Author Topic: A Wild Case Study Appeared! (Is there anything else I can do?)  (Read 4894 times)

Gondolin

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A Wild Case Study Appeared! (Is there anything else I can do?)
« on: October 15, 2015, 03:05:46 PM »
Well, Iíve been MMM dedicated and lurking long enough that I thought I ought to finally post a case study and get some feedback. So, here goes nothing.
Life Situation:
Single engineer (non-SW), age 25, renting in northern Virginia. No dependents. Long term pre-fiancť GF living in northern DC. I moved permanently to VA just 3 months ago. Before that I was moving every 8 months for work to different states. Obviously, this made it hard to get a handle on my spending/saving rates since my housing costs, tax situation and relocation incentives kept fluctuating. Now that Iím stable and have a few months of VA expenses to look at Iím posting this case study to see if the brilliant minds on this forum can suggest anything else I can do to supercharge my saving and investing.

Income:
86K
Pre-tax deductions:
401K Ė Maxed at $18K
Other Ordinary Income:
None Ė I just began a side hustle teaching standardized test prep. However, Iím still in training so the income is negligible at the moment. I expect this to generate 2-5K in 2016.
Dividends and Capital Gains:
All dividends reinvested. Capital gains negligible.

Taxes:
$28.5K withheld by the end of 2015. This is severe over withholding relative to my ~62K of taxable income ($86 Ė 18K Ė 6.3K standard deduction) however, I also have relocation benefits and tax assistance effects which may be messing with my tax liability. I MAY get a huge return this year, or I might not. In 2016 I anticipate not moving so this calculation should be simpler.

After taxes and 401K deduction: $3600 monthly take home

Current Expenses:
Rent - $700
Groceries - $300
Restaurants - $150 (this includes alcohol and anything not bought inside a grocery store).
Gas - $50
Car Insurance - $35 (paid in a lump sum for 6 months)
Health Insurance - $0 (I have younger siblings so Iím still leeching off my parentís family coverage).
Cell phone - $0 (again Ė cheaper to stay on my family plan to pay myself. I keep offering to pay my share and Dad keeps threatening to take me up on it but, so far he hasnít. My share would only be $30-40/month).
Tolls/Transit - $60 (NoVA tolls and DC Metro fares)
Discretionary: $100-150 (This includes several ďnecessaryĒ items that donít recur often enough to merit their own category Ė a typical month might include a haircut, new headphones, batteries, maintenance supplies for my bike, the occasional video game and a few bottles of cheap wine to bring as gifts to social events.)

Total: ~$1.4K / month

$1.4K is typical for a ďgoodĒ month with no large one-time expenses (dental work, snow tires, lump sum car insurance payment, etc.). Even with those pop-up expenses Iím on track to hit my goal of saving one of my two $1.8K paychecks each month (saving 50% net income + 401K deduction). With the large pop-up expenditures added in Iím probably averaging ~1.5-1.6K a month but, with my constant relocations the last 2 years, itís hard to tell.

My saving is automated. Every pay period ~$400 is pulled into my savings account (aka real estate investment fund) and my taxable VTSAX account. In a month or two Iíll probably double this once Iím *sure* that my expenses are stable.

Assets:
401k: $48K
Roth IRA: ~$10K
Taxable Vanguard account: ~$10K
Cash savings account: $7300
Checking account: $3000
Net worth: ~$78K

Liabilities:
None Ė I have one credit card that I use often and pay off every month. I had $40K of student loan debt upon graduation but, paid off as of June 2015.

Other Info:
I live just 3-4 miles from work so I often bike. My company offers very good HSA plan which Iíll be joining with maximum contributions once my family coverage expires.

Specific Questions:
Is there anything else I can do? Or have I reached the ďmake more or grind it outĒ stage?

Iím living on less than $30K a year in a HCOL area and saving => 50%. Iíve been racking my brain thinking of other ways to optimize but, other than doing more CC hacking and using an HSA, I canít think of anything *significant*. Sure, I could become way more ascetic and save $150 a month in booze, Shake Shack and books but, I feel my current spending is under control and already pretty lean. Open to differing opinions of course. 

mxt0133

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #1 on: October 15, 2015, 03:22:47 PM »
At 25 you are killing it.  For me there isn't much you could do other than get a part-time job that actually pays, but at this point it's really hard to say what you should be focusing your energy on without specific goals.

I think going through a goal setting exercise would help you focus your energy.  Where do you see yourself in one year, five years, then in ten years.  If you can visualize that then you can start to plan and set intermittent goals.  This would really help you in knowing where you could optimize or spend your time.

bacchi

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #2 on: October 15, 2015, 06:13:40 PM »
Yeah, you're at the "grind it out" stage. With 50% savings, you're looking at FI of early 40s. As you get raises, your savings rate should increase, allowing you to be FI earlier.

Setting goals is a great idea. If anything, it'll give you time to prepare for CC/travel hacking ("I want to vacation in Hawaii in 2017.")

johnER

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #3 on: October 15, 2015, 07:36:57 PM »
I'm an engineer in NoVa too, I'm assuming you have roommates with $700 rent right?  I pay more than 2x that for a 1BR, I don't want to go back to having roommates, but $700 is crazy cheap for the area (unless you really live in the southern MD ghettos).

Who's your car insurance through?  I have pay about $80/mo for a 6 year old civic through statefarm (prepay 6mo also), and my record is pretty much clean.

Only thing that I come in under your budget is tolls and metro (it's not hard to avoid the toll roads), but I'm guessing most of the $60 is metro as your GF is in northern DC, so may not be able to cut down on that too much.

