Author Topic: Case Study: Early 20s, 100k in savings account - what should I do with it?  (Read 8962 times)

cbwalters

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2019 Update:
Hello, reader of this post. I apologize for deleting the content here in case you might have found it useful, but past-me was too careless about including personally identifying information, and present-me is uncomfortable with leaving those details here. Thanks again to all who replied. Your input was very helpful.
« Last Edit: May 05, 2019, 09:25:53 AM by cbwalters »

Future Lazy

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If I were in your position, I would:

Pay for your masters degree out of pocket.

Put 50% down on a small condo in Aurora (thinking 1 bedroom, 50-60k). Mortgage + HOA would be about half of your current rent costs. When you move you Europe, find a good property management company to rent it out for you while you're gone. Note: Comb HOA restrictions with a fine tooth comb to make sure renting is ok.
 
Find a job you don't hate, in Aurora or DTC area. Or pursue your side gig, since it's something you seem to enjoy quite a lot. Put some actual research into the healthcare costs.

Put the other ~50k away in an index fund and completely forget about it.

Also, look into reducing your grocery spending a little.


This plan delays your dreams for slow travel, but 20k is a lot of money to piss away just bumming around. I've done it. I regret it. Save your travel for later, when you're truly FI.

thedayisbrave

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Congrats! 100K @ 23 is a major accomplishment.

I wouldn't worry about buying an investment property for now.  Seems like it would be too much of a hassle to be worth it, especially considering your impending travels.

Education in Europe is cheap, or at least it was when I looked into it a year or two ago.  But be careful about transferability of your degree - I guess it depends on what the field of study is.  For me, it made sense as I would have been potentially going for translation/interpretation.  Just a consideration.

I think clarifying goals a little bit more would be helpful in your situation.  For instance, what would the 25K earmarked for 10 years away be for? the 25K very short term?

Also if you do end up traveling, consider the countries carefully.  20K in Asia or South America will probably go a lot farther than 20K in Europe.

mozar

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My advice is to go ahead and travel but do the really hard travel. Do the hostels, do woofing or something like it, if you are English speaking some resorts will take you in for work off the street, and do challenging time zones. I slow traveled around NZ and Australia for three months when I was 26 and laid off because of the recession. I think it was about 3k including airfare. It was extremely exhausting, travelling by bus, staying in hostels, jet lag (I live in the USA), but I'm glad I did it and I never want to travel like that again.

I would not invest in property until you are ready to settle down. If you want to get a degree in Europe you may never come back and property would be a major hassle to deal with. I would sell the car, keep 10k in your bank account, put 10k in a 6 month cd, then invest the rest in index fund ( 90% stock, 10% bond) and only sell some of it if you are desperate, but try to stretch that 20k for a year or longer.

Future Lazy

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I throw Aurora out there only because Aurora has the cheapest condos. What you can get in Aurora for 60k is 120k someplace like Boulder, or 90k in Jefferson County - Based on 9-12 months of quietly tracking the condo market for my own eventual purchase.

If you're not afraid of the bus, there are some reasonably priced condos around 80th and Federal/Zuni, but the neighborhood is questionable (grew up there, not recommended imo), and that would be closer to where you're currently working. But if you're going to quit and go to Europe for school, why does the location of the property you buy matter much right now?

If you move closer to work, consider taking the bus instead.

Would honestly not recommend getting small investment property in the Denver area, since rents typically just cover the cost of the mortgage and maintenance without a property management company taking 15% or more above that, unless you invested another large chunk of money in making in "luxury" and charging $1500+/mo for it (Assuming 2 bed/2 bath, as described). Or, you could put the entire 100k down on a 500k fourplex, but then you would have no cash.

Suggesting 50% down on a low cost condo with the sole intention of reducing your housing costs by half. This suggestion has nothing to do with ROI. Thus why the suggestion would be 1 bedroom, in the cheapest area possible, where there is also a lot of job potential, especially in tech - Aurora and DTC.

I have a hard time with a Masters program that costs 50k, but I honestly don't know a lot about masters programs and their costs. Have you considered trying to find an employer that is willing to pay you to do the schooling?

"I have to do all my traveling by the time I'm 26! Because work visas!" sounds like a hokey argument. Why would 'getting older' hinder your ability to travel? Maybe if you're 60+, and in failing health, it might become difficult, but as long as you're fit and eat well, I can't imagine that it should ever become difficult. I mean, in other words, it sounds like you think 26 is the end of traveling, so 30 must be old, and 40 is just ancient. Considering you've managed to accumulate 100k by 23, while building a pretty good career for yourself and staying frugal... If you keep the same pace/savings rate you're at, FI should be easy to reach, and taking vacations without having to live only in hostels and work while you're there would also be easily within reach.

That's a little confusing. If you're going to Europe to work on your career and network, wouldn't that be moving to Europe, not "traveling for a year"? What's the tax situation on anything you earn there? If a company there hired you, would you stay and try to become a citizen of wherever? What exactly is the plan?

If you buy a property, for investment, even if you use a property manager, you probably want to be in the same city as the property.
If you buy a property as a primary residence, you typically want to hang on to it for at least five years before you sell it.

If you're going to Europe with the intention of living there for an extended period of time, as it seems you've described, I think that buying a property might not be in your stars at all.

