Author Topic: Case Study: Am I on the right track?  (Read 4053 times)

Migs

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Case Study: Am I on the right track?
« on: February 07, 2015, 01:00:37 PM »
Hello, all! I'm Migs and I recently turned 30. I discovered MMM about a week ago after browsing different financial blogs. Let's just say that I really wish that I found this site years ago.

I currently live with my boyfriend and his grandma. Boyfriend and I don't pay any rent/utility expenses in exchange for helping care for grandma (cooking/cleaning/etc) and buying groceries. We've tried to convince his grandma that we can contribute more, but she insists she pays for housing/utilities. This situation should allow me to save quite a bit of money. I've already started cutting some expenses and I've paid off all of my loans except my car loan (I made the mistake of buying a fancy car as soon as I started making "good" money). I feel like I'm not saving enough or doing enough, and I just need to know if I'm at least going in the right direction.

The finances:
Paycheck (Every 2 weeks)
Gross Pay: $2165.51
457 Plan Contribution: $50.00
Pension/Annuity Contribution: $151.59 (7% mandatory, employer 2:1 match, as far as I know, we can't contribute more)
Vanguard money market DD: $50.00
Net Pay: $1465.98

Monthly Net Pay: $2,931.96   
            
Explenses (Monthly)      
Car Loan*: $1,200.00 ($14,655.00 left on loan, 1.9% apr, monthly payment $450.00 + $750.00 extra payment)
Toll Tag: $160.00   
Gas: $200.00   
Car Insurance*: $122.00   
Phone*: $115.00   
Groceries: $150.00   
Dining: $200.00   
Entertainment: $50.00   
Cigarettes: $50.00   
Emergency Savings*: $100.00   
House Down payment Savings*: $100.00   
Short-Term Savings*: $100.00   
Vanguard Roth IRA*: $379.00   
      
Total Expenses   $2,926.00   
*Static monthly expenses      
      
      
Asssets      
Emergency Savings: $6,028.00   
House Down payment Savings: $5,580.00   
Short-Term Savings: $573.00 (Used for vacations, gifts, etc)
Vanguard Money Market: $247.00   
Vanguard Brokerage: $4,504.00   
Vanguard Roth IRA: $4,806.00   
457 Plan: $14,950.00   
Pension/Annuity: $18,486.00   
      
Total: $55,174.00   

I also have CCs that I use to pay expenses and I pay those in full every month. I also keep a $200-$400 buffer in my checking account.

These are just my finances, so my boyfriends finances aren't included. We've been together for about 5 years and I'm still working on getting him to open up about his finances. I know his credit history is not stellar, but he is inherently frugal.

After reading through some forum posts, I realize there's a lot that I can cut out - I'm just not sure I'm quite ready yet, after all, I did just find out about this blog about a week ago, so I'm taking baby steps to change my thinking. The car expense is a major one. I've cut some costs by having my boyfriend carpool with me to work and have him pay for some of the gas. I've also been doing my own car maintenance with the boyfriends help. I'm slowly cutting out the cigarettes. It's hard for me, but I'm getting there. As for the other non-static expenses, that spending fluctuates from month to month depending on who's paying for what - sometimes my boyfriend spends the bulk for dining, groceries and gas, and sometimes I take on those expenses.

So my questions are:

1. Should I focus more on saving money for a down payment on a house? Boyfriend's grandma is 90 years old, and I want to be prepared in the event that she passes and we find ourselves homeless. (I know our families would take us in, but I'm trying to assume the worst)
2. Should I find a way to contribute more to paying off my car loan or should I use any extra money to fund retirement or housing down payment savings?

I'm really sorry for the long post and the rambling. I have a hard time keeping my mind in order let alone finances.


Cheddar Stacker

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Re: Case Study: Am I on the right track?
« Reply #1 on: February 07, 2015, 01:18:15 PM »
The 457 plan is an amazing tool. Use it. I would focus on that as your #1 savings tool. Divert the 750/month extra car payment to that.

Monthly net = 2,932
Monthly car exp = 1,682 or 57% of your money (with extra payment)
Monthly car exp = 932 or 32% (without extra payment)
You need to consider selling the car if you're serious about saving. This is your biggest waste right now.

Phone is crazy high. Read this: http://forum.mrmoneymustache.com/share-your-badassity/communications-tech-discussion-thread-1/

Dining out is high as well, and you're already working on the cigarettes.

Don't worry about specifically saving for a house, just keep saving. You can pull funds from many places when you go to buy. You can also rent for a bit once your current situation is no longer available. No rush there, particularly if you plan to co-own it with a boyfriend who won't discuss his finances with you. Cross that bridge before buying such a big thing with him.

Welcome to the forum!

HenryDavid

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Re: Case Study: Am I on the right track?
« Reply #2 on: February 07, 2015, 01:58:38 PM »
Yes, if there is any possible way you can live without the car altogether, your savings rate will skyrocket and the countdown to freedom will be waaaay shorter. Worth moving for?
If you must, must own a car . . . follow the advice on this blog and get a reliable used car for a few grand. Sell the fancy one.
You're doing so much better than most people at that stage of life. Keep it going!

