Author Topic: Just getting started- any advice appreciated!  (Read 4843 times)

soontoberich

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Just getting started- any advice appreciated!
« on: May 09, 2017, 09:09:12 AM »
My wife and I are both financially ignorant, but like everyone else, want to become financially independent as soon as possible. While I think we have “decent” financial habits, we want to do all we can in the coming years to set us up for success. I just finished reading my first financial book –“Rich dad, poor dad” and am moving on to my second - “The Intelligent Investor”.
Essentially all our discretionary income after regular expenses / fun expenses has been going to pay off my wife’s loans, and we have knocked out about $20,000 in the past year. We do spend quite a bit on “fun” as well (snowboarding, golf, eating out, mountain bikes, vacations etc.), and while we want to continue doing these things we want to be more aware of how much we are spending.

We try to maintain a cash balance of $15k-$25k, and when it is higher near $25k, we dump some money into the student loans. We are on the cusp of dramatically increasing our earning potential one year from now (increase $50-$75k) as she is finishing a medical residency.

My immediate plan is simple: Increase my “Financial IQ” as much as I can over the next year while continuing to pay off our debts as much as possible. I also want to dabble in some small investments as more of a learning opportunity than anything – no idea where to start here yet.

Any input / advice on our current situation would be greatly appreciated. Thanks!

Personal Info:
•   Me: 30 years old, ~ 5 years into engineering career
•   Her: 29 years, graduated pharmacy school last year, just starting 2nd year residency.
Income:
•   My Salary: $85,000 / year
•   Her Salary: $56,000 / year (To be increasing to ~$100k-140k / year in one year)
•   Combined after deductions (retirement, insurance, taxes, etc.): $6,746 / month, $81,168 / year
Expenses:
•   Mortgage: $900 / month
•   Cell Phones: $125 / month
•   Student Loans min payment: $1000 / month
•   Car Loan: $400 / month
•   Vehicle Insurance: $125 / month
•   Gas: $100 / month
•   Food: $500 / month
•   Dining out / fun / stuff: $1500 / month? Varies
•   Total Expenses: $4,650
Assets:
•   Cash / Emergency Fund: $16,347
•   House: $240,000
•   Vehicles: $33,000
•   IRA: $6,028
•   Roth IRA: $38,702
•   Simple IRA: $14,493
•   401k: $9,176
•   Total Assets: $357,746
Liabilities:
•   Mortgage: $122,316 @ 3.875%
•   Car Loan: $20,205 @ 3.49%
•   Student Loans: $86,645 @ Interest rates below
o   $18,996 @ 6.55%
o   $20,130 @ 5.96%
o   $17,205 @ 5.59%
o   $2,545 @ 5.35%
o   $19,111 @ 5.16%
o   $4,334 @ 4.25%
o   $4,324 @ 3.15%
•   Total Liabilities: $229,166
Net Worth: $357,746 - $229,166 = $128,580

Thanks again!

tyort1

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Re: Just getting started- any advice appreciated!
« Reply #1 on: May 09, 2017, 11:14:21 AM »
Uhm, Dining Out/Fun Stuff at $1500/month.  That right there needs to be cut to $500 or less and you should use the $$ to max out  the 401k and Roth IRA's (in that order). 

Look at every investment you have (401k, IRAs, etc) and check what their fees are.  Anything above half a percent will crush you long term returns.  Change them to something less expensive if at all possible. 

After the tax advantaged accounts are maxed (because they give you by far the biggest ROI), then go after the loans.  Some people say pay the highest interest rate ones first, but I'm more of a "pay the lowest balances off first" because it frees up cashflow every month.  There's nothing quite like the feeling of eliminating a bill, forever. 

Read up on J Collin's stock series, it's just about the best advice you'll find - http://jlcollinsnh.com/stock-series/

Re: expensive hobbies.  I find that stuff like skiing is not that expensive, once you have bought the equipment and know how to get a good ski pass deal.  The main ongoing expenses I see are the costs associated with the activity - do you hit that expensive restaurant for lunch/dinner/drinks?  Do you stay overnight in a 'nice' and expensive hotel or condo rental?  My advice - pack your own lunch, bring your own water/drinks and cut down the accoutrement expenses and your hobbies will become a lot more manageable. 

You might be thinking "Oh I can't do that, that's stuff that poor people do and we're wealthy/middle class". Or another variation is "Oh I work hard so I deserve something nice."  Thinking like that will keep you from getting ahead, for ever.  It's the main thought process that drives lifestyle escalation. 

Also your phone plan is ridiculous at $125.  I have 2 iPhones and unlimited text/calls/data for $50 total for 2 lines.  We use MetroPCS but that's just one option.  Shop around.  That's $75 extra you're spending, every month, for nothing.  And it could be used to pay down your bills more quickly. 

IMO, savings is very important to focus on because it pays off twice.  First it reduces your monthly outflow, and secondly it reduces your debt.  So $75 is really $150 of value if you use it to pay debt or to invest.  See how that works?
« Last Edit: May 09, 2017, 11:19:01 AM by tyort1 »
Frugalite in training.

DieHard_772

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Re: Just getting started- any advice appreciated!
« Reply #2 on: May 09, 2017, 12:10:21 PM »
Soontoberich: First of all, congrats, you are actually in a great position with your assets and income to knock this out of the park.

Not too long ago I was in the same position as you, knowing NOTHING about personal financial planning let alone investing.