MDM

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #4 on: October 15, 2015, 08:32:53 PM »
Other Info:
My company offers very good HSA plan which Iíll be joining with maximum contributions once my family coverage expires.

Specific Questions:
Is there anything else I can do? Or have I reached the ďmake more or grind it outĒ stage?

Are your parents on an HDHP?  If not, would it be to their own benefit to be one one (so they could contribute to an HSA and come out ahead)? 
As to "what does your parents' insurance have to do with your FI path?" - see http://forum.mrmoneymustache.com/taxes/hsa-for-an-adult-child-great-benefit-if-one-qualifies/

Lady Fordragon

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #5 on: October 15, 2015, 08:57:07 PM »
You're definitely doing well at 25.  I agree with setting goals for yourself or even doing monthly financial challenges to see if you can cut back more.

Gondolin

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #6 on: October 15, 2015, 09:06:27 PM »
JohnER- yea, I rent a room in a Sterling SFH. 2 house mates. Getting my own place would double my rent.
My insurance is with progressive. Losing the daily commute and revising my annual driving miles down to 6-7k per year really cut my rate. Long time customer with clean record as well.
Toll cost is mostly driving in and out of the city every weekend ($7 round trip!) plus some metro fares.


MDM - yes, parents have a high deductible plan with HSA. I've been using an HSA that they fund for the past two years but I'm young and have almost no medical expense. I'll check again and make sure we're optimized for 2016.

Mtx1033 - good advice with the 1,5,10 year plans. I've avoided setting an ER or FI date since there's so much volatility with my situation but, I concrete goal number is a good idea.

MDM

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #7 on: October 15, 2015, 09:18:16 PM »
MDM - yes, parents have a high deductible plan with HSA. I've been using an HSA that they fund for the past two years but I'm young and have almost no medical expense. I'll check again and make sure we're optimized for 2016.
Great!

Just to confirm: your parents have their own HSAs, to which they contribute a total of the maximum family amount of $6,650 - plus, if they are both over 55, $1K to each of their individual HSAs for a grand total of $8,650.  Separately, you have your own HSA in your own name, to which the maximum family amount of $6,650 is contributed by your very generous parents.  Thus among your parents and you, somewhere between $13,300 and $15,300 (depending on your parents' ages) is being contributed to HSAs each year.

Is that correct?

Learner

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #8 on: October 16, 2015, 04:13:41 AM »
Just had to chime in - love the title of the post.

CowboyAndIndian

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #9 on: October 16, 2015, 06:28:34 AM »
...
Mtx1033 - good advice with the 1,5,10 year plans. I've avoided setting an ER or FI date since there's so much volatility with my situation but, I concrete goal number is a good idea.
...

If you do this, make sure you do it on paper.

I do one at the end of each year with 3 sections (short term, medium term and long term goals).
For each item I put down
1) What my goal is
2) When
3) What assumptions I am making
4) Status.

At the end of the doc, I put my net worth.

I now have approx 18 of those and it is a great thing to go back and see how my thinking and goals have changed.

Best of luck..

FLBiker

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #10 on: October 16, 2015, 07:06:33 AM »
W/ your income, I think you'd be better doing a traditional IRA than a Roth.  You're doing great, though!

jollygreen23

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #11 on: October 16, 2015, 07:27:07 AM »
Your savings rate is great! The only place I might trim back is the food. $450/month for groceries and eating out seems a bit on the high side for one person. Maybe learn to cook a few extra-cheap meals to offset eating out? (Roast a whole chicken, use leftovers to fry with rice. This costs us about $7-8 to feed a family of 5 for two nights.)  But even if you shaved $100 off your food bill each month, you'd only retire 6-8 months earlier.

But seriously, you're killing it. You could hit ER at 35yo without a problem. Well done! I'm interested to see this home stretch. You're a motivation. :)

« Last Edit: October 16, 2015, 07:30:08 AM by jollygreen23 »

2Birds1Stone

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #12 on: October 16, 2015, 07:42:27 AM »
Your savings rate is higher than 50%

Once you factor in 401k + 1,800/month in after tax savings you are closer to a 65-70% rate.

That and the fact that you already have a nest egg of 2.5 years living expenses means you will be FI by ~35ish.

I would focus on optimizing your life at this point, you make good money and with good job performance will likely increase.

You have relatively low spending, without sacrifice....I would focus on finding low cost hobbies, and engage in more of the activities you plan on engaging in when you are FI 10 years from now.

Smell the roses, you are in a better place than 99% of even the MMM crowd here.

opah

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #13 on: October 16, 2015, 07:43:52 AM »
I feel like this is the only thing I post about, since I'm also a high-earning single engineer. But it keeps coming up. Even with his 401k contributions maxed out, he is just about at the cap at which he cannot deduct any contributions to a traditional IRA (phase-out begins at $61k and ends at $71k of MAGI). Even with an HSA he still won't be able to deduct a whole lot.

https://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work

I would love to be able to contribute to a traditional over a Roth, I'm getting killed on taxes now and there's no way my tax burden will be this high when I'm retired.

Good luck to the OP, sounds like you're pretty much killing it!

Gondolin

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Re: A Wild Case Study Appeared! (Is there anything else I can do?)
« Reply #14 on: October 16, 2015, 06:34:44 PM »
Thanks everyone for all the advice and encouragement! Looks like it time to just enjoy frugality!

MDM- I'm going to have to check with the parents and find out the level to which our HSAs are being funded.