The big, big red flag here is the relationship that does not include discussion of finances.
Eventually a couple, that is a real couple who actually live together for many years, have kids perhaps, etc.
absolutely needs to be 100% on the same page here. No room for half-assedness.
It's the #1 reason for eventual breakups, if you're not.
And such breakups are the #1 way that "the strong get weak, and the rich get poor" (Roxy Music).
So all the best fortune and keep your head screwed on straight as it seems to be now.

Gin1984

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Re: Case Study: Am I on the right track?
« Reply #3 on: February 07, 2015, 02:10:08 PM »
If you have a 457 do you also have a 403b?  I too would say to stop pre-paying the car loan and max out the 457.  I would also call around and see if you could lower the car insurance rate.  I have two cars with full coverage for less than your one car, though both my cars are older. Also what is the difference between your emergency savings and your vanguard money market savings?
« Last Edit: February 07, 2015, 02:12:40 PM by Gin1984 »

MDM

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Re: Case Study: Am I on the right track?
« Reply #4 on: February 07, 2015, 02:12:03 PM »
Migs, welcome to the forums.

Dittos to advice from previous posters.  You can cut ~2 years from your time to FI merely by putting your income into tax-deferred investments (457, tIRA) instead of after-tax (car payment, regular savings).  Spending reductions, allowing more investment, will cut even more time.

Choice between tIRA and Roth IRA is debatable - one can make a good case either way for someone in your situation.  Good that you are doing IRAs at all.

The guess of ~2 year reduction comes from a tool downloadable here.  Had to estimate some things (e.g., eventual housing expense) so you should enter your own numbers if interested.

Good luck!

Migs

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Re: Case Study: Am I on the right track?
« Reply #5 on: February 08, 2015, 09:48:36 AM »
Thank you all for the advice!

Quote
Yes, if there is any possible way you can live without the car altogether, your savings rate will skyrocket and the countdown to freedom will be waaaay shorter. Worth moving for?

My job is located in a city where the cost of housing is way out of our budget and mass transit is non existent. It's  also approx. 25-30 miles away. As for moving, it's not a possibility. We have to stay to help out grandma and she is unwilling to move. We've toyed with the idea of finding a job that's closer, but my current job is pretty hard to beat as far as salary and benefits. My boyfriend could maybe find a job that's closer but he hasn't found anything that pays as well as his current job.

Quote
The big, big red flag here is the relationship that does not include discussion of finances.
Eventually a couple, that is a real couple who actually live together for many years, have kids perhaps, etc.
absolutely needs to be 100% on the same page here. No room for half-assedness.

I've been slowly working with him on this and it's been improving. We already discuss large purchases (anything over $50) to make sure it's actually something needed and to make sure the item is a fair price. The hard part for both of us is sharing the gritty details of finances. We've both improved on this front  - I finally got the nerve to post on the forum to ask for advice and have shared what I've learned with him and he's been on board with me helping out with his credit situation. Slow process but it's getting there.

Quote
If you have a 457 do you also have a 403b?  I too would say to stop pre-paying the car loan and max out the 457.  I would also call around and see if you could lower the car insurance rate.  I have two cars with full coverage for less than your one car, though both my cars are older. Also what is the difference between your emergency savings and your vanguard money market savings?

Employer does not offer a 403b - just the 457 and the pension/annuity.

The money market savings was opened up when I started the brokerage since I felt it'd be easier to funnel cash reserves there for the purpose of being able to purchase stocks and funds. I also set it up with the intention to move my House Down Payment fund into. I have the emergency fund separate because transfers between it and my checking are processed faster.

The car insurance is high because of the car - its apparently a high risk car or so I've been told by others who own the same car. It's a Subaru WRX  so maybe it's not really a fancy car, but it was definitely a splurge for me. It's going to be the hardest thing for my boyfriend and I to give up. We enjoy quick, fun to drive cars and truly enjoy working on them and driving them. We like going to the occasional car meets, and we enjoy working with our other friends to work on cars. My boyfriend and I bonded over cars and travel - it's going to be tough and it's the area where we'll probably constantly be on the receiving end of those famous facepunches I've been reading about.

Spondulix

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Re: Case Study: Am I on the right track?
« Reply #6 on: February 08, 2015, 12:13:19 PM »
I would definitely be maxing out your Roth before contributing to a money market. You have the option of withdrawing your original investment without penalty. As a first time buyer, you can also withdraw 10k (I think) from your retirement towards a house downpayment. Obviously you want to avoid that if possible, but it would give your money the opportunity to start compounding while you're waiting. With rates how they are, your money market probably isn't even keeping up with the rate of inflation.

Migs

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Re: Case Study: Am I on the right track?
« Reply #7 on: February 09, 2015, 08:31:36 AM »

The guess of ~2 year reduction comes from a tool downloadable here.  Had to estimate some things (e.g., eventual housing expense) so you should enter your own numbers if interested.