Here are some of books I read that I can recommend:

(by the way, I too read Rich Dad Poor Dad and The Intelligent Investor!)
My favorites are asterisked *

TAX PLANNING:
Tax-Free Wealth: How to Build Massive Wealth by Permanently Lowering Your Taxes,  Tom Wheelwright

INVESTING:
Common Sense on Mutual Funds, Jack Bogle, 621pp
A Random Walk Down Wall Street,
The Intelligent Investor, Benjamin Graham
*Your Money and Your Brain, Jason Zweig

PERSONAL FINANCES/MONEY MANAGEMENT:
The Automatic Millionaire, David Bach,   ca 220 pp
Your Money or Your Life, Vicki Robin 303p
*Money: Master the Game, Tony Robbins
Millionaire Maker, Loral Langemeier

FINANCIAL HISTORY/BACKGROUND:
The Great Depression: A Diary, Benjamin Roth (Finance/History)  256pp.
Devil Take the Hindmost: A History of Financial Speculation, Edward Chancellor
*The Millionaire Next Door


THE KIYOSAKIS:
Rich Woman, Kim Kiyosaki  (Me and my wife read this one... something to consider for yours)
How to Increase Your Financial IQ, by Robert Kiyosaki
Rich Dad Poor Dad, by Robert Kiyosaki
Cashflow Quadrant, by Robert Kiyosaki
Rich Dad’s Guide to Investing, by Robert Kiyosaki
*Retire Young, Retire Rich, by Robert Kiyosaki


« Last Edit: May 09, 2017, 12:14:44 PM by DieHard_772 »



Livingthedream55

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Re: Just getting started- any advice appreciated!
« Reply #3 on: May 09, 2017, 12:49:25 PM »
Congrats on getting started. You have great incomes and are young enough to derive some outstanding benefits from starting on this path - good job!

Another vote for The Automatic Millionaire - great read for folks starting out.

Yes - you need to get really serious about the fun expenses - of course you can have fun but think really strategically about how to do some of these activities for less - make it a challenge - there is a lot of leeway in how to go on vacation, for example - or space them out more to preserve more of your assets for debt reduction and investing.

One saying I like is "Gift a gift to your future self!"

: 0 )



boarder42

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Re: Just getting started- any advice appreciated!
« Reply #4 on: May 09, 2017, 01:03:06 PM »
Expenses:
•   Mortgage: $900 / month
•   Cell Phones: $125 / month  This is insanely high cut this in half or better we pay 44 a month
•   Student Loans min payment: $1000 / month
•   Car Loan: $400 / monthsell it finance a cheaper car keep the payment under 150 a month
•   Vehicle Insurance: $125 / monthSeems high probably due to fancy ass car above
•   Gas: $100 / month
•   Food: $500 / monthhow the hell do you spend 500 on food and 1500 on dining out
•   Dining out / fun / stuff: $1500 / month? VariesInsane should be under 400
•   Total Expenses: $4,650
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boarder42

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Re: Just getting started- any advice appreciated!
« Reply #5 on: May 09, 2017, 01:06:26 PM »
also why do you have so much money tied up in a house.  i'd be refinancing that to invest it.
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inline five

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Re: Just getting started- any advice appreciated!
« Reply #6 on: May 09, 2017, 05:49:23 PM »
OP typically the people on here, myself included, subscribe to a more minimalistic/frugal mentality. So you're going to get some suggestions that might seem "extreme" to you.

  • We typically have older, paid for cars with liability insurance only (cheap)
  • We typically have no-contract, prepaid older cell phones (note, this doesn't mean crappy flip phones, I have a 5S, you can use any device nowadays really) with no insurance costs and limited taxes
  • We typically will eat at home and cook at home most of the month spending limited amounts on eating out. I travel 100% for my job, and in four days will only buy a single $10 meal on the road)
  • We do almost all work ourselves (DIY mentality) fixing our homes, cars, etc.
  • We typically will not have cable TV, or use some form of cheaper streaming service such as SlingTV and an antenna (looks really good nowadays, network channels are broadcast in HD better than satellite)
  • We value time at home or doing whatever we wish over money
  • We save a sizeable percentage of our income, 50% would be considered low on this board

This isn't to say we are poor on here. I don't know how many millionaires are on this board but I would bet a sizeable percentage, and many many with net worth in the many hundreds of thousands.

I'm not saying what you are doing is wrong, and you will certainly save money over the long term, just that this forum is typically geared toward the ultrafrugal.

Rich Dad Poor Dad is a good book but it can be summed up in a single line.

BUY THINGS THAT MAKE YOU MONEY, NOT THINGS THAT COST YOU MONEY

That's it.

Another good book is Millionaire Next Door, but it really just sums up what I put in list form above. A good investing book is A Random Walk Down Wall Street. But that can also be summed up in a single line:

BUY INDEX FUNDS AND DON'T TIME THE MARKET

tyort1

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Re: Just getting started- any advice appreciated!
« Reply #7 on: May 09, 2017, 06:27:32 PM »
Speaking for myself, I had that crazy elevated lifestyle.  Dual high income earners.  Spent it all and more.  When SHTF, I'm surrounded by my nice 'things' that I bought, not sure if I'm going to be able to make the mortgage payments between jobs.  And I realized that my nice stuff did't make me happy.  It made me angry.  I put my families future at risk for these trinkets?  Grrrrr.  So now I save and I watch other people make those same lifestyle mistakes and I just shake my head. 

