Author Topic: Case Study: Seeking Sage Advice and Punches to the Face  (Read 6783 times)

SteveTweede

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Case Study: Seeking Sage Advice and Punches to the Face
« on: December 06, 2013, 08:52:51 AM »
Dear Mustachians,

Being a new but enthusiastic reader, I would really appreciate the type of advice only a more experienced mustachian can offer.  I’m 25 years old, live in New Orleans, and I’m about to start my first “high paying” job (and begin growing my ‘stache).  I’m not hell-bent on retiring in 10 years by any means, but I’m very interested in being FI by age 45-50 (20-25 years).  Face punches expected and welcomed.

My top priorities, and please feel free to challenge these, are 1. Getting out of student loan debt (should only take around 3 months), 2. Saving for an eventual mortgage down payment, and 3. Otherwise growing my ‘stache.

Financial situation:
In early January 2014 I will start my new job as General Manager of a restaurant
Salary $35,000/year, tips approx. $14/day (untaxed), yearly bonus $6,000 to $15,000 (depending how well I do my job)
Approximate annual income (assuming $8,000 bonus): around $43,000 (pre tax) & $3,500 untaxed tips

Current monthly expenses:
Rent + Utilities: $440
Groceries: $180
Entertainment/Restaurant/Bar: $120
Gas/Bus: $75
Cigarettes/alcohol: $200 (!)
Car insurance:  $64.50
Cell: $30
Etc.: $75
Cat: $20 (share costs with my SO)
Student Loans: $360 (I’ve been paying $500-$1,000 a month depending how my bank account looks)
Total: $1,205 x 12 = $14,460/year

Additional considerations: My dear mother is retiring Jan. 2014 so I will need to provide my own healthcare starting then (none offered through my employer).  Cheapest option on healthcare.gov is just shy of $200 a month, and it’s terrible.  I won’t qualify for any subsidies.  Any advice?

Assests:  $4,000 ‘stached in a bank account (negligible interest rate)
Liabilities: $4,500 student loan debt at 6.8% interest (no cc or other debt)

Specific questions:
Being a thoroughly un-savvy investor, I need advice on how to ‘stache all my impending cash.  I should be able to save 50% of my take home pay, but where to invest it?  I’ll have a 401k option through my employer but no details as of yet other than a ‘not more than 10% match’. 

Any advice on health insurance for a relatively healthy young man? (no expenses in recent years except yearly checkups and an injury from a bike accident)

Where should I invest so I can access the $ for a mortgage down payment in 3-5 years?

Anti-ComplainyPants

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #1 on: December 06, 2013, 09:10:53 AM »
Welcome to the family Steve!

I started a very similar thread to this one a couple months ago and got some great advice - you can find it here: http://www.mrmoneymustache.com/forum/investor-alley/i-have-low-income-where-do-i-put-it/msg163155/#msg163155

In short, I'm also hoping to save up for a home downpayment in 5ish years. My strategy is tossing my downpayment savings into a Betterment account; it gives me the advantages of market dividends, with risk I am comfortable with due to my flexibility of not needing the money at a specific time should the market be in the toilet when the time comes. If that happens, I can always wait a little longer for the market to come back up and then move forward. Betterment also offers a lot of control over how much risk you're comfortable with (stock/bond allocations).

Next to that, everything else goes toward student loan debt and saving up for my opening deposit of a Vanguard (VTSMX) account (which should be within a few months, can't wait!). The account requires a beginning investment of $3k, which I still need to build on top of my emergency cash.

Best of luck!

 

SteveTweede

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #2 on: December 06, 2013, 09:17:12 AM »
Thanks! I will definitely look into that.  Lots of good advice on your thread

Another Reader

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #3 on: December 06, 2013, 09:24:44 AM »
Tips are taxable.....  If you don't report them and the IRS expects to see them, you may be an audit target.

Quit smoking yesterday.

Look at the 401k options as soon as you start the job.  Pay off that 6.8 percent student loan first and then invest in your 401k, an IRA, and if you have anything left over, start a taxable investment account.

Does your insurance exchange offer a catastrophic policy for people under 30?  That's the way to go for most people your age, unless you have a pre-existing condition.

SteveTweede

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #4 on: December 06, 2013, 09:33:34 AM »
Thanks for the advice.  I know tips are taxable but I'm really not at all concerned about being audited because of them (maybe I should be?!).
Smoking is certainly the biggest current drain on my health and finances -- was bracing for a face punch there.  Thanks for being the first to supply it.
I didn't see any catastrophic type coverage (at least labelled as such) on the ACA website, but I will certainly go back and look into that.  Does anyone know if it would be worth checking directly through insurers, or are my options pretty much spelled out for me on healthcare.gov?
Thanks again

_JT

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #5 on: December 06, 2013, 09:40:03 AM »
First things first: congrats on preparing to join the job force! I lived in New Orleans when I was 26-27, and loved it.

