I be all over this? What should I inquire about besides managerial/admin fees of the 401K?

And besides the 401K, what advice would you have someone a bit older with no debt but little savings moving forward in life and planning to start a family? Thanks in advance!

[Monkey Uncle]

Yes, you should always be all over any opportunity to contribute to a 401k, at least up to the point that you max out the employer match.  That's free money you're leaving on the table, plus the opportunity for tax-deferred growth.  The plan should have literature disclosing the fees.  While it's good to know what your fees and investment options are, I doubt they would be bad enough to make participating in the plan a bad idea.  The instant 80% return on your investment pretty much guarantees that the 401k should be your first choice for stashing money.

As for other advice, I think you already know that you need to look for a way to increase your income to support the lifestyle change that is coming.  While family life doesn't have to be super expensive, it is going to cost more than your current situation, especially if you want to have any change leftover to save for the future.  Without knowing anything about your skillset, I can't really offer any advice on the best way to do that, but it sounds like you already have some ideas.

[Cycling Stache]

You'll get lots of advice on the other stuff, but you should do the 401(k) match IMMEDIATELY!!!

That is free money, and sometimes people don't realize just how ridiculously good a deal it is.

A match is basically doubling your money.  If you took the match out immediately, you would pay taxes at your marginal tax rate (sounds like it would be very low for you) plus a 10% penalty for withdrawing the money before age 59.5.  That tax plus penalty is much less than double your money.  In other words, getting the match would make you extra money even if you IMMEDIATELY withdrew the money and took the penalty.

An example.  If you receive $100 of pay, at 15% marginal tax rate (as an example, but it works for every tax bracket), you take home $85.  If instead, you put $100 in 401(k), you get an $80 match, for $180.  You then take it out immediately, and pay 15% marginal tax, plus 10% penalty for early withdrawal.  That's $180 minus $27 (15% tax) minus $18 (10% penalty) equals $135.

$135 is way better than $85.  For free!

Of course, you should not withdraw the money early, because if it's invested in a broad market index fund, over the next 20 years, it will likely make you money.  Indeed, the expectation would be that it would quadruple in 20 years (at 7% growth).  So now your $180 is $720 at the time you can withdraw it.

$720 is way, way better than $85.  So do the 401(k) up to the match!

[LouLou]

What kind of work does your future wife do?  If you want to have kids, you may need to increase your household income as a couple.  But she can be the breadwinner while you focus on raising the kids frugally and bartending part of the time.  It sounds like you are not interested in working breadwinner jobs/hours.  You may want to take a job like that for a couple of years just to increase savings and knock out those student loans though.  Or you can ramp up hours at your current place, or bartend a little somewhere else for extra cash.

[braingrenades]

Thanks for the feedback. Okay I'll move forward with the 401K. I do have some questions but will post them in Investor Alley.

[Hotstreak]

Welcome to the forum!  There's a lot to learn here, and in MMM's blog posts.

First things first, you should disclose your full financial picture by doing a Case Study in the "Ask a Mustacian" sub forum.  The more people know, the better advice they will give you.

[sparkytheop]

As for the jobs...  there are jobs that pay better than bartending, but I'm sure tips can be good.  And if your future wife has a "9-5" job, would you be working fairly different shifts?  This comes in very handy for child care costs.  My ex-husband and I worked almost opposite shifts for about a year after my son was born.  When we did overlap, it was only an hour or so, and we usually had a friend or family member willing to watch him for that time (we traded favors).  I didn't have to take him to daycare until after he was 10 months old, even though I went back to work full time when he was 2 weeks old (oh, and ex was laid off for the first four months, but at least there were no daycare costs!).  Would you be able to pick up a few more hours if needed?

Depending on daycare costs, you could end up netting more money (and putting the extra aside) with the jobs you have than by trying to find one that pays a few dollars more.

[Shwaa]

I am in a somewhat similar situation.  41 years old, no debt (other than truck I am paying off).  No family.  Renter.

I have been contributing to my 401k since I was about 31, but it was always very meager %'s (enoygh to get match, but not a whole lot more).  When I turned 40 I had a "wakeup call" and realized I needed to get my sh*t together and start saving more, especially while I don't have a family.  I started maxing out my 401k and Roth IRA about 15 months ago.  Big adjustment from my bachelor lifestyle, but now that I have gotten used to it, it's actually not that bad.  I only wish I had done it sooner.

Good luck. 

[PhrugalPhan]

While earlier is better, 40 is not too late.  I had almost $0 at 36 & a bad marriage (which is like starting in the hole big time).  I started to turn it around then, and 5 years later I went through a layoff & 15 months unemployed, and then a divorce 2 years after that with all the expenses that entailed.  17 years later after starting, even with all that mess that happened to me, I am what many would call FI ($600k in total investments and a paid off house) but I am still working due to a decent job with a pension that arrives in 7 years.  Sort of a brag I guess, but it shows if you get serious you *can* turn it around quickly and still be in great shape in short order.

[big_slacker]

I started late, nothing to worry about. A few things outside of just reading the MMM articles, getting your FI number set and a plan to get there:

Healthcare will be a thing when you have kids, and maybe for you and your wife as you age.
Combined finances will be a thing as well, you can use any method that works but you have to *AGREE* with your spouse! :D
Don't freak out when kids cause expenses. They will.

