Case Study - Compare expenses and what do I do now?

[meyla]

I searched "Case Study" in the Ask a Mustachian forums in hopes of comparing my spending to others. However, after going through about 10 posts, most I find are hard to compare to me. I'm in a pretty good place financially. Unfortunately most of the posts with broken down spending explanations are "How do I un-hair-on-fire?" but that's not really a life situation that I can compare myself to. Lets get started.

I will be using ^superscripts to add notes for categories that have explanations.

Income:
Pre-tax salary ends up being $3460.72 monthly after insurance (and FSA), taxes, and my 6% 401k contribution (matched 3% by my employer, this is the max they will match)
Rental Income - $850 ¹
Total Income: $4310.72 per month

Expenses:
Mortgage - $1162.36 (This includes $62 of mortgage insurance)
Student Loans - $300.00 ²
Restaurants - $270.00 (Mostly my bad latte habit)
Utilities - $220.00 (Water, Natural Gas, Electric)
Groceries - $150.00 (My half of split with SO)
Home Improvement/Maintenance - $170.00
Pets - $95.00 (two cats)
Cell Phone - $63.00
Internet - $75.00 (Variable - don't get me started on Comcast.)
General Merch - $60.00 (This is mostly housewares - it was a blender and some utensils this month)
Gas (Petrol) - $60.00
Entertainment - $55.00 (Netflix, Hulu, some video game subscriptions/microtransactions)
Other - $150 (Semi-frivolous spending - haircuts, makeup, clothes...)³
Total Expenses: $2830.36

Assets:
Checking/Savings accounts: $9000 (I consider this my emergency fund)
401k: $9910
Roth IRA: $5651.74 (opened a few months ago)

Liabilities:
Mortgage: $124,000 owed on a $134,000 initial loan at 2.75% for 20 years.
Student Loans: $18,816 owed at various interest rates between 4.5% and 6.8%

Me and my Goals:
I'm a 25 year old engineer living in Atlanta. I drive a 1999 Accord with 225k miles on it - it was given to me when I graduated high school so I guess it's "mine" free and clear. I got a raise 4 months ago from $52k to $70k so I'm feeling pretty good right now. I let my extra money sit in my savings account. I usually let it build up until it gets to a silly number and then I put it all in something (It's been IRA for the last few months, then student loans, a couple of times it was extra towards mortgage). This is obviously not a long term solution.  My long term goal is to retire before I'm 40. My SO and I sat down last night and plotted our plan for the next 15 years and we feel like we are doing pretty good, considering our expected raises and ability to save extra hardcore once I have no mortgage or student loans. I'm a simple girl with no interest in traveling or raising a family (ever. never.).

¹ - Rental income will be reduced by $500 dollars first quarter of next year. I can't handle my sister and her dog living with me anymore so she is finding her own place. This will reduce some other expenses but I'm not factoring that in.
² - Student loans were about $340 but I've been throwing extra money at them so I paid some small high interest ones off this month to reduce the monthly payment.
³ - I have to figure out where this money is going because I'm really not sure. This is my homework assignment tonight.

Questions:

• What does my spending look like compared to yours? Where is reasonable to cut, considering the fact that I'm cutting out of want not out of need?
• Obviously, I have a lot of extra money.What should I really do with it? Pay off mortgage until MI is gone? Pay off student loans aggressively?
• Is my long term goal silly? My parents think I'm dreaming but I do the math and feel like it's achievable...

Please feel free to ask questions and offer criticism.

[Edit]I fixed the subject since I left out part of