No matter what, ALWAYS max out your 401k to the extent your employer matches. It's free money. Beyond that, pay down any high interest debt before starting any other serious investing. With your income you should be able to do that in year 1, easy. After that, I'd find some interest bearing account to stash your future house downpayment where you can easily access it. I don't have any specific recs there -- I always have saved my downpayments in my savings account, because I come up with them in less than a year.

My health insurance is catastrophic coverage through blue cross/blue shield, and it's 40 bucks a month (I'm 33). Not sure how the ACA will change that yet.

If I were living in NOLA still, I'd be investing in rental properties. There are some smoking deals down there, if you don't mind venturing out of the garden district. But it's not something to jump into without doing a LOT of homework.

SteveTweede

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #6 on: December 06, 2013, 09:46:41 AM »
Thanks for the input.  I'm definitely planning on getting the full 401k match, but I'm thinking I will put the rest of my savings in something like a taxable account (I will likely be staching it somewhere around four years before touching it for a mortgage down payment).  It seems MMM readers are fond of Vangaurd VTSMX, so that will likely be my choice. 
I'm not at all considering investing in any type of real estate in New Orleans, as I'm fairly convinced the city will be underwater (literally) in my lifetime.  I'm planning on moving back towards the Midwest before buying a house

SteveTweede

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #7 on: December 06, 2013, 09:59:39 AM »
Does your insurance exchange offer a catastrophic policy for people under 30?  That's the way to go for most people your age, unless you have a pre-existing condition.
I got back on healthcare.gov -- the cheapest catastrophic plan is $176.06/month

_JT

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #8 on: December 06, 2013, 10:01:15 AM »
Thanks for the input.  I'm definitely planning on getting the full 401k match, but I'm thinking I will put the rest of my savings in something like a taxable account (I will likely be staching it somewhere around four years before touching it for a mortgage down payment).  It seems MMM readers are fond of Vangaurd VTSMX, so that will likely be my choice. 
I'm not at all considering investing in any type of real estate in New Orleans, as I'm fairly convinced the city will be underwater (literally) in my lifetime.  I'm planning on moving back towards the Midwest before buying a house

Ha, fair enough. Buying a house where you don't expect a natural disaster to destroy it has a certain unassailable logic in it.

Dicey

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #9 on: December 06, 2013, 10:36:46 AM »
Okay, I'll do it. Here's another facepunch on the smoking. Nothing else is higher priority. Quit smoking first so you can live long enough (and healthily enough) to become FIRE.

Another Reader

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #10 on: December 06, 2013, 11:08:48 AM »
The subsidy is based on AGI (Adjusted Gross Income).  What is your best estimate of 2014 AGI?  You might qualify if it is under the 400 percent FPL limit.  Look at the IRS website if you don't understand AGI.

Throw that package of cigarettes away and tell yourself you are now a non-smoker.  It's the best way to quit.

Rebecca Stapler

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #11 on: December 06, 2013, 11:16:26 AM »

Any advice on health insurance for a relatively healthy young man? (no expenses in recent years except yearly checkups and an injury from a bike accident)


Given your smoking addiction, I don't think that this is a well-informed description of yourself. Make quitting smoking your top financial priority, and in a few months you might be able to call yourself "relatively healthy." But for now, your chances of dying due to smoking-related illness is about 50/50.

Google around for free smoking cessation programs or resources in your community. Many states have a "quit line" to help people quitting. Set a date to quit smoking, write down the reasons why you're quitting, and come up with some strategies to overcome your cravings when you're hit with them. Tell everyone you know that you're quitting on a certain day and ask them to help you stick to it (eg, ask them not to ask you to go out for a smoke break). Take the money that you would otherwise spend on a pack of cigarettes and put it in a big, clear jar, and watch that money pile up!

I used to help people quit smoking, so if you have any questions about it feel free to ask!

Anti-ComplainyPants

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #12 on: December 06, 2013, 11:38:09 AM »
Also, $320/month on entertainment, restaurants, and drugs (including both alcohol and cigarettes) is pretty excessive. It's almost your entire student loan payment, and way more than all your other utilities and "necessary" costs (phone, etc.). Once you quit smoking (as stated above, you've hopefully already had your last cigarette) it might be time to start adjusting to hosting more social gatherings rather than paying restaurants/bars.

Personally, I love to party and this was a huge adjustment for me. When I got invited to the bar I started either:
Going and being the DD
Going and not buying drinks (either having fun sober, or my drinking friends would buy me a drink or two)
Declining and inviting the group to come over afterwards

And the latter is my personal favorite. I have just as much fun with a group of friends at my place as I do at the bar, and it's way cheaper. You listed your monthly going-out expense as $120 - That's $30 a week, which means you're either going out every single week or spending a crap-ton when you do go out.

