Author Topic: Case Study: big earners, big spenders, beginning investors  (Read 5142 times)

erae

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Case Study: big earners, big spenders, beginning investors
« on: September 06, 2014, 12:00:09 PM »
Context
Recently married couple, early 30s, both in careers that were low-paying and/or required lots of formal education in our 20s.  Have been makin the big money for about 1.5 years now and are working to keep our heads on straight in a very high COL, spendy location (Manhattan).  No debt of any kind and no plans to purchase property in the next 3-5 years.  Some possibility of adding a child to our mix in the next 5 years - or maybe just a dog. 

Anticipating that income will just about double in the next 1-2 years (looking at approx 280K/year)and we plan to continue our non-mustachian level of spending (approx 63K/year) and funnel the rest into investments. 

Let the facepunching commence!

Income
Monthly take-home pay: 7K
This number is what's in our pocket after paying city, state, and federal taxes along with 1400/month towards our 4xx(x) (only one of us has access to a 4xx(x) program) and a little taken out for pre-tax health insurance and transport benefits through employer

Current Expenses

Rent
1700
internet
60
cell phones
150
electricity and gas
80
downloads/streaming
10
educational expenses (textbooks, required exams)
150
gifts and economic support of family members
300
restaurants
450
cash (a big chunk of this goes to restaurants/take out/happy hours as well)
550
groceries
450
travel
200
shopping
250
savings (this is all savings/investing apart from our 4xx(x))
1800
medical expenses/insurance contributions/pharmacy
100
entertainment (tickets to events, movie theaters)
100
transportation (100% trains)
200
random expenses (we were saving about 1000/month for our wedding this spring, which I think is inflating this number when we look at the past 12 months.  I estimate we have around 200-250 of unknown expenses besides our cash purchases)
450

TOTAL
7000

Expected ER expenses
Wed like to maintain our spending in ER - currently 62-63K/year in 2014 dollars.  Sometimes when Im feeling extra fancy Ill calculate for 70K/year.  A lot of our restaurant spending would go down in ER, but we want to make sure we account for transportation costs since well likely need a car or two and will travel more.

Assets
Emergency Fund
we keep 3-5K around.  Parents can be tapped if we need cash quickly, otherwise wed rather invest and put emergencies on CCs (we have a 20K+ limit)

'Stache
just over 90K

By Account
His Roth: 12K
Fidelity LifeCycle
Her Roth: 34.5K
11.5 in VSMAX (small cap)
11.5 in VBTLX (total bond)
11.5 in VTIAX (total international)
Her 4xx(x): 14K
S&P 500 Index
Taxable Investments with Vanguard: 32.5
16+ in VSMAX (small cap)
16+ in VTIAX (total international)

By Asset Type
12K in LifeCycle (hoping to move this soon though the ER isnt awful)
27.5 in small-cap
11.5 in total bond
27.5 in total international
14 in S&P Index (large cap)

Questions
  • Expenses were calculated from our last 12 months of spending as logged in Mint.  We both work 50+ hours/week and the restaurants/take out add up so quickly - better systems at home would help us order out less.  Maybe one night out/week is a "date night" - the rest is laziness/convenience.  Seeing it like this, our spending is so high, though were more mustachian than any of our friends and feel like were rather frugal.  Ive been thinking of investing in YNAB to better track this.  Other systems folks set up to help them spend on items that are truly contributing to happiness rather than laziness?
  • Our next step - especially as we anticipate our earning jumping so much - will be to invest more strategically.  The Fidelity money and 4xx(x) money arent available now, but will be in the next couple years (immigration issues make the Roth difficult to move and I anticipate transitioning to another company in the next 1-3 years).  I was going for a modified version of the Boglehead 3-fund portfolio here (balancing S&P with small caps in lieu of a full market index) but its a bit more complicated than Id like.  Perhaps I hold tight until the Roth and 4xx(x) open up, then pursue a better asset allocation.  Other thoughts on ways to tighten up our investments?
  • With our anticipated increase in income in the next 1-2 years, we estimate that we can FIRE in our late 40s.  If anyone is open to running those numbers to pressure test my thinking, Id love it.

Thanks in advance for your observations and thoughts!
« Last Edit: September 07, 2014, 02:48:55 PM by erae »

mulescent

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #1 on: September 06, 2014, 12:25:20 PM »
You guys have a lot going for you, especially in terms of Manhattan-normalized housing expenses.  You've already identified the major area you can make progress: food.  You are, basically, spending 1.5k/mo on food which is insane.  I work about 60 hr/wk and have many friends who like to go out, so I understand how difficult it can be to keep expenses down.  You need a strategy; here is mine:

-Leverage the power of mass production.  Designate one or two three-hour periods in the week to make freezable food.  This may require some re-jiggering of your kitchen equipment (you will need big pots/pans and a plentiful supply of tupperware).  Make and freeze ~3 days worth of food.