Having a lot of $$ is a lot better than looking like you do.
Frugalite in training.

Gumption

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Re: Just getting started- any advice appreciated!
« Reply #8 on: May 11, 2017, 08:25:20 AM »
I agree with all the suggestions above. You need an overhaul, but you are lucky/smart enough to be dealing with this now. I wish i did.
One thing I would like to express is the following: YOU ARE MAKING A BOATLOAD OF MONEY!
You need to be using most of this..and I am talking 50% of this to pay off loans and plow into retirement.
What is left over is what you can live off of. Its plenty. Adjust your lifestyle. Do the work to lower those costs.
It's gonna be uncomfortable at first, but then you will be used to it and it will only increase your happiness quotient.

Just looking at your numbers, it seems that your lifestyle expenses somehow match almost exactly what you are bringing in.
This is where it needs to change. Forget what you bring in. Give yourself a base salary and then everything else on top of that you need to save. If you get a raise, all of that goes into the savings.

You have the salary to FIRE way early if you want to....but its up to you.

I am 43 and am on track to FIRE at 48, but I coulda been FIREd around 40 I would have taken this advice!

COEE

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Re: Just getting started- any advice appreciated!
« Reply #9 on: May 11, 2017, 09:09:33 AM »
Having a lot of $$ is a lot better than looking like you do.

Well said! 

Your student loans are a huge fucking problem!  http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/  I'd sell the car, buy a beater, and accelerate the loan payoff.  You don't spend much on gas so I assume you live close to both you and your wife's work.  Buy a fucking bike and ride it to work!  A couple hundred miles on a bike would probably do you good I'm guessing - I know it did me!

Your blow fund is massive.  $50 for you, $50 for her, and $50 a month in eating out together is all I'm allowing you to do!  The rest throw at the student loans to start the snowball.  https://www.daveramsey.com/blog/how-the-debt-snowball-method-works

The $2650 you'll find from selling the car, reducing your blow-fund, and minimum payments will pay off your loans in about 3.5 years.  Not bad.  Assuming you slam dunk the rest with your wife's additional salary.  You can probably get it done in 2 years or so.  That's pretty quick to kill 80k in student loan debt!

There are many strategies around paying off your debts (smallest debt first vs. highest interest rate first) - the most important things to realize is that your debt is killing you and that you can get out of it quickly - with an engineering degree you're a sharp cookie and can decide the best strategy to pay off your loans for your family situation.  Ask questions when your not sure... there's a lot smart people here that can help you sort out your options.

Your Money, Your Life changed my life forever.  Highly recommended.

Good luck!

Laura33

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Re: Just getting started- any advice appreciated!
« Reply #10 on: May 11, 2017, 09:58:08 AM »
1.  Agree that student loans are an emergency, and you need to get them paid off ASAP.

2.  Also agree with inline 5 that many here are super-frugal, and that level of extreme can be off-putting to those who don't ascribe to that mentality.

So to balance 1 and 2, let me ask you:  do you guys plan on having kids?  If so, when?  I would strongly argue that by the time you have kids, you need to have (i) all loans paid off; (ii) sufficient savings to cover the planned parental leave; and (iii) lifestyle costs that are low enough that you can afford for one of you never to go back to work.  (Because sometimes that happens, through choice or accident, so might as well be prepared.) 

Given your ages, I'm guessing that if kids are in the cards, you have no more than 5 years to get to that point.  So what does that mean for your budget?  That's a starting point, at least.
Laugh while you can, monkey-boy

Mutha Tucka

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Re: Just getting started- any advice appreciated!
« Reply #11 on: May 11, 2017, 07:05:41 PM »
•   Cell Phones: $125 / month Agree with a previous poster that this is absurdly high in this day and age. Look into pre-paid, no-contract plans. When you're in the market to buy a new phone, again, buy one online that is unlocked and new. This will give you maximum flexibility regarding plan options.
•   Student Loans min payment: $1000 / month
•   Car Loan: $400 / month Time to sell or trade in and buy a cheaper vehicle or go car free/car light if you all live within waking distance of your job and her hospital(s)/training site(s). Haven't had a car for five years. I make do with Uber, monthly bus/train pass, and car share.
•   Vehicle Insurance: $125 / month if you get a cheaper and older vehicle you can downshift to liability coverage only.
•   Gas: $100 / month
•   Food: $500 / month This is a lot for two people.
•   Dining out / fun / stuff: $1500 / month? Varies way too high. lots of fat can be trimmed from this line item.
•   Total Expenses: $4,650
Assets:
•   Cash / Emergency Fund: $16,347 with two very stable jobs, and so much debt, why do you have so much liquid? furthermore, where is it parked? Money Market fund (MMF)? Ally bank/High-yield savings account (HYSA)? Under your mattress?
•   House: $240,000 is this the current valuation or how much equity you have in the house?
•   Vehicles: $33,000 technically, vehicles are an asset but i'm disinclined to put them in this category when calculating new worth unless you're a business owner and they are true business assets. also, with so much student loan debt, why would you take on so much vehicle debt prior to paying off your student-loan debt?
•   IRA: $6,028 why fund a tIRA (traditional IRA) prior to maxing out your tax-advantaged 401k or simple IRA?
•   Roth IRA: $38,702 respectable. hopefully, being maxed out each year by you and your wife
•   Simple IRA: $14,493 this is tax-advantaged so should definitely max this out before putting another cent into the tIRA.
•   401k: $9,176 you both need to max this out each year.
•   Total Assets: $357,746
Liabilities:
•   Mortgage: $122,316 @ 3.875%
•   Car Loan: $20,205 @ 3.49%
•   Student Loans: $86,645 @ Interest rates below are these federal loans?
 if so, any plans to pursue Public Service Loan Forgiveness? If not, refinance them to a lower interest rate and then aggressively pay them off. If you'd like, I can provide a link where you get $200-300 in cash if you qualify and refinance with one of the listed companies.
 I don't make any money off of any of this. I did benefit from refinancing my largest,
 highest-interest loan. One of the best decisions I've made recently.