Thanks for the link to the spreadsheet - I've been using it to test out scenarios and it's been incredibly useful!

And thanks to everyone for the comments and advice. I've already taken steps to divert money to maxing the Roth IRA and contributing what I can to the 457 (new deductions from paycheck won't kick in until next month according the forms I had to fill out over the weekend).

JLee

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Re: Case Study: Am I on the right track?
« Reply #8 on: February 09, 2015, 08:48:46 AM »
The car insurance is high because of the car - its apparently a high risk car or so I've been told by others who own the same car. It's a Subaru WRX  so maybe it's not really a fancy car, but it was definitely a splurge for me. It's going to be the hardest thing for my boyfriend and I to give up. We enjoy quick, fun to drive cars and truly enjoy working on them and driving them. We like going to the occasional car meets, and we enjoy working with our other friends to work on cars. My boyfriend and I bonded over cars and travel - it's going to be tough and it's the area where we'll probably constantly be on the receiving end of those famous facepunches I've been reading about.
As long as you realize what it costs and acknowledge the tradeoffs, that's a decision only you can make.

I have a 400hp MR2 sitting in my garage, so I know the feeling. :P Cars are my passion, so instead of doing without them I am trying to be as economical about as it as reasonably possible (i.e. I do my own work, etc).

nereo

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Re: Case Study: Am I on the right track?
« Reply #9 on: February 09, 2015, 09:17:40 AM »
Hello, all! I'm Migs ... and I just need to know if I'm at least going in the right direction.

The finances:
Paycheck (Every 2 weeks)
Gross Pay: $2165.51
457 Plan Contribution: $50.00
Pension/Annuity Contribution: $151.59 (7% mandatory, employer 2:1 match, as far as I know, we can't contribute more)
Monthly Net Pay: $2,931.96   
            
Explenses (Monthly)      
Car Loan*: $1,200.00 ($14,655.00 left on loan, 1.9% apr, monthly payment $450.00 + $750.00 extra payment)
Phone*: $115.00   
Groceries: $150.00   
Dining: $200.00   
Entertainment: $50.00   
Cigarettes: $50.00   
Emergency Savings*: $100.00   
House Down payment Savings*: $100.00   
Short-Term Savings*: $100.00   
Vanguard Roth IRA*: $379.00   
      
Total Expenses   $2,926.00   
*Static monthly expenses   
      
      
Asssets      
Emergency Savings: $6,028.00   

These are just my finances, so my boyfriends finances aren't included. ... I'm still working on getting him to open up about his finances.

1. Should I focus more on saving money for a down payment on a house?
2. Should I find a way to contribute more to paying off my car loan
Hi Migs, and welcome to the forum.  I've highlighted some of the things that I think are worth commenting on.
First:  Yes you are headed in the right direction because you are saving more than you earn.  You certainly could be going faster than you currently are
a) increase your 457 payments.  As Cheddarstacker said, it's a great vehicle for FI
b) your car expenses are eating you alive.  STOP paying the extra $750/month on your car loan and inject that into the 457 and tIRA accounts; you have a really nice 1.9% apr.  Also, you will be in MUCH better shape if you sell your car and buy something used that costs <$10k and gets 35+mpg highway.  Your call.
c) Dining is a bit high around these parts.  I'd chop it in half but (again) up to you.
d) Cigs are costing you $600/year plus a lot more in long term health.  'nuff said
e) Your emergency fund is big enough right now given your expenses and living situation.  Divert that money into a tIRA and 457.
f) Max out your IRA - contribute $458.33/month.  Also, with your income you are almost certainly better served to be using a tIRA vs a ROTH.  Read more about that here: http://www.gocurrycracker.com/roth-sucks/

to answer your specific questions:
1) Saving more money on a downpayment assumes that you defintieyl want to buy a house.  I'd first tell you to question this assumption. In many cases renting winds up being financially superior to owning.  Plenty of threads on that topic.  If you decide you really do want to buy a house in the next few years, I'd continue saving until you have 20% of your expected down payment, but only AFTER taking better advantage of your 457 and IRA accoutns.
2) No.  your best bet is to sell off that car and buy something cheaper.  Beyond that, you are paying 1.9% interest, so reallocate those $750/month 'bonus' payments towards your tax advantaged accounts.  You will get far more back from paying less taxes than you will paying down the loan early.

Finally, I can't stress enough how much your car is hurting you financially.  You have a new car (bad), you are paying a lot for it in insurance, you have to commute long distances for work and pay tolls whenever you do.  Quick calculation has you paying almost $12k/year for your car (not including your 'bonus' payments), plus hours and hours of your life every week.  When it comes time to move on from Grannies, realize that moving close enough to work could allow you to afford a house several $100k more.  See http://lifehacker.com/5855550/the-true-cost-of-commuting-you-could-buy-a-house-priced-15900-more-for-each-mile-you-move-closer-to-work