Author Topic: Need help/financial direction...  (Read 3585 times)

Sbpark

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Need help/financial direction...
« on: March 27, 2018, 04:01:42 PM »
I've been reading through the MMM site for a while after I heard about the site while on a date last year (true story!). I had already been on a personal journey to get rid of debt, and in the 2 years I paid off $15k in credit card debt and about $42k in student loan debt, paying off those student loans this past Friday! I basically trimmed a lot of the fat as far as spending, moved into a small in-law unit instead of the nice, big house I was renting prior, and took no vacations (only local road trips, camping, etc.), no snowboarding, no flights anywhere, no luxury items, etc. until the debt was paid off, and I succeeded!

So here's where I am now, 42 years old, single, no kids (and not having any!) No credit card or student loan debt. I do have a car payment of $450/month on a 2017 Subaru Outback Limited, and my rent is $1,850 all-incusive aside from electric (Wi-Fi, water, washer/dryer is included in the rent, and the electricity to heat the hot water and run the washer/dryer is part my my landlord's house, not tied into my electric bill). I will not be selling my car, to get something less expensive, btw. I live in Oakland, CA, live 5 miles from work, make a hair over $140,000/year working 4 days a week, 8 hour shifts. I do have the option of plenty of overtime, but I have no desire to kill myself working, and did pay off all that debt mentioned above without working overtime.

So what now? I put a big dent in my savings account after putting $17k toward the student loans last week to get rid of them (original plan was to do it by the end of this year, but I got impatient!). Obviously I need to get that money back into my savings account and "pay myself that money back". I have a 403b with work, my employer doesn't contribute anything. Should I still continue to max out that 403b, or put my money into a different retirement account that I set up with someone else? I'm thinking I may need to just bite the bullet and sit down with a financial advisor?

I also dont own a home, and living in Oakland, there's no way I will own a home here being single, and don't have the downpayment to buy anything here. Wondering if I should save to buy something somewhere else that's more afordable as an investment?

So should I just keep it simple and max out the 403b, use what I need to pay the few bills I have and putt he rest in savings, or is there something else I should be doing with my money? Like I said, I'm single, no kids, no debt aside from a car payment and rent, and make a decent living....

sokoloff

  • Handlebar Stache
  • *****
  • Posts: 1191

hadabeardonce

  • Bristles
  • ***
  • Posts: 330
  • It's never too early to learn the value of money.
Re: Need help/financial direction...
« Reply #2 on: March 27, 2018, 05:39:32 PM »
Max the 403b if possible. It's money you're giving to your future yourself instead of the taxman that'll most likely grow into even more money for you.

Find a partner. MFJ rates are great and the right person is awesome.

Sbpark

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Need help/financial direction...
« Reply #3 on: March 27, 2018, 05:52:11 PM »
Max the 403b if possible. It's money you're giving to your future yourself instead of the taxman that'll most likely grow into even more money for you.

Find a partner. MFJ rates are great and the right person is awesome.

I live in CA, and have had several people tell me they're paying more by filing jointly!

wageslave23

  • Handlebar Stache
  • *****
  • Posts: 1755
  • Location: Midwest
Re: Need help/financial direction...
« Reply #4 on: March 28, 2018, 02:47:21 PM »
Max the 403b if possible. It's money you're giving to your future yourself instead of the taxman that'll most likely grow into even more money for you.

Find a partner. MFJ rates are great and the right person is awesome.

I live in CA, and have had several people tell me they're paying more by filing jointly!

If your spouse makes the same or more than you, it generally won't help your tax rate to get married. 

I would max the 403b and put all other money into VTI which is a low cost index fund.  Keep maybe $10k in a savings account in case you lose your job or something. 

I wouldn't recommend investing in real estate out of your general vicinity as a first time investor. 

Sbpark

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Need help/financial direction...
« Reply #5 on: March 28, 2018, 03:52:30 PM »
Max the 403b if possible. It's money you're giving to your future yourself instead of the taxman that'll most likely grow into even more money for you.

Find a partner. MFJ rates are great and the right person is awesome.

I live in CA, and have had several people tell me they're paying more by filing jointly!

If your spouse makes the same or more than you, it generally won't help your tax rate to get married. 

I would max the 403b and put all other money into VTI which is a low cost index fund.  Keep maybe $10k in a savings account in case you lose your job or something. 