o   $18,996 @ 6.55%
o   $20,130 @ 5.96%
o   $17,205 @ 5.59%
o   $2,545 @ 5.35%
o   $19,111 @ 5.16%
o   $4,334 @ 4.25%
o   $4,324 @ 3.15%
•   Total Liabilities: $229,166

Lots to consider and address but you've come to the right place.

My recommended books for personal finance, self-study are as follows:

The Richest Man in Babylon by George S. Clason
Rich Dad, Poor Dad by Robert Kiyosaki
The Millionaire Next Door by Thomas Stanley
Stop Acting Rich by Thomas Stanley
The Elements of Investing by Burton Malkiel and Charles Ellis
Your Money or Your Life by Robin and Dominguez
The Wealthy Barber by David Chilton (am in the process of reading this right now but I like the writing style and accessibility for PF newbies or folks who are skittish when it comes to financial planning.)

Zamboni

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Re: Just getting started- any advice appreciated!
« Reply #12 on: May 11, 2017, 07:15:55 PM »
Just chiming to say that my brain read your username as sonofab*tch. Carry on.

Mutha Tucka

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Re: Just getting started- any advice appreciated!
« Reply #13 on: May 13, 2017, 05:58:24 AM »
Zamboni,

I take it your most recent post was directed toward me?

Don't know how to take your comment but okay.

MrsWolfeRN

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Re: Just getting started- any advice appreciated!
« Reply #14 on: May 13, 2017, 06:54:45 AM »
There are some great replies already about reducing the cell phone, car expenses, etc. One thing that stands out to me is that you are holding too much cash. I suggest investing your emergency fund in a taxable account with Vanguard. You can still withdraw it if an emergency arises, but meanwhile it is working for you.

Your house seems reasonable but I don't see utilities or maintenance in your budget. You could look into a home equity loan to pay off the student loans, giving you a lower interest rate.

Re Mutha Tucka's post: a tIRA is tax advantaged if you meet certain income requirements. You deduct your contribution when you do your taxes for the year. It is worth doing some research as to whether tIRA vs Roth is the best option for you. Here is an example, but you will need to know your marginal tax rate and where the phase-outs are prior to making this decision.

http://www.madfientist.com/traditional-ira-vs-roth-ira/

Another suggestion I have for you is to go on a "money diet" until that 6.55% loan is taken care of. Buy your groceries at Aldi and make a game of reducing or postponing other expenses until it is gone. You will probably find some frugal hobbies that you enjoy doing.

One more thing: make a plan to avoid lifestyle inflation when your wife's income goes up. Try to automatically put the money towards the loans, and then make an investment plan for when those are paid off.

COEE

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Re: Just getting started- any advice appreciated!
« Reply #15 on: May 13, 2017, 08:15:39 AM »
Zamboni,

I take it your most recent post was directed toward me?

I think the comment was directed to the OP.

I hope we (i.e. me) didn't scare the OP off.

Dora the Homebody

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Re: Just getting started- any advice appreciated!
« Reply #16 on: May 13, 2017, 09:00:31 AM »
I think you might be able to find a cheaper cell phone plan and you definitely should reduce your $1500 "fun money", but you are making so much money I don't think you need to sell your car.

L8_apex

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Re: Just getting started- any advice appreciated!
« Reply #17 on: May 13, 2017, 01:25:56 PM »
Change your cell carrier.

Look at your car insurance (i.e. do you really need the level of coverage you have now.) 

Do a cash-out refi on your house (at 80% LTV so that you're not paying PMI each month) and use the proceeds to pay off your student loans.  IMO - don't pay off that mortgage as long as you can find investments that pay more than the loan costs.  Don't forget that the interest on your home loan is typically tax deductible.

Track those 'fun' expenses and review each month so that you have an acute awareness of exactly where you're money is going. 

When you see the true max of what you can put towards retirement each month, map that out to see what your retirement date will be versus what it will take to get you there with your current budget.  That might just be the motivation to really cut back on monthly spending.  It certainly worked for me - the only mildly unique thing that I did was that I spent my retirement money on rental real estate.

And RE last year at 47 as a result, after getting a later start than you.


pumpkinlantern

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Re: Just getting started- any advice appreciated!
« Reply #18 on: May 14, 2017, 04:26:51 PM »
I think the blanket statement about your "fun" expenses being too high isn't necessarily helpful because it's hard to know how to address it.  This is what I did to reduce mine.

1. Track these expenses over the past 6-12 months (if you use credit/debit cards for most of your expenses, this can be easily done by just downloading the statement).

