Author Topic: Am I missing something?  (Read 4903 times)

peppaz

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Am I missing something?
« on: April 04, 2016, 10:43:39 AM »
Hi everyone,
Thanks in advance for anyone willing to help. I just need help figuring out how I can maximize my path to financial freedom and if I missed anything important.

I am 31, single and live in Manhattan (yes, I know). I started this new position 6 months ago and am finally equalized with my expenses and savings. It was difficult to do, mostly because of my own choices living and working in the most expensive city.

Salary: $130,000
Industry: Healthcare Informatics

Bonus: $500 - $10,000 (only at current job for 6 months)
Gross and Net income: $5000 biweekly - net ~$2700 biweekly (taxes are insane here)

Debt:
Student Loan (federal): $44,000 @ 4.625%
Credit Cards: None

Monthly Expenses:
Cell Phone: $95
Internet: $69
Gas and Electric: between $65 - $175 (winter/summer)
Student loan: $247 + $110 extra monthly payment $357
Food: ~ $500
Rent: $1950
Roth IRA: $75 weekly
Netflix, Twitch, Dental coinsurance: $25
Misc: ?? depends

Left with about $1 - $2k monthly

Investments:
Roth IRA: $75 weekly ($300 per month) post-tax
403(b): $700 per check (bi-weekly) $1400 per month pre-tax
Acorn: $5 per business day - typically $100 per month

Holdings:
Vanguard Traditional IRA: (from 401k rollover): $79,000 in a traditional Lazy Portfolio (international/domestic stock and bond indexes, all Admiral Shares)
Vanguard Roth IRA: $12,105 (Total Stock Market Admiral)
Old Work 401k: $6,500 (in process of rolling to Vanguard)
Personal Brokerage: $4,500 (stocks I'm interested in, purchased through eTrade)
Current 403(b): $4,110 (in Vanguard Funds)
Acorns: $600 (roundups from purchases on debit card, all in Vanguard indexes)
Savings: $5,000 (prefer to have cash invested)

Recap:
Yearly Salary: $130,000 + small bonus
Total Monthly Expenses including entertainment: ~ $3500
Total Investments: $106,000
Total Liquid Cash: $5,000
Total Debt: $44,000 (paying off loans early)

Credit Score: 775

Emergency Fund: Working on it - feel weird about having cash earning 0% - so between the Roth and investment accounts and savings I have about a years worth of funding. I understand the danger of having emergency money invested, when the market crashes is when you will probably need it. I am slowly building a non-invested emergency fund- as my job and income are very stable.

I won't make an excuse for myself for living in Manhattan - I did it for convenience for work and haven't left although I want to. I live alone in a nice apartment well under market value, even though it is expensive compared to elsewhere. I know this wasn't the best choice financially but I tried to compensate by investing aggressively while incurring no extra debt.

Am I missing anything to plan for the future? I know I probably won't be able to retire very early given my current expenditures, but is there any other strategy to maximize my pre or post tax income?

Ideally I want to leave the city, but not to rent - I'd like to buy something without touching my retirement capital at all - so I am starting from scratch to save for minimal down payment if I decide to buy in the next year or two.

I was introduced to the world of MMM, FireCalc and Vanguard funds a few years ago by a successful and helpful boss and Boglehead who frequents ths forum. For the last 3 or 4 years I've been slowly learning about Expense Ratios, Index funds and everything in between, and trying my best to set up a good future for myself.

Thanks and sorry for the hurried nature of this post. Any feedback is appreciated.
« Last Edit: April 05, 2016, 11:00:06 AM by peppaz »

GrowingTheGreen

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Re: Am I missing something?
« Reply #1 on: April 04, 2016, 10:48:33 AM »
$2k/month is a lot left over that isn't going into a tax-advantaged account. Any reason you're not plugging it into your 403b or Roth?

peppaz

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Re: Am I missing something?
« Reply #2 on: April 04, 2016, 10:52:28 AM »
Thanks.

This is a new job so I wasn't 100% sure what the months would look like.

$700 * 26 = $18,200, a mostly maxed out 403b

$75 weekly into my Roth = $3,900 yearly, so I guess that would be my next area to increase to the max $5,500 but I am worried that my income phases me out of eligibility of my Roth, which sucks.

Travis

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Re: Am I missing something?
« Reply #3 on: April 04, 2016, 11:07:44 AM »
Emergency fund, tax advantaged accounts, student loan debt - in that order.  Before you start thinking about a home purchase, ensure you've got a handle on at least the first two.  Also, track your expenses very closely.  You're missing some of your expenses on this post and they'll go up with a home.  Why are you spending $500 a month on food?  How much of that is eating out?  Is your "telephone" expense a land line or cell phone?  Do you have cable tv? Internet service?  Check out IP Dailey's guide stickied here on lowering your communications and digital entertainment costs.