-Reproduce stuff you like to eat out.  I am a Chipotle offender, so I learned how to make freezable Chipotle replicas for about 30% the cost of the original.

-If you go out with friends, don't eat out.  Have a snack, if you must, but just wait until you get home.  Same applies to drinking. 

-Have a plan for when you get home late.  For me, this is a rice cooker and a refrigerator with basic salad ingredients (e.g. kale, carrots, celery, etc).  On days when I have no food in the freezer and will be home too late to cook, I put some rice in the cooker before I leave for work.  When I get home, it takes less than five minutes to chop some veggies, add a can of fish or some tofu and mix with rice and dressing.  The result is instant, cheap dinner.  Another go-to for me is hummus, which you can make very cheaply with a food processor in under 10m.  Eaten with a few slices of bread or whatever veggies you have on hand, the result is a satisfying and quick meal.

The above strategy does not actually require careful budgeting.  Cooking at home is invariably cheaper than eating out as long as you avoid comically priced ingredients like fresh truffles and the like.  Once you get the hang of cooking nearly all your meals yourself, you can minimize the costs by learning how to use fewer prepackaged ingredients (e.g. dry beans vs. canned, making your own salad dressings, etc).

The other facepunch-worthy part of your budget is the cell phone bill.  Low cost plans (e.g. Ting or Republic) will shave at least $50 and possibly much more off your bill.

There are many other questionable expenses in your budget.  What is "economic support of family members" and why is it ~5% of your take home?  Why do you need to spend $100 on movies and $10 on netflix?  What are "random expenses" and could they be diminished.  However, the food is the main place to make big gains, IMO

firewalker

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #2 on: September 06, 2014, 12:32:35 PM »
I am mega-new here. You can see by my case study that we are on opposite ends of the spectrum in many ways. So, I will make the only comment that I can truly say from experience: If your final decision is to have a child, take advantage of your non-parental years to save up while learning about parenthood. Then, when the baby comes along, you can back off on your working hours (both of you, if at all possible) and make your child your life. I would trade parental time and loving attention over any of the financial benefits I received from my parents during my youth. You can plan ahead financially and save, but you can't go back in time and give more to your baby.

erae

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #3 on: September 06, 2014, 01:07:57 PM »
@mulescent - thank you!

These are great tactics.  We use our rice cooker almost every day and buy already-marinated meat to cut down on prep, but have a long way to go in bulk cooking and streamlining day-of prep (i love the idea of thinking more about what we can prep in the mornings, as you're doing with your rice cooker).  This would cut down on purchasing lunch at work, too. 

"Cooking at home is invariably cheaper than eating out"  This is embarrassingly simple revelation, but in reading your comment I realized that my own stubborness is contributing to this insane food bill: if I dont have time to get to Trader Joe's (the best supermarket deal on the island, but a 30-40 minute commute each way), I resist buying groceries at the local supermarkets because they charge 1-2X what TJ charges for the same thing!  But by avoiding the local supermarkets (and insisting on a mega trip to TJ's) when we're running low, I'm pushing us towards eating out because somehow - though it costs more - it feels like more of a fair price than the local supermarkets.  Humans are such illogical beings. 

You're right that we need to dig even deeper into our expenses. The wedding spending threw our numbers out of whack, but we need to get back on it.  "Economic support of family members" is for folks we love who are applying themselves 100% but, for reasons of health or citizenship in corrupt countries with little economic opportunity, depend on us to supplement what they're able to take in.  And the $100/month is sometimes a movie, but sometimes a ticket to a show or sporting event.  We definitely enjoy the live events more than the movies - something to think about there. 

mulescent

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #4 on: September 06, 2014, 01:27:18 PM »
@mulescent - thank you!

These are great tactics.  We use our rice cooker almost every day and buy already-marinated meat to cut down on prep, but have a long way to go in bulk cooking and streamlining day-of prep (i love the idea of thinking more about what we can prep in the mornings, as you're doing with your rice cooker).  This would cut down on purchasing lunch at work, too. 