2. Go through every single expense and think about whether it made your life better (happier, healthier, social time, etc).  If not, cross it out.

3. For the remaining expenses, go through them a second time and ask yourself, for whatever benefit you received from that expense (time with friends, healthier, etc.), could you replace it with something cheaper or even free.

4. Look at how much money you could have saved if you had done that and probably be surprised.

5. Try to prospectively do this going forward!

CheapScholar

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Re: Just getting started- any advice appreciated!
« Reply #19 on: May 14, 2017, 05:15:42 PM »
You're going to have a very hefty federal income tax (and possibly state income tax depending on where you live) once your wife's salary bumps up next year.

You need to both max out 401Ks.  You don't sound to be totally mustachian and that's ok.  But the 401Ks are a must do in order to limit tax liability.  I believe you'll make too much to also do traditional IRAs.

dougules

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Re: Just getting started- any advice appreciated!
« Reply #20 on: May 16, 2017, 11:21:49 AM »
I think the blanket statement about your "fun" expenses being too high isn't necessarily helpful because it's hard to know how to address it.  This is what I did to reduce mine.

1. Track these expenses over the past 6-12 months (if you use credit/debit cards for most of your expenses, this can be easily done by just downloading the statement).

2. Go through every single expense and think about whether it made your life better (happier, healthier, social time, etc).  If not, cross it out.

3. For the remaining expenses, go through them a second time and ask yourself, for whatever benefit you received from that expense (time with friends, healthier, etc.), could you replace it with something cheaper or even free.

4. Look at how much money you could have saved if you had done that and probably be surprised.

5. Try to prospectively do this going forward!

+1

Also, pick one or two of your more spendy habits.  Try going without it for a few months.  Let yourself get into the habit of not having it.  If you still miss it once you're out of the habit, you can go right back.  You might be surprised what you realize wasn't worth it once you've gone without it, though.  You can do this with a few things at a time instead of trying to slash everything at once.

Mutha Tucka

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Re: Just getting started- any advice appreciated!
« Reply #21 on: May 21, 2017, 06:06:06 AM »

Re Mutha Tucka's post: a tIRA is tax advantaged if you meet certain income requirements. You deduct your contribution when you do your taxes for the year. It is worth doing some research as to whether tIRA vs Roth is the best option for you. Here is an example, but you will need to know your marginal tax rate and where the phase-outs are prior to making this decision.

http://www.madfientist.com/traditional-ira-vs-roth-ira/


A couple important assumptions are made in your shared article:

1. "This article shows that there is a clear winner for people who plan to retire early." So the OP/individuals who pursue the recommended course must be interested in RE.

2. There are no better alternatives such as his Simple IRA or his partially funded 401k that should be maxed out prior to doing this IRA conversion ladder.

Furthermore, to my knowledge, when one does a tIRA to Roth IRA conversion there are various restrictions if you have contributed to a variety of IRA accounts prior to your planned conversions. For example, investor A has never contributed to an IRA of any kind (or only to Roth IRAs up to this point). S/he can do this tIRA to Roth IRA conversion without a problem. Investor B, like the OP, has contributed to a tIRA, Simple IRA and/or some other IRA prior to planning to make a tIRA to Roth IRA conversion which complicates the picture. Your suggestion from the article seems conceptually great but if I were the OP and interested in your recommendation, I'd run it by an experienced and knowledgeable CPA first to make sure I don't unintentionally run afoul of any tax laws.
« Last Edit: May 21, 2017, 06:21:10 AM by Mutha Tucka »

Mutha Tucka

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Re: Just getting started- any advice appreciated!
« Reply #22 on: May 21, 2017, 06:07:43 AM »
Zamboni,

I take it your most recent post was directed toward me?

I think the comment was directed to the OP.
...

I see that now. Thanks for the clarification, COEE.

Mutha Tucka

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Re: Just getting started- any advice appreciated!
« Reply #23 on: May 21, 2017, 06:16:59 AM »
You're going to have a very hefty federal income tax (and possibly state income tax depending on where you live) once your wife's salary bumps up next year.

You need to both max out 401Ks.  You don't sound to be totally mustachian and that's ok.  But the 401Ks are a must do in order to limit tax liability.  I believe you'll make too much to also do traditional IRAs.

I think you mean they'll make too much to contribute directly to a Roth IRA. Traditional IRAs don't have income limits simply maximum annual contribution amounts. Furthermore, as MFJ, they definitely won't make too much to contribute to a Roth IRA.  The 2017 AGI max for MFJ is $186,000 which they shouldn't hit if they utilize all their tax-advantaged space such as max 401k contributions x 2, max out HSA for MFJ, college funds/529 for planned children, donations to 501c3 organizations, etc.
« Last Edit: September 12, 2017, 07:19:59 AM by Mutha Tucka »

soontoberich

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Re: Just getting started- any advice appreciated!
« Reply #24 on: June 27, 2017, 11:47:18 AM »
Ok, not going to lie, you guys did scare us off a bit! I think we will always be pseudo-Mustachians at best, but that is way better than what we've been doing!

Thanks for all the advice/wisdom. The idea of "a dollar saved is two dollars earned" is huge! Although we always knew this, when you think of any purchase as a percentage of take home pay it is quite eye opening. 

What we've done the past 6 weeks:

-Refinanced all student loans above 4.5% to a 4.5% rate. Have payed an additional 5k of principal!