Gimesalot

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Re: Am I missing something?
« Reply #4 on: April 04, 2016, 12:07:32 PM »
Personally, I am okay with more risk, so I would have about 6 months worth of rent in an emergency fund, and expect to use credit cards for the rest.  It might be a good way for you to strike a balance.

A good option for you might be to see if you have access to a HSA at work.  You can save a few thousand in there without paying tax on it.

peppaz

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Re: Am I missing something?
« Reply #5 on: April 04, 2016, 12:11:00 PM »
They do offer an HSA, it seems stressful to make sure you use all of it each year, is it difficult to spend the limit?

Inaya

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Re: Am I missing something?
« Reply #6 on: April 04, 2016, 12:33:49 PM »
Check whether it's an HSA or an FSA. Typically, the FSA is the one you have to spend down every year. HSA requires a high-deductible health plan and rolls over forever. Also it's pre-tax, and some of them let you invest the earnings (although many of them have awful fees).

I'm intrigued by Acorns. How's it working out for you?

peppaz

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Re: Am I missing something?
« Reply #7 on: April 04, 2016, 12:39:19 PM »
Check whether it's an HSA or an FSA. Typically, the FSA is the one you have to spend down every year. HSA requires a high-deductible health plan and rolls over forever. Also it's pre-tax, and some of them let you invest the earnings (although many of them have awful fees).

I'm intrigued by Acorns. How's it working out for you?

People argue whether Acorns is worth it - I like it because it allows me to buy small, fractional shares of Vanguard indexes without minimums or trade fees.  Believe they charge $12 per year ($1 per month) when your account is under $5,000 and after that 0.25%, which includes Vanguard's ER. They accept recurring investments, and the design is very slick. Just like an extra piggy bank for me. It can round up purchases to the nearest dollar and invest them, and it records and reinvests dividends.
« Last Edit: April 04, 2016, 12:42:01 PM by peppaz »

Gimesalot

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Re: Am I missing something?
« Reply #8 on: April 05, 2016, 10:01:12 AM »
They do offer an HSA, it seems stressful to make sure you use all of it each year, is it difficult to spend the limit?

As Inaya mentioned, an HSA does not have to be spent every year.  You can add money up to a certain amount every year you are covered by a high deductible health plan (HDHP).  The money that is contributed up to the limit and earnings on that money, are tax free as long as they are used for qualified medical expenses.  The contribution limit and definition of "qualified medical expenses" changes from time to time.

My HSA is with HSA Bank, and the investment portion is in Vanguard funds through TD Ameritrade.  I don't have an option on custodians, but I do have an option of about 100 no-fee funds to invest.

One thing that hasn't been mentioned is the Back Door Roth.  Check it out here: https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
Just keep in mind that since you already have a traditional IRA, there are some roll-over issues to take into account.

tipster350

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Re: Am I missing something?
« Reply #9 on: April 05, 2016, 10:16:03 AM »
With putting the max into tax-advantaged accounts such as 401k and HSA, you should be able to fully take advantage of the Roth IRA. Roths are based on your AGI. The 401k and HSA contributions will lower your AGI, plus there are other tax deductions, such the standard deduction.

You have a few missing pieces to your expenses so I wonder if you will really have 2k to invest. I don't see clothes, entertainment, medical expenses, transportation, etc. I think you need a better handle on what you're spending in these areas.


Inaya

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Re: Am I missing something?
« Reply #10 on: April 05, 2016, 10:21:03 AM »
They do offer an HSA, it seems stressful to make sure you use all of it each year, is it difficult to spend the limit?

As Inaya mentioned, an HSA does not have to be spent every year.  You can add money up to a certain amount every year you are covered by a high deductible health plan (HDHP).  The money that is contributed up to the limit and earnings on that money, are tax free as long as they are used for qualified medical expenses.  The contribution limit and definition of "qualified medical expenses" changes from time to time.

My HSA is with HSA Bank, and the investment portion is in Vanguard funds through TD Ameritrade.  I don't have an option on custodians, but I do have an option of about 100 no-fee funds to invest.

One thing that hasn't been mentioned is the Back Door Roth.  Check it out here: https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
Just keep in mind that since you already have a traditional IRA, there are some roll-over issues to take into account.


Quick note on "qualified medical expenses." OTC medication is covered IF and ONLY IF you have a prescription for it and get it from a pharmacist.

peppaz

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Re: Am I missing something?
« Reply #11 on: April 05, 2016, 10:25:06 AM »
With putting the max into tax-advantaged accounts such as 401k and HSA, you should be able to fully take advantage of the Roth IRA. Roths are based on your AGI. The 401k and HSA contributions will lower your AGI, plus there are other tax deductions, such the standard deduction.

You have a few missing pieces to your expenses so I wonder if you will really have 2k to invest. I don't see clothes, entertainment, medical expenses, transportation, etc. I think you need a better handle on what you're spending in these areas.