[braingrenades]

While earlier is better, 40 is not too late.  I had almost $0 at 36 & a bad marriage (which is like starting in the hole big time).  I started to turn it around then, and 5 years later I went through a layoff & 15 months unemployed, and then a divorce 2 years after that with all the expenses that entailed.  17 years later after starting, even with all that mess that happened to me, I am what many would call FI ($600k in total investments and a paid off house) but I am still working due to a decent job with a pension that arrives in 7 years.  Sort of a brag I guess, but it shows if you get serious you *can* turn it around quickly and still be in great shape in short order.

This is really refreshing to hear that it's not too late to work towards FI.

[rachael talcott]

It sounds like you could pretty easily retire at an age that American culture considers early.  I found MMM about three years ago in my late 30's.  I had more savings than you, but also more debt.  And I am set to retire in about a year.  I will be 42. 

My advice is to come up with a plan with your future wife.  Run numbers together.  Talk about trade-offs.  How many years extra would you have to work to retire in southern CA vs a lower cost of living area?  If one of you stays home with the kids, how do the numbers look? What are your priorities for your future?  If both of you work really hard, how many years until you are financially independent? 

[braingrenades]

I'm motivated and here's my Mustachian accomplishments so far since my last post:

1) Signed up for a 401K and max our for company match. Going into a low fee Vanguard Index Fund.
2) Paid off my credit card ($3,000)
3) Maxed out my Roth IRA contribution for the 2015 year
4) Canceled my Amazon Prime membership ($107/year)

I'm reading more on this site and trying to figure out other ways to cut down my living expenses. Areas for improvement: grocery shopping, cell phone bill, and possibly cable Internet bill. Sounds like many switched to Republic Wireless. I'm with T-Mobile now and pay around $50/month. My internet is with Time Warner and that's also around $50/month (Internet only, no TV). Regarding groceries I need to cook more and be better with meal planning. Often I get off work late, hit the grocery store hungry and overspend on unhealthy food.

Regarding career, I've been brushing up on project management and will probably test for my PMP. I'm not thrilled to go back into this for work, however, it would provide more money which if managed well could allow me to exit in the next 5-10 years.

[rachael talcott]

I'm motivated and here's my Mustachian accomplishments so far since my last post:

1) Signed up for a 401K and max our for company match. Going into a low fee Vanguard Index Fund.
2) Paid off my credit card ($3,000)
3) Maxed out my Roth IRA contribution for the 2015 year
4) Canceled my Amazon Prime membership ($107/year)

I'm reading more on this site and trying to figure out other ways to cut down my living expenses. Areas for improvement: grocery shopping, cell phone bill, and possibly cable Internet bill. Sounds like many switched to Republic Wireless. I'm with T-Mobile now and pay around $50/month. My internet is with Time Warner and that's also around $50/month (Internet only, no TV). Regarding groceries I need to cook more and be better with meal planning. Often I get off work late, hit the grocery store hungry and overspend on unhealthy food.

Regarding career, I've been brushing up on project management and will probably test for my PMP. I'm not thrilled to go back into this for work, however, it would provide more money which if managed well could allow me to exit in the next 5-10 years.

Good for you!  You're already ahead of most people. 

[Laserjet3051]

I'm motivated and here's my Mustachian accomplishments so far since my last post:

1) Signed up for a 401K and max our for company match. Going into a low fee Vanguard Index Fund.
2) Paid off my credit card ($3,000)
3) Maxed out my Roth IRA contribution for the 2015 year
4) Canceled my Amazon Prime membership ($107/year)

I'm reading more on this site and trying to figure out other ways to cut down my living expenses. Areas for improvement: grocery shopping, cell phone bill, and possibly cable Internet bill. Sounds like many switched to Republic Wireless. I'm with T-Mobile now and pay around $50/month. My internet is with Time Warner and that's also around $50/month (Internet only, no TV). Regarding groceries I need to cook more and be better with meal planning. Often I get off work late, hit the grocery store hungry and overspend on unhealthy food.

Regarding career, I've been brushing up on project management and will probably test for my PMP. I'm not thrilled to go back into this for work, however, it would provide more money which if managed well could allow me to exit in the next 5-10 years.

Your not alone.  Earlier this year, at the tender age of 47, I discovered MMM and read through almost every article on the site. It was a profound revelation and induced a deep transformation in my spending, savings, and investing behaviors. I too, live in socal, and as expensive as it is here, have managed to push down costs. My two kids, however, are quite costly; you need to think such an expense through in your long term planning. Starting in our 40s to right the ship can make a big difference, even if FI by 50 is off the radar. 

The biggest benefit of consuming MMM guidance for me is that I sleep better each and every night! And that is priceless.

[prognastat]

Welcome to the forum.

Starting later makes it a little harder in some ways, but keep in mind there are people who don't find out about any of this until in their mid to late 50s at which point unless they were pretty frugal and saved a decent bit already they are unlikely to retire early.

However at 40 you can easily still get to a place where retiring early is still an option. Maybe not retiring by 45. But depending on how things go with work and other lifestyle changes it is very possible to be retired before 55.

You've already done some good steps to improve your situation.

The general ideas are:
Save a lot.
Live on what you need, not what you want.
Make sure you don't keep any high interest rate debt. You can take out a CC with good rewards even if the interest is high, but make sure you pay off the whole balance before the interest gets added each month.
Save as much as you can and invest it in low fee index funds that track the market.

[SwordGuy]

If you choose to have children, you are choosing an important responsibility.

That means that some of the things you would prefer need to be tossed out and replaced by things you need to do.

Whether that includes getting a job you would like less to make more money depends on your situation.  But keep that in mind.