"Cooking at home is invariably cheaper than eating out"  This is embarrassingly simple revelation, but in reading your comment I realized that my own stubborness is contributing to this insane food bill: if I dont have time to get to Trader Joe's (the best supermarket deal on the island, but a 30-40 minute commute each way), I resist buying groceries at the local supermarkets because they charge 1-2X what TJ charges for the same thing!  But by avoiding the local supermarkets (and insisting on a mega trip to TJ's) when we're running low, I'm pushing us towards eating out because somehow - though it costs more - it feels like more of a fair price than the local supermarkets.  Humans are such illogical beings. 

You're right that we need to dig even deeper into our expenses. The wedding spending threw our numbers out of whack, but we need to get back on it.  "Economic support of family members" is for folks we love who are applying themselves 100% but, for reasons of health or citizenship in corrupt countries with little economic opportunity, depend on us to supplement what they're able to take in.  And the $100/month is sometimes a movie, but sometimes a ticket to a show or sporting event.  We definitely enjoy the live events more than the movies - something to think about there.

I fall into the same trap with takeout sometimes, thinking that the $30 for takeout is less than my typical grocery bill.  Of course, the grocery store trip results in many meals...  I think the other stuff (e.g. helping family, events) is small potatoes compared to the food.  I bet you could go from 1.5k to 1k on food without too much effort.  Getting to $500 would require more discipline, and the Mustachian approved $300 or so could be very difficult given the cost of groceries on Manhattan.  Still, don't let the perfect be the enemy of the good!

erae

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #5 on: September 06, 2014, 01:34:12 PM »
@firewalker: wise words - thank you.  Having felt the shift in priorities that happened when we decided to marry, I can only imagine how big a shift happens with children.  Wherever we land on that decision, I appreciate your advice to prepare our finances now to give ourselves more flexibility later.  Even if we decide against parenthood, we'd be wise to plan for evolving priorities and goals. 

theonethatgotaway

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #6 on: September 06, 2014, 02:40:35 PM »
Former manhattan resident here. Everything there is a convenience trap :)

I'm questioning why you are staying in Manhattan at your current income vs expected income. (What industry are you in?)  It doesn't seem high enough, early enough, to RE (also without home equity).

We had kids in the city. Private prek ran us 1800 per month, part time. Friends with nanny's shelled out 40-50k per year. So, in that context- having a child and continuing to work is unreasonable. When you get the jump in income, as you are projecting, one of you will most likely quit to be home with the kid. You need to factor in this time and cost, both ways (with care, without care). Classes average 800 per 12 week sessions.

We made some great friends, but mostly everyone we knew in your expected income basket had a SAHP. Even at that, we all struggled somewhat. Most left the city.

For food:
The costo/Aldi (which is cheaper than trader joes) is great 116th/FDR.

studentdoc2

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #7 on: September 06, 2014, 06:45:55 PM »
My partner and I have crazy work/school schedules (and are currently offset such that the only time we are awake and home at the same time is on Sunday), and I have found that frozen crockpot meals are a LIFESAVER. I'll spend one Saturday making enough meals for basically the rest of the month. I dump a frozen meal in the crockpot in the morning and maybe make some rice or a salad when I get home in the evening, and we've got delicious dinners and lunches with minimal effort. I've also cut our grocery bill by nearly a third as a bonus :).

Gone Fishing

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #8 on: September 06, 2014, 06:53:33 PM »
Any opportunity for AirBnb rentals?  The NYC folks can typically rack up pretty good with rentals...

Davids

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #9 on: September 06, 2014, 08:26:43 PM »
If I may ask, what is it that you do where you expect your income to double in the next 1-2 years.

Obvious food/restaurants per month is mentioned in other posts but ill say why you saving $1,000/month for wedding, do you really need that expensive fancy wedding? Try to keep it simpler.

Cell phones, you can cut that expense by looking at republic wireless or virgin mobile...

What is $250/month for shopping?


brooklynmoney

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #10 on: September 07, 2014, 06:17:13 AM »
While the ideal is to cook every meal I have found that replacing restaurant meals with ordering takeout with friends at my apt. has helpede cut back. I also do the bulk cooking thing 1x a weekend for the week.

chasesfish

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #11 on: September 07, 2014, 06:33:57 AM »
One thing I wanted to ask, you didn't say what industry you were in, are the "happy hours" a career expense?

I know if you're in finance that is just part of what's expected early in your career, much like having to buy suits to work instead of wearing gym shorts.  Its just part of becoming in the circle and where you build relationships.

Your food expenses are high, but all of us have to remember you don't have a car/car insurance/gas.  Your food is just more expensive there.  The other NYers or dense urban mustachians will have better suggestions than we will on trimming it.