I don't have 2k to invest, just 1 - 2k left over typically at the end of each month, depending on spending and bills.

But you are correct, my AGI will keep me in range to continue maxing out my Roth. Transportation is pre-tax, its about $70 a month for a train pass. Clothing and such I buy yearly usually and am stocked up on business clothes and suits. Entertainment is in my discretionary spending but usually overlaps with the high food budget. Medical is trivial as I am fully insured with low copays and no deductible.

Thanks for your input! Appreciated.

MonkeyJenga

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Re: Am I missing something?
« Reply #12 on: April 05, 2016, 10:25:51 AM »
The great thing is your salary is large enough for a few optimizations to get you to a very high savings rate.

I think the first step should be getting a handle on your true expenses. Do you have a Mint or Personal Capital account? If not, I would go through credit card statements and pull together a few months of accurate information. Then move to Queens, like me. :)

One more question: why don't you want to rent if you move?
« Last Edit: April 05, 2016, 10:27:27 AM by MonkeyJenga »

peppaz

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Re: Am I missing something?
« Reply #13 on: April 05, 2016, 10:51:07 AM »
The great thing is your salary is large enough for a few optimizations to get you to a very high savings rate.

I think the first step should be getting a handle on your true expenses. Do you have a Mint or Personal Capital account? If not, I would go through credit card statements and pull together a few months of accurate information. Then move to Queens, like me. :)

One more question: why don't you want to rent if you move?

You are right - and yes I've been using Mint for years, although recently it stopped tracking my Santander account transactions. I can't believe they are scraping web pages to get the data. They also don't support Acorns yet.

Ha and I can't live in Manhattan forever - but moving again before buying something seems wasteful and annoying - but it's in my plan to move in the next 2 years probably.

peppaz

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Re: Am I missing something?
« Reply #14 on: April 05, 2016, 10:56:54 AM »
>One more question: why don't you want to rent if you move?

It's not that I don't want to rent - I just feel like buying something is a better deal in the long run if I leave Manhattan. Rents are just so high that mortgages and expenses are actually cheaper right outside the city. But I know the rent vs buy debate is complex.

onlykelsey

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Re: Am I missing something?
« Reply #15 on: April 05, 2016, 11:02:09 AM »
>One more question: why don't you want to rent if you move?

It's not that I don't want to rent - I just feel like buying something is a better deal in the long run if I leave Manhattan. Rents are just so high that mortgages and expenses are actually cheaper right outside the city. But I know the rent vs buy debate is complex.

Make sure you factor taxes in to that.  I own in Manhattan, and property taxes actually aren't very bad, but they are INSANE in the metro region.  I'd take a look at that sooner rather than later so you can factor in to your decision.

peppaz

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Re: Am I missing something?
« Reply #16 on: April 05, 2016, 11:04:47 AM »
>One more question: why don't you want to rent if you move?

It's not that I don't want to rent - I just feel like buying something is a better deal in the long run if I leave Manhattan. Rents are just so high that mortgages and expenses are actually cheaper right outside the city. But I know the rent vs buy debate is complex.

Make sure you factor taxes in to that.  I own in Manhattan, and property taxes actually aren't very bad, but they are INSANE in the metro region.  I'd take a look at that sooner rather than later so you can factor in to your decision.

It's not the taxes that get you, it's the maintenance costs. Some poorly managed buildings in Manhattan have upwards of $2k a month in just maintenance, and the median is almost $1k per month.

GrowingTheGreen

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Re: Am I missing something?
« Reply #17 on: April 07, 2016, 09:00:51 AM »
Thanks.

This is a new job so I wasn't 100% sure what the months would look like.

$700 * 26 = $18,200, a mostly maxed out 403b

$75 weekly into my Roth = $3,900 yearly, so I guess that would be my next area to increase to the max $5,500 but I am worried that my income phases me out of eligibility of my Roth, which sucks.

If your MAGI is an issue, do a backdoor Roth!

onlykelsey

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Re: Am I missing something?
« Reply #18 on: April 07, 2016, 09:02:24 AM »
>One more question: why don't you want to rent if you move?

It's not that I don't want to rent - I just feel like buying something is a better deal in the long run if I leave Manhattan. Rents are just so high that mortgages and expenses are actually cheaper right outside the city. But I know the rent vs buy debate is complex.

Make sure you factor taxes in to that.  I own in Manhattan, and property taxes actually aren't very bad, but they are INSANE in the metro region.  I'd take a look at that sooner rather than later so you can factor in to your decision.

It's not the taxes that get you, it's the maintenance costs. Some poorly managed buildings in Manhattan have upwards of $2k a month in just maintenance, and the median is almost $1k per month.

Right, but maintenance is very up-front when you get in to it.  OP seems to be concerned with the costs of rents in manhattan vs. mortgages in the metro area, and on its face, mortgages will look cheaper because you're not looking at taxes.