/rambles

waltworks

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There is little/nothing in Denver that will meet 1% rule for investment properties (not sure what that is? Toodle on over to the RE board and read, read, read.) Based on your post I'm assuming you don't yet know much about RE investing. I am 99% confident after you arm yourself with some knowledge you won't want to buy any RE anytime soon, especially since you don't know when/where your next job will be yet.

Heck, I'm not sure you could qualify for a mortgage at your income anyway, at least not for anywhere you'd want to live. Mortgage companies won't care about your side gig or assets, they will want your W2s for the last few years, and at $42k, you can't qualify for all that much.

Honestly, I'd dump most of the money in some kind of very long term (80+% equities) hands-off investments and forget all about it for a decade while you do some fun stuff and then find a decent job.

-W

Future Lazy

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There is little/nothing in Denver that will meet 1% rule for investment properties (not sure what that is? Toodle on over to the RE board and read, read, read.) Based on your post I'm assuming you don't yet know much about RE investing. I am 99% confident after you arm yourself with some knowledge you won't want to buy any RE anytime soon, especially since you don't know when/where your next job will be yet.

Heck, I'm not sure you could qualify for a mortgage at your income anyway, at least not for anywhere you'd want to live. Mortgage companies won't care about your side gig or assets, they will want your W2s for the last few years, and at $42k, you can't qualify for all that much.

Honestly, I'd dump most of the money in some kind of very long term (80+% equities) hands-off investments and forget all about it for a decade while you do some fun stuff and then find a decent job.

-W

This is also another reason to suggest 50%+ down, if you did decide to buy something. A loan of 50k against an income of 42k is a lot more reasonable than a loan of 90k+, etc.

former player

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A word of warning on the amount of loan you are "prequalified for".  The bank is selling a loan to you, and it is in their interests to sell you the biggest loan they think they can get away with - in other words, the biggest loan they can sucker you into paying back.   So the full amount they have given you have nothing to do with what is best for you, with what is comfortable for you to pay back, with what gives you the best financial return or with what best fits your aims in life for the next thirty years (or however long the loan is intended to last). 

You need to completely forget about the figure the bank is prepared to lend and focus entirely on the figure you are prepared to borrow.

aschmidt2930

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A lot of good advice in this thread, but let me throw in this:

Stop. Read. Be patient. It sounds like a lot of this is new to you, and it can be overwhelming.  Saving 100k at your income takes some serious time and commitment,  don't rush throwing a lump sum at a few investments out of excitement. There will still be amazing investment opportunities in a couple months.

Guizmo

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I throw Aurora out there only because Aurora has the cheapest condos. What you can get in Aurora for 60k is 120k someplace like Boulder, or 90k in Jefferson County - Based on 9-12 months of quietly tracking the condo market for my own eventual purchase.

I bought a 1 bedroom condo in Aurora for 35k in 2013. I rent it for $750. But Denver real estate has appreciated like crazy and now that condo is worth right around 60k based on recent sales.

So, yes unless you do your homework you will be hard placed to find decent rental properties. I would not buy in your position.

Since you want some money short term, I would keep that amount in a 'high' yield savings or maybe even a 5 year CD. The rates I see at ALLY are right around 2%, so it more or less keeps up with inflation and the penalty for early withdrawal seems reasonable.

For anything longer than that, I would put it in stocks. I am 25 and am 100% in stocks with my preference being VTSAX although I can't access it through my work 457 plan only through my IRA.
 
« Last Edit: January 04, 2015, 09:43:41 AM by Guizmo »

Mommyof2

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I would be maxing out a Roth every year as well

mozar

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I think you should put that 80k in the stock market and forget about it for awhile. 75k is a lot of money for a program that you say you don't actually need. Are there cheaper programs or certificates? And I'm confused about what you want. Are you looking for a home base to travel from for a few years where you will need to rent long term and you will be tied down and only travel on vacation? Or are you looking to slow travel through different countries which means you likely only need a 90 day visa each place anyway? Can't you be a travel intern without being hired longterm?
Some companies will sponsor you. If you got rejected once you should keep trying. For what I've read Ireland has a 12 month visa program and the UK has a 6 month visa (try BUNAC). I've also read that most places you can't work on a study permit. Denmark has a "Positive List" where they will grant you a 4 year visa if your profession is on the list. You said you are in IT? Lots of IT jobs on there including "IT Consultant," whatever that means. Were any of your grandparents European citizens? You can also get citizenship through them in some countries.

geek101

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+1 for throwing it in the stock market from me.  I would put it all in the market.

Rental properties can be a great investment if you do your homework, but they work best as part of a larger portfolio of investments. If you were to buy a property now, you'd have a huge portion of your net worth tied up in real estate.

In 6 months or a year if you decide on something else, you can cash out. That's harder to do with a rental property.

Invest it in a diversified portfolio of index funds, don't touch it for 30 years, and you have ~800k. Congratulations, you just retired a little early (53) without needing to save or invest an additional cent. You could literally just break even every year until then and you have ~32k/year waiting for you at 53 that's yours, forever.

mozar

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I don't think you are impatient. It's just that immigration laws are what they are. I'm still not clear on your plans but probably because you aren't either. But I'm sure you'll figure it out, whatever "it" may be.