-Bought a smaller truck (2003 Ford Ranger) for $5000 cash (after license/title/registration/some repairs/maintenance etc.), and will be selling my larger truck privately for hopefully 15-16k. When it sells I will put this entire amount into the loans! Gas mileage of the new truck is not the best but considering I work from home I'll only be driving 2-3k miles/year at most.

-Changed my 401k election to max out this year! Awesome to see how much this decreases the withheld taxes. Will feel like a nice raise next January when the deduction will be spread out over the whole year instead of concentrated in six months. Wife will get a 10% match on 5% mandatory contribution to a 401a starting July 1. I think her company also offers a 401k in addition, but need to dig into this a bit more in the next few weeks.

-Went through and categorized all our transactions in Mint since Jan 1 2017. Have continued to update / categorize purchases every couple of days.

-In the process of selling all my funds with Morgan Stanley and American funds and moving them to Vanguard index funds... took a quick look at how much I've paid in fees and underperformed the total market the last 5 years and it made me queasy... we will see if I ever have the balls to actually calculate how much $$ I've missed out on. I'll focus on the money I'll save in the future for now ;)

-Moved emergency fund into total stock market index fund... Realized we don't need an emergency fund as liquid as a savings account. We have 2k cash in a safe, a shit ton of credit and family that would help out if we needed to buy a few days.

-Took a 4 day vacation to Moab/Arches the Mustachian way! Camped and packed all of our own food/beer! We did splurge for iced tea/coffee at a shop every morning after hiking...

-Only went out for food twice in the past month!

-Paid off iPhones with Verizon and will be switching to Boost! soon. Hopefully it works out because this will lower our bill by over half.

The totally non-mustachian thing we are doing:
-We are keeping the new vehicle / car payment.... my wifes current residency has her driving 12k+ miles a year and we value the dependability and safety. The car (Subaru Crosstrek) also has one of the lowest new car depreciation rates out there.

Thanks again and I will plan on checking in here every couple of months for updates/new ideas/strategies etc.!

Laura33

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Re: Just getting started- any advice appreciated!
« Reply #25 on: June 27, 2017, 06:03:29 PM »
Hey, congrats -- that's a lot of progress in a short time!  Remember, it's a marathon, not a sprint.  And if you're this much better off in just a couple of months, imagine what things will look like in 20+ years!
Laugh while you can, monkey-boy

prognastat

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Re: Just getting started- any advice appreciated!
« Reply #26 on: June 28, 2017, 01:01:54 PM »
Awesome work, sounds like you are making some great changes and really changing your financial future around. Keep up the good work.

COEE

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Re: Just getting started- any advice appreciated!
« Reply #27 on: June 28, 2017, 04:17:35 PM »
What we've done the past 6 weeks:

-Refinanced all student loans above 4.5% to a 4.5% rate. Have payed an additional 5k of principal!

-Bought a smaller truck (2003 Ford Ranger) for $5000 cash (after license/title/registration/some repairs/maintenance etc.), and will be selling my larger truck privately for hopefully 15-16k. When it sells I will put this entire amount into the loans! Gas mileage of the new truck is not the best but considering I work from home I'll only be driving 2-3k miles/year at most.

-Changed my 401k election to max out this year! Awesome to see how much this decreases the withheld taxes. Will feel like a nice raise next January when the deduction will be spread out over the whole year instead of concentrated in six months. Wife will get a 10% match on 5% mandatory contribution to a 401a starting July 1. I think her company also offers a 401k in addition, but need to dig into this a bit more in the next few weeks.

-Went through and categorized all our transactions in Mint since Jan 1 2017. Have continued to update / categorize purchases every couple of days.

-In the process of selling all my funds with Morgan Stanley and American funds and moving them to Vanguard index funds... took a quick look at how much I've paid in fees and underperformed the total market the last 5 years and it made me queasy... we will see if I ever have the balls to actually calculate how much $$ I've missed out on. I'll focus on the money I'll save in the future for now ;)

-Moved emergency fund into total stock market index fund... Realized we don't need an emergency fund as liquid as a savings account. We have 2k cash in a safe, a shit ton of credit and family that would help out if we needed to buy a few days.

-Took a 4 day vacation to Moab/Arches the Mustachian way! Camped and packed all of our own food/beer! We did splurge for iced tea/coffee at a shop every morning after hiking...

-Only went out for food twice in the past month!

-Paid off iPhones with Verizon and will be switching to Boost! soon. Hopefully it works out because this will lower our bill by over half.

Awesome work, soontoberich!  That's a lot done in a very short amount of time!

At ~4k/month you should have those student loans knocked out in no time!  Keep working it, it takes time (I know), but you are making very good progress - the refi was a good call and will help save some decent money.

soontoberich

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Re: Just getting started- any advice appreciated!
« Reply #28 on: June 29, 2017, 12:41:58 PM »
Thanks for the encouragement! I realize this is a marathon not a sprint but feel like I need to sprint right now to make up for lazily strolling along for so long!

Got the truck listed last night and have already got a couple of offers, I think i should be able to sell it for asking price!

veloron2008

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Re: Just getting started- any advice appreciated!
« Reply #29 on: June 29, 2017, 02:43:57 PM »
You're poised to really do well, g'luck! :)

I don't have any particular wisdom to pass along since I'm also just getting started, the main difference being my wife and I are in our mid-40s. I recall vividly being your age and similar means (we're both engineers). Luckily, we haven't done horribly, long ago paying off student debt and accumulating ~$1M in mixed assets. But oh, what could've been had we saved more. Better late than never.