I wouldn't recommend investing in real estate out of your general vicinity as a first time investor.

This seems to be the general direction I'm heading. Currently maxing out the 403b, and replenishing my emergency fund to $20k, and then also will put whatever is left over after monthly expenses and the emergency fund into an Index Fund. have also thought about buying real estate elsewhere int her country since the Bay Area is insane right now and just doesn't make sense to me given I'd be hit with PMI out here, prices are ridiculous and property tax out here is just insane as well.

dhc

  • Stubble
  • **
  • Posts: 169
Re: Need help/financial direction...
« Reply #6 on: March 28, 2018, 05:13:03 PM »

<snip> I do have a car payment of $450/month on a 2017 Subaru Outback Limited,... I will not be selling my car, to get something less expensive, btw. <snip>

Why in the world not? That clown car is a $65,000-$85,000 mistake over the next 10 years right there. If the reason is "I work hard and I deserve it", well, that's what got you into the mess where at 42 you had $15,000 of credit card debt, isn't it?

Nice work putting a dent in the other debt, but seriously - if you can't afford to pay cash for it, you can't afford it. Now, it sounds like maybe you can afford to pay cash for it. Still a bad idea, in my book, but why are you making payments on something instead of paying the thing off in the next...say...3 months?
« Last Edit: March 28, 2018, 05:16:00 PM by dhc »

Sbpark

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Need help/financial direction...
« Reply #7 on: March 28, 2018, 06:16:44 PM »

<snip> I do have a car payment of $450/month on a 2017 Subaru Outback Limited,... I will not be selling my car, to get something less expensive, btw. <snip>

Why in the world not? That clown car is a $65,000-$85,000 mistake over the next 10 years right there. If the reason is "I work hard and I deserve it", well, that's what got you into the mess where at 42 you had $15,000 of credit card debt, isn't it?

Nice work putting a dent in the other debt, but seriously - if you can't afford to pay cash for it, you can't afford it. Now, it sounds like maybe you can afford to pay cash for it. Still a bad idea, in my book, but why are you making payments on something instead of paying the thing off in the next...say...3 months?

Pretty harsh words, there, and I'd call it more than a "dent", but I hear what you're saying. But to put it in perspective, I think crushing that much debt, having no credit card debt and taking my credit score from below 600 to 797 currently, is a darn good start! 

My interest rate on the car is 0.9%. And keeping it has nothing to do with me thinking "I deserve it", because I think I deserve to me honest with myself and just pay off the debt and save and invest more. If I worked a bit of OT I could probably pay the car off in 3 months easily to be honest. I just figured given the low interest rate, I'd rather take that money left over after my rent, car payment, maxing out the 403b and few living expenses and expand the Emergency Fund and invest the rest in an Index Fund and just continue to pay the car loan off over time.

I get it about the car though. I have paired down and live very simple and basic. I moved out of a house and into a 405 sq. ft. cottage to save a bunch. Like I mentioned, I sold off a ton of guitars and gear and just kept the few I cant live without, and put the profits from selling all toward the debt. I cook at home and brown bag my lunches for work. I have a  pretty basic, yet functional wardrobe, nothing flashy or expensive, yet still get complimented. But I do a lot of camping, road trips, driving from the East Bay to San Diego, Los Angeles, Yosemite, Tahoe, etc. I plan on keeping the car for 10 years. I have seriously thought of selling it, taking the "equity" I have in it and buying a smaller, much cheaper commuter car and riding my bike more for sure.

So if I decide NOT to get rid of the car, would it be wiser to just pay it off over the course of the next few months instead of starting to contribute to an Index Fund, then do the Index fund once the car is paid off?

I do appreciate the proverbial kick in the arse though! Much appreciated and welcome more advice and perspectives!

« Last Edit: March 28, 2018, 06:21:52 PM by Sbpark »

Thegoblinchief

  • Guest
Re: Need help/financial direction...
« Reply #8 on: March 28, 2018, 07:08:41 PM »
If you’re keeping the car, definitely invest rather than pay it off early. Especially with your high income. The break-even point on whether to pay off a debt early versus invest is around 4.5-5% APR.

Definitely max 403b. The investment options would have to be truly awful for the math to not favor reducing your taxable income. I can’t remember the income limit for contributing to an IRA but if you’re below it, do that too.

Start tracking expenses if you aren’t already. The very act of tracking expenses changes behavior, plus you’ll start to gain knowledge of what you need as far as invested assets to support your lifestyle.

If real estate is something you’re interested, this forum has some really smart folks. Bigger Pockets is another resource. 

inline five

  • Pencil Stache
  • ****
  • Posts: 675
Re: Need help/financial direction...
« Reply #9 on: March 28, 2018, 07:11:39 PM »
Re: the car
CA has this weird thing where they actually smog check cars; most states look to see if the check engine light is on or not, but in CA they actually test emissions. For this reason buying newer makes more sense out there.

I probably would've bought a five year old+ Prius personally to take advantage of their longer warranty out in CA and their fast depreciation curve but what's done is done. I wouldn't sell the car at all if you actually plan on driving often - it'll last you a long time and Subarus generally hold their value - and you've already gone and bought it. If you could actually commute via bike (in CA the weather is generally nice so it's totally doable) you should have done that from the beginning.

So moving on, you need to decide where you want to be and when. Only that will tell you where you need to be savings wise. At 42 and still with student loans...that seems odd to me but maybe you just recently attended school?

At least you have a fairly high wage even for CA standards.

Most folks on here sacrifice quite a bit to stuff money away hand over fist...personally if I were single I would probably be renting a room not an entire "cottage" for almost $2k a month.

Most people spend the vast majority of their money on housing and transportation - cutting those by significant margins is much easier than cutting your food and cell phone bills for example.

Imagine if you will trading in the car for a bike and then"cottage" for a room, you could save upwards of $1,500/month that way - which is significant.

inline five

  • Pencil Stache
  • ****
  • Posts: 675
Re: Need help/financial direction...
« Reply #10 on: March 28, 2018, 07:13:35 PM »
If you’re keeping the car, definitely invest rather than pay it off early. Especially with your high income. The break-even point on whether to pay off a debt early versus invest is around 4.5-5% APR.

Definitely max 403b. The investment options would have to be truly awful for the math to not favor reducing your taxable income. I can’t remember the income limit for contributing to an IRA but if you’re below it, do that too.

Start tracking expenses if you aren’t already. The very act of tracking expenses changes behavior, plus you’ll start to gain knowledge of what you need as far as invested assets to support your lifestyle.

If real estate is something you’re interested, this forum has some really smart folks. Bigger Pockets is another resource.

There are no income limits to contribute to an IRA, just deductibility limits. What most do is contribute to the IRA and then convert to Roth right afterwards, aka backdoor Roth IRA.

Sbpark

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Need help/financial direction...
« Reply #11 on: March 28, 2018, 07:23:05 PM »
Re: the car
CA has this weird thing where they actually smog check cars; most states look to see if the check engine light is on or not, but in CA they actually test emissions. For this reason buying newer makes more sense out there.

I probably would've bought a five year old+ Prius personally to take advantage of their longer warranty out in CA and their fast depreciation curve but what's done is done. I wouldn't sell the car at all if you actually plan on driving often - it'll last you a long time and Subarus generally hold their value - and you've already gone and bought it. If you could actually commute via bike (in CA the weather is generally nice so it's totally doable) you should have done that from the beginning.

So moving on, you need to decide where you want to be and when. Only that will tell you where you need to be savings wise. At 42 and still with student loans...that seems odd to me but maybe you just recently attended school?

At least you have a fairly high wage even for CA standards.

Most folks on here sacrifice quite a bit to stuff money away hand over fist...personally if I were single I would probably be renting a room not an entire "cottage" for almost $2k a month.

Most people spend the vast majority of their money on housing and transportation - cutting those by significant margins is much easier than cutting your food and cell phone bills for example.

Imagine if you will trading in the car for a bike and then"cottage" for a room, you could save upwards of $1,500/month that way - which is significant.

I have three degrees, and in my younger years either deferred the loans and/or just paid the bare minimum. Again, lesson learned.

I also have a dog and currently have a yard, unlimited access to a washer and dryer, safe neighborhood, unlimited parking, landlord who watches my dog if I can't take her with me on a road trip, and a 5 mile commute to work. I could maybe save a couple hundred renting a room, HOWEVER, I am also a nurse that doesn't work a 9-5 schedule, and work evenings, weekends, holidays, etc., and absolutely NEED a quiet environment to sleep. That has proven a bit tough in the past with roommates, so as much as I could save doing that, I doth think it's in the cards currently. My rent may seem like a lot to everyone in the rest of the country, but it's not that bad in relation to the area. Plus, I make $85/hr here compared to the $39/hr I was making in Denver, and the way the market is in Denver, rent isn't that much cheaper in Denver, and no way I could have paid off that much debt that fast making $39/hr.

Sure, in an ideal situation I'd have a crap commuter car that wouldn't break down and be totally fine on long road and camping trips and kick butt int he snow in the winter in the mountains, could have roommate(s) that are sympathetic to my schedule, etc., but somethings are just not worth sacrificing. I do not want to have to worry about getting enough sleep, having loud roommates, etc. Call it a cop-out on my part, but given the job I do it's not worth the risk.
« Last Edit: March 28, 2018, 07:24:56 PM by Sbpark »

2Birds1Stone

  • Walrus Stache
  • *******
  • Posts: 7916
  • Age: 1
  • Location: Earth
  • K Thnx Bye
Re: Need help/financial direction...
« Reply #12 on: March 28, 2018, 07:34:54 PM »
Well, people gave you ideas on some options, the "low hanging fruit" in terms of quick impact.

How much of that $140k/yr are you saving?

Your Rent/Utilities/Car cost you $2300/month.

How about various insurance? Food? Entertainment? Subscriptions? Healthcare/hygiene? Gas? Gifts/Charity? Travel?

If your other spending is tied to your values and there is little waste then I don't see the house or the car as an insurmountable problem, but if your attitude toward the advice carries over to the other areas of your life, then the lack of impact will spill right over.

There's a great case study section here with a template/spreadsheet you can use to go through this exercise, it might be eyeopening.

Lobo

  • 5 O'Clock Shadow
  • *
  • Posts: 40
Re: Need help/financial direction...
« Reply #13 on: March 30, 2018, 04:02:23 AM »
I would be interested to know -1. what your 403 contributions are being invested in?.  2.  you never really said what your thoughts were for retirement.  Do you have an age that you want to retire at?.  Will you have a pension when you retire?  You're definitely starting to move in the right direction.

LateToTheParty

  • Stubble
  • **
  • Posts: 121
  • Location: Oregon
Re: Need help/financial direction...
« Reply #14 on: March 30, 2018, 05:02:13 AM »
OP - Congrats on slashing your debt and for becoming enlightened on this path. It is extraordinary how quickly the savings can begin to accumulate. Even the small changes really do add up.
With your income, you should have a lot left over for a taxable account even after maxing the 403b and making no changes to the car or house situation.

FWIW, I have a clown house and clown car, both obtained Pre-MMM.  Will I make different decisions going forward?  Yes. But for now I am keeping the clown house at 2.5% interest until we FIRE in about 3 years.  Then will sell and move to LCOL. The clown car is long paid off and I will drive it until the wheels fall off. It is a small SUV AWD that does well in the snowy mountain passes, something I value.

Take a critical view on all your other monthly expenditures, and trim accordingly.
Track your spending.
Posting the case study was good advice that someone else mentioned.

Welcome to the forums.

RedmondStash

  • Handlebar Stache
  • *****
  • Posts: 1114
Re: Need help/financial direction...
« Reply #15 on: April 01, 2018, 12:04:56 PM »
OP, you're doing fine. Could you optimize/maximize in other areas? Sure, but most people could. I have a cheap-ass old car that's a solid workhorse, but I spend a lot on food, including prepared foods like frozen meals or packaged salads. We all have our extravagances. I'd say it's worth evaluating selling your car and buying something sturdy and cheaper, but deciding to keep it will not ruin you, especially with all the other changes you've already made. You're on the right track.

I'd say the next step is to familiarize yourself with investment options, including types of accounts (retirement, taxable) and also types of investments. Most folks on this forum favor low-cost, broad-market index funds, myself included. I've been really surprised at how tracking my finances has created opportunities to optimize my tax situation, instead of having taxes be something that blindsides me once a year. You can actually get out ahead of it and make plans year by year with even a little education about investments, types of accounts, and tax law.

If you haven't read it yet, this series of posts about investing is informative and accessible:

http://jlcollinsnh.com/stock-series/

Good luck, and good for you for getting started with all this. So many people never do. You are doing Future You a tremendous service.

 

Wow, a phone plan for fifteen bucks!