Author Topic: Case Study - Can this grad student do better?  (Read 2573 times)

johnny847

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Case Study - Can this grad student do better?
« on: November 25, 2014, 10:09:37 PM »
So I think I'm doing decently with respect to my spending, but I'm wondering what other mustachians think.

Age: 23
Net Income: 3640/month

I list since July for some expenses, because I started trying to be more frugal since then
Monthly Expenses ($2000, $2082 since July):
Fixed (all of these are assessed three times a year, but I've averaged them) ($1300)
  • Housing: 980 (I'm looking to move once my housing contract ends in May)
  • School fees: 285
  • Health Insurance: 34

Variable expenses (705, 782 since July)
  • Groceries: 122, 140 since July
  • Eating out: 103, but 50 since July
  • Travel: 171 (I've projected how much I'll spend in December - I'm thinking I guessed a bit high)
  • Bicycle: 113, but 310 since July (I got my bike in July. Almost all of these expenses are one time expenses like headlights, clothes, etc. I definitely could have tried to be more frugal with these purchases...so I expect some facepunches here. My weak excuses is that I also ride recreationally. These expenses should drop to near zero soon though, as I'm almost done with one time start up expenses)
  • Leisures/Entertainment: 83, but 13 since July
  • General supplies (kitchen/bathroom stuff): 27
  • Gifts: 20
  • Charity: 17 (this was actually just a one time donation)
  • Gasoline: 22 since July (got my car in July)
  • Car accessories: 7.50 since July
  • Carshare: 14.81 (before July)
  • Clothes: 4.50

If I can drop my bike expenses to near zero (which I should be able to starting next month), variable expenses will drop to $472, meaning $1772 in total monthly expenses

Assets:
  • Taxable account: $42k
  • Roth IRA: $11.5k
  • Mango Money account (6% interest on first $5k, but has $3/month fee): $3k

Emergency fund: $7k (what do you guys think of this amount? I think it might be a bit excessive)
Checking: $450

Liabilities:
None. I used credit cards that I pay in full


Thoughts? I dump the difference of expenses and net income into Vanguard (gotta love their direct deposit service). Now that I break it down to monthly expenses, my grocery spending seems a bit high to me. I eat a lot of meat. I'm open to some meat alternatives, but I don't think I can drop meat entirely from my diet.

NewStachian

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Re: Case Study - Can this grad student do better?
« Reply #1 on: November 26, 2014, 06:40:36 AM »
I'm not going to nitpick your spending. It looks to me like you're very conscientious of it and are always looking to reduce it. That's awesome.

The Mango account seems weird to me. By my math, 20% of your gains from it are taken by the fee for your 3k. Is this supposed to be an investment or a checking account? I'm not saying it's bad - it's just not something I've seen before.

If your emergency fund seems excessive to you, then you can always adjust it. You can also treat your taxable account as your emergency fund as long as you're willing to accept that you might have to withdraw it during a bad time in the market. But, if you're focused on long-term growth this probably isn't going to be an issue.

I would focus my efforts on 2 things if I were you:

1) Getting a good investment strategy.
  - Vanguard is a great start
  - Get input from others and find your own comfort zone regarding diversification. Personally, I'm 40/15/15/20/10 large/mid/small/international/bonds, but your allocation might be different for good reason.
  - Keep taking advantage of the ROTH while your income is low. Beyond that, deferring at your income level might make less sense than putting your money into a taxable account. I can't say definitively.

2) Keeping your eyes peeled for ways to increase your income.
  - I understand it's not all that controllable as a grad student (unless you wanted to sign up for Uber or something) but, it will be in just a few years.
  - Your income will probably ramp up considerably over time. Resist the urge to succumb to lifestyle inflation

You're definitely on the right track. The most important thing to track, IMO, is percent of your money to savings. so (money you invest each month) / (total monthly income). This number will look worse as your pay goes up which will force you to increase your savings. I track this in a spreadsheet every month. This number is also the only dependent variable to determine the required length of your working career (making certain market assumptions, of course).

johnny847

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Re: Case Study - Can this grad student do better?
« Reply #2 on: November 26, 2014, 07:31:13 AM »
I just haven't moved another $2000 into the Mango account. It's kind of cumbersome to get money in there - the best way is to use direct deposit from work, and I screwed up my withholding earlier in the year so I have much lower cash flow than normal from my paychecks. And I'm treating it is an investment - a fixed income asset that's counted as a bond.

My taxable account of $42k is with Vanguard, with a simple 3 fund portfolio. I'm 61/26/13 US stocks/Intl stock/bonds.
I'm pretty sure the Roth is the better deal for me - I'm expecting ballpark $100k starting salary upon graduation (PhD in electrical engineering).

Yea, it's not easy to increase income as a grad student. Especially because I have to weigh the time spent on such an activity vs delaying graduation - the opportunity cost of delaying graduation is quite high. But I do keep my eyes open for easy opportunities.
Agreed, resisting lifestyle inflation is key.

I'm at 45% savings rate at the moment.

by_1008

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Re: Case Study - Can this grad student do better?
« Reply #3 on: November 26, 2014, 08:42:05 AM »
Have you already maxed your Roth for the year? I'm going to assume so, but that would be my first priority given your expected increase in income in the future.

I understand the tax benefits of an IRA at your income are not as significant, but why not use one as opposed to contributing to a taxable account?

Great job making such progress at a young age.

2ndTimer

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Re: Case Study - Can this grad student do better?
« Reply #4 on: November 26, 2014, 08:48:55 AM »
You are doing great.  Wish I had been as smart in grad school.  Looking back I was so stupid to have a car when I lived in bicycle paradise.

johnny847

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Re: Case Study - Can this grad student do better?
« Reply #5 on: November 26, 2014, 08:55:41 AM »
Have you already maxed your Roth for the year? I'm going to assume so, but that would be my first priority given your expected increase in income in the future.
Yup, I've already maxed it for the year. And I plan to keep doing so until I graduate. Well, probably after graduation too, because as long as I find a job, I'd probably make enough to max out a 401k, and too much to make deductible contributions to a traditional IRA.

You are doing great.  Wish I had been as smart in grad school.  Looking back I was so stupid to have a car when I lived in bicycle paradise.
Thanks. I do have a car, but I'm trying to bike everywhere I can. I think by this time next year I will have a better picture of whether it's better to just get rid of it, and just use the carshare here when I need a car.
Though I find that the situations when I do need a car are situations where renting by the hour is expensive (go somewhere, stay for a couple hours, then come back). I guess something like Uber should work in that situation...I'll have to look into it.