It's all about adjustment. Adjusting to going out less often, adjusting to not needing to drink more than one or two overpriced drinks when we're out, adjusting to making our own meals, and we save thousands of dollars a year.

SteveTweede

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #13 on: December 06, 2013, 12:14:38 PM »
Again, thanks for all the replies, especially to Stan and Anti-ComplainyPants for constructive advice. 

As Mark Twain said, "Quitting smoking is the easiest thing in the world.  I know because I've done it a thousand times."  Complainypants aside, I do realize that I must quit smoking, and your collective face punches are helping convince me that the time is now, so feel free to keep them coming.

Also, $320/month on entertainment, restaurants, and drugs (including both alcohol and cigarettes) is pretty excessive. It's almost your entire student loan payment, and way more than all your other utilities and "necessary" costs (phone, etc.).

You're definitely right about this.  I mostly need to lay off the restaurants (and maybe share these costs more equitably with my SO)

Eric

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #14 on: December 06, 2013, 06:28:40 PM »
Has anyone mentioned quitting smoking?  If not, you should quit smoking.  And then after that, quit smoking.

Some tips from a former smoker:

If you can get past the first 3-4 days, you'll break the physical addiction. The rest is just mental.
If you have trouble quitting when healthy, consider quitting after getting sick.  You'll go a few days feeling terrible anyway and it makes for good timing.
Always carry toothpicks or gum or whatever to calm your cravings.  This will fade over time.
Everytime you really "need" a smoke, do 20 pushups.  It will help with the craving and you'll be a ripped non-smoker in no time.

Here's a way to think about the mental part of the addiction that really helped me.  Everytime you beat a specific craving, it gets easier the next time.  So if you normally smoke after meals, that first meal will be the hardest, and every subsequent meal less difficult.  The first night drinking harder than the next, and so on.  But if 3 months after quitting you take your first road trip (or whatever infrequent activity), and you always used to smoke on road trips, your craving is going to be intense again, just like it was right after quitting.  This can be hard and cause a relapse, but knowing this will happen, you can be prepared and not succumb.

Good luck.

Anti-ComplainyPants

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #15 on: December 09, 2013, 08:43:26 AM »
Everything this man says is true

LauraG

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #16 on: December 09, 2013, 04:30:13 PM »
Also, your health insurance costs will go down if you quit smoking. It's one of the three factors (the others are geography and age) that insurers will be able to use to determine risk premiums.

chasesfish

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #17 on: December 09, 2013, 04:55:45 PM »
I'm having a really tough time trying to give other financial advice because want to punch you in the face for smoking.  Seriously, your paying money to yourself in worse health.  I mean, it's like running over a bag of cash with a lawnmower, except the act of pushing a lawnmower is marginally beneficial to your health.

chasesfish

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #18 on: December 09, 2013, 04:59:50 PM »
Do you have any opportunities to increase your income?  You're actually reserved on your spending except for the issue mentioned above.

Stache In Training

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #19 on: December 09, 2013, 09:49:44 PM »
One thing that I haven't seen mentioned yet, is an emergency fund.  Whether you feel that you want 1, 3, or 6 months is going to be a personal choice.  There's some other options later on, than just keeping it in cash (100% liquid) form.  However for starting out, I'd suggest holding it in an online bank, as they offer the best interest rates on their savings accounts; better than CD rates.  I know that the rates are over 4 times higher than any credit unions in my town.  For money that you are not investing, you are at least earning something on it, (even if it's not much) and it'll be better than just sitting in a bank account, or under a mattress. 

Like, MMM, I use Capital One 360.  They really do have no fees, and I haven't had a bad experience.  Here's my refer-a-friend link: https://r.capitalone360.com/fvMaBF6sbX.  If you sign up with that, you'll get a sign-up bonus of $20 (at least that's what it's been recently) and I'll get $20 too.  (Being transparent)  Don't feel like I'm pushing you towards my link though.  If you look on the MMM blog, you should be able to find an even better sign-up deal.  Either way, use a sign-up deal, because Hey, Free Money!

Good Luck!

SteveTweede

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Re: Case Study: Seeking Sage Advice and Punches to the Face
« Reply #20 on: December 10, 2013, 07:26:31 AM »
I've been considering other income sources, but again, I'm not hell-bent on retiring in 10 years so I think my free time is probably more valuable to me than making some extra cash on the side at this time.
Thanks for the online bank suggestion - I'll definitely look into that.
As for an emergency fund, I'm planning on leaving my $4,000 in savings untouched (other than maybe moving to an online bank), and I feel pretty good with that amount.