"Lazily strolling along" is mighty comfortable and can go on for a very long time, especially when surrounded by so many non-"mustachians". I know first hand. So stick with it! :)

RedmondStash

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Re: Just getting started- any advice appreciated!
« Reply #30 on: June 29, 2017, 08:47:34 PM »
OP -- don't be scared. You're way ahead of the game for asking these questions and taking action now. You don't have to do every single thing that every responder suggests to FIRE comfortably; you get to pick and choose what appeals to you and discard the rest, and you'll still get where you want to go. For instance, spouse & I buy a lot of frozen dinners and prepackaged salads because we don't have time/energy to cook, though we also cook as much as we can. And we drive everywhere instead of biking. But we are saving tons of money and are on track to FIRE, just at our own pace and in our own way.

You're doing great!

EnjoyIt

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Re: Just getting started- any advice appreciated!
« Reply #31 on: June 29, 2017, 11:56:17 PM »
Ok, not going to lie, you guys did scare us off a bit! I think we will always be pseudo-Mustachians at best, but that is way better than what we've been doing!

Congrats on the amazing progress. Don't think you are being pseudo anything.  There is more than one way to achieve your goals depending on what those goals are.  You don't have to save 70% of your income and retire in under 1 decade.  The progress you made last month is going to be very eye opening over the next 6 months.  As you chip away at that debt you will start feeling a sense of freedom and joy.  Eventually you will start to learn what expenditures buy the most happiness for you and your family. You will learn to concentrate on those while not wasting money on items of limited value. 

Many people on this forum spend a large percentage of their discretionary assets on travel.  They find those experiences purchase the most happiness.  Others hate to travel and spend their money on music or theater.

The biggest advice I can give you right now is to not increase your spending with your wife future income.  First and foremost finish paying off that debt, and I would include her car note as well. Feel free to celebrate with a nice vacation once those are paid off.  Then you two will need a long discussion on what your goals are regarding savings, when you are hoping to be financially independent, and when you two would hope to retire because that will dictate your ability to spend vs save. 

My next best piece of advice I can give you is to try and front load your retirement savings as much as possible.  By saving more than you may need now, it will open the possibilities for potential early retirement, part time work, or more luxury over the rest of your life. It all depends what your goals are.

Check2400

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Re: Just getting started- any advice appreciated!
« Reply #32 on: September 06, 2017, 04:05:24 PM »
                 Invested       NW
5/1/2017:  $58,207     $117,249   <<-----------Discovered MMM!
6/1/2017:  $69,706     $125,027
7/1/2017:  $82,626     $132,130
8/1/2017:  $89,755     $177,201
9/1/2017:  $95,620     $183,831

Saw this on the race to $250,000 challenge, and was wondering how someone could sock away $70,000 in four months, and followed your post history here.  Give us an update on your student loans, spending, retirement contributions, car sales, impending new employment, and how you made such ridiculous leaps in net worth!

Inquiring Minds Want to Know!

soontoberich

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Re: Just getting started- any advice appreciated!
« Reply #33 on: September 06, 2017, 10:31:30 PM »
                 Invested       NW
5/1/2017:  $58,207     $117,249   <<-----------Discovered MMM!
6/1/2017:  $69,706     $125,027
7/1/2017:  $82,626     $132,130
8/1/2017:  $89,755     $177,201
9/1/2017:  $95,620     $183,831

Saw this on the race to $250,000 challenge, and was wondering how someone could sock away $70,000 in four months, and followed your post history here.  Give us an update on your student loans, spending, retirement contributions, car sales, impending new employment, and how you made such ridiculous leaps in net worth!

Inquiring Minds Want to Know!


We employed no magic formula other than the principles that we have learned through this website and other FI resources. Apparently us being former spendy-pants allows us to save quite a bit simply by reducing spending (duh, wish I could have face punched myself years ago). It really is amazing how the money just starts to pile up.

We have cut our spending significantly, made some extra money, paid off a shit ton of student loan debt and managed to stock a good sum in investments.

The strangest part is other than the paradigm shift I had in my thought process wrt money, life feels very similar and just as good as it was before. We've even managed to go on several vacations and trips thanks to credit card hacking.

Due to a couple things, we had some big leaps. From here on out things will be much more steady. Here are the main contributors to our success:

  • I started maxing out my 401k. Since I had little contributed in the first six months this has added > 10k plus match in 4 months. Wife is not yet contributing but does not qualify for any type of match (+12k)
  • Fully funded Roth IRA for wife, plan to do mine soon (+5500)
  • Sold stupid truck for ~2k over blue book value for ~19k (poor bastard). Bought new truck for ~$4500 including some repairs and preventative maintenance (+14.5k)
  • Took on a couple of projects at work that required me to work more and travel 3 separate weeks. Collected overtime and net ~$3000 in mileage reimbursement on new (old) truck. While traveling for work I only went out to eat once or twice and cashed the per diem. (+10k)
  • Sold some random sports equipment, furniture (+2.5k)
  • We somehow scraped together ~10k, funded a Vanguard taxable account and set up automatic bi-monthly deposits of $320 (+11.5k)
  • Gained ~10k on our house value based on Zillow zestimate. Not sure how accurate this is but I think I could sell it for the estimated price.
  • And the kicker... with the gains above paid off over 22k in student loan debt!!!! Still ~65k to go, goal is to have it gone by December 2018. This will depend a lot on what type of job my wife gets after her residency ends next June.