I think the big thing for you going forward will be discipline in your plan.  The plan you have is pretty good, work on maxing out two 4xxs, now you just have to execute day in and day out in high income/low spending.

MaggieDrsg

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #12 on: September 07, 2014, 09:38:59 AM »
What has worked for me in replacing the eating out/take-out is focusing on changing the habit first.  Going from take out to making food from scratch may be too much to tackle at once for 4 days a week and could encourage a "perfection or failure" mentality, particularly given your schedules.  Picking up a rotisserie chicken, salad bowl with toppings/dressing in packets, and your favorite fruit even pre-cut could be a very quick and easy store pick-up dinner.  Maybe a frozen meal with a packet of nuts and a mini chocolate bar could be taken to work for lunch and a snack.  Knowing you have some easy, quick options outside of take out without making the kitchen a mess is also good to know for later on when your cooking system doesn't work one week due to life's uncertainties.

erae

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #13 on: September 07, 2014, 01:37:19 PM »
Thanks for your responses!

@theonethatgotaway.  I have heard these CostCo rumors - we should check it out.  Its on the east side, so I've pulled the "too many exchanges" card back when we were schlepping our own groceries, but our current MO is to hit up TJ's every 3 months, get about $600 worth of goodies (mostly frozen meat and non-perishables) and then pay the $17 delivery fee.  We then supplement with local overpriced goods for fruits, veggies, and beverages.  Since we're now paying for a delivery fee, we might as well pay for a cab from the UES.   
Re: kiddos, see comment to Davids below - your numbers for child-related expenses in Manhattan were shocking.  We'll be moving out of the city for three years and hope to come back if we decide against babies.  It sounds like our thinking is on the right track. 

@Davids.  Husband is finishing his medical residency.  His salary should triple next year, though immigration complications will require a move out of the city for three years while he fulfills his visa obligations by serving 3 years in community that can't get a US-born doctor.  Given the numbers posted by theonethatgotaway, though, deciding to have children may have forced a move out of the city anyways.  And the tripling of his salary means that my salary (50% of our income right now) will not even cover our taxes once his income shoots up.  Depending on where we land, I may not have job opportunities anyways. 

@brooklynmoney, @studentdoc and @maggiedrsg: all great ideas to optimize our approach to food.  thank you!  Ordering in when we know it's big portions isn't such an awful sin as long as we're getting 2-3 meals out of it, and slow cookers and prepped food are both great ideas to cut down on dishes dirtied and time investment.  And remembering, which has come up a few times, that spending more on ready-to-go groceries/dinners > eating in a restaurant. 

@soclose - Could be a real cash cow, but I dont think we're in a position right now.  we have a 1br, but if we could find somewhere to sleep when we rent out....could be a possibility.  Though i dont know that we're in a position to invite the additional complication in our lives of keeping the apt up to receive guests and coordinating logstics for ourselves and guests.

@chasefish.  Expectations of industry are definitely a consideration in NYC.  Happy Hours and the like do more for me professionally than for the husband, but are certainly not a necessity, just a networking opportunity and social outlet.  I think it would do us well to be a bit more strategic in how we're using our socializing, though, as we are both introverts who tend to keep our social circles small.  I've seen peers who socialize more broadly and strategically create opportunities for themselves that may not have happened as readily if they hadn't built those relationships.  If I'm going to drop money on a happy hour, it could do me well to drop it during an event where I'm growing my network rather than meeting up with the same handful of friends. 

Thanks again for all your observations and comments!

brooklynmoney

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #14 on: September 07, 2014, 07:10:00 PM »
Happy hours are also better than eating a full dinner out. Basically anything is better than going to restaurants. Although I do love me some good food.

theonethatgotaway

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #15 on: September 08, 2014, 01:07:22 PM »
Ok. I see.

Are you a US Citizen? If so, you should switch Visa routes to a marriage visa immediately. You won't need to move next year after the residency, or you can move where you want to be.


erae

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Re: Case Study: big earners, big spenders, beginning investors
« Reply #16 on: September 08, 2014, 02:16:53 PM »
@theonethatgotaway

I am a citizen.  Unfortunately, there's no marrying out of this one.  The J-1 visa restrictions for foreign-born physicians are air-tight.  No one can solicit a greencard for hubby until he gives two year of service in his home country or three years of service in a US community that can't get a doc (considered a waiver of the 2-year home country requirement).  We're still figuring out the system, but getting a placement in the City is near impossible.  It's likely off to a border town in Texas for the next three years, but it should keep our spending down!