Let me know if you have any questions! I'm planning to do a more detailed case-study sometime in the next few months, we are still figuring a lot of this stuff out. Good luck!

AnnaGrowsAMustache

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Re: Just getting started- any advice appreciated!
« Reply #34 on: September 06, 2017, 11:08:11 PM »
There's lots of advice on this thread about the kinds of actions you can take. I would like to add the advice that you pick ONE, and make that change, adjust to that change and start to feel comfortable with that change before you move on to the next. Changing a lot of stuff at once will probably just make you feel overwhelmed, guilty and a failure. Incremental changes add up very quickly, and they're far easier to adjust to. I think you'll find that some things requite more adjustment than others!

Mutha Tucka

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Re: Just getting started- any advice appreciated!
« Reply #35 on: September 12, 2017, 10:14:13 PM »

What we've done the past 6 weeks:

-Refinanced all student loans above 4.5% to a 4.5% rate. Have payed an additional 5k of principal!

-Moved emergency fund into total stock market index fund... Realized we don't need an emergency fund as liquid as a savings account. We have 2k cash in a safe, a shit ton of credit and family that would help out if we needed to buy a few days.


Wonderful progress just a few things:
1) If your money is in the market, it's not considered an emergency fund. General rule of thumb is that emergency funds should be stored in very safe, "boring" vehicles such as high-yield saving accounts.
2) Out of curiosity, why did you dump the remainder of your emergency fund into the market/a taxable account that might not earn >/= 4.5% instead of one of the following scenarios:

A. 2k cash EF, 14k toward student loans
B. 2k cash EF, 5.5k wife's fully-funded Roth IRA, 6.5k toward student loans

Either of the above scenarios would have maximized debt reduction and/or tax-advantaged investment space.
« Last Edit: September 12, 2017, 10:20:29 PM by Mutha Tucka »

Finances_With_Purpose

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Re: Just getting started- any advice appreciated!
« Reply #36 on: September 12, 2017, 10:42:02 PM »
Zamboni,

I take it your most recent post was directed toward me?

Don't know how to take your comment but okay.

I think he was referring to op's name, soontoberich.  Has the same tonal/rhythmic quality.

Finances_With_Purpose

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Re: Just getting started- any advice appreciated!
« Reply #37 on: September 12, 2017, 10:53:13 PM »
OP typically the people on here, myself included, subscribe to a more minimalistic/frugal mentality. So you're going to get some suggestions that might seem "extreme" to you.

  • We typically have older, paid for cars with liability insurance only (cheap)
  • We typically have no-contract, prepaid older cell phones (note, this doesn't mean crappy flip phones, I have a 5S, you can use any device nowadays really) with no insurance costs and limited taxes
  • We typically will eat at home and cook at home most of the month spending limited amounts on eating out. I travel 100% for my job, and in four days will only buy a single $10 meal on the road)
  • We do almost all work ourselves (DIY mentality) fixing our homes, cars, etc.
  • We typically will not have cable TV, or use some form of cheaper streaming service such as SlingTV and an antenna (looks really good nowadays, network channels are broadcast in HD better than satellite)
  • We value time at home or doing whatever we wish over money
  • We save a sizeable percentage of our income, 50% would be considered low on this board

This isn't to say we are poor on here. I don't know how many millionaires are on this board but I would bet a sizeable percentage, and many many with net worth in the many hundreds of thousands.

I'm not saying what you are doing is wrong, and you will certainly save money over the long term, just that this forum is typically geared toward the ultrafrugal.

Rich Dad Poor Dad is a good book but it can be summed up in a single line.

BUY THINGS THAT MAKE YOU MONEY, NOT THINGS THAT COST YOU MONEY

That's it.

Another good book is Millionaire Next Door, but it really just sums up what I put in list form above. A good investing book is A Random Walk Down Wall Street. But that can also be summed up in a single line:

BUY INDEX FUNDS AND DON'T TIME THE MARKET

THIS.  Glad the more "extreme" responses didn't deter you. 

And wow, soontobeirch - way to go on your amazing progress!!! 

This is what MMM/frugality/we all are about: helping people live their life to the fullest potential by deploying resources well.  (Shoot, that's why I blog.)  You're killing it!  At the risk of self-promotion, I compiled some tips re: student loans that helped me save over $15-20k in final payments here.  Feel free to try any of those - you never know what'll help.

I visit these forums mainly to interact with folks like yourself.  You're doing what counts: making the big changes, one by one, and seeing the returns - they are amazing! 

Like others, I recommend Millionaire Next Door and Your Money or Your Life.  Sounds like you already grasp the basics - and are using them - but both of those will give you more motivation to keep making these big changes until you arrive where you want to be.

You're well on your way.  As others mentioned, you may want to watch the emergency fund: a good EF can save you tons.  I had a job switch once and it saved my rear.  Just having it gave us peace of mind - we didn't even spend too much of it.  But it saves us tons on insurance, unexpected blow-ups, and so on.  I'll never go back to having less than 6 months' expenses in a cash-like account (we use a credit union, others use CD ladders or the like).  Ours keeps up with inflation (makes 2.5%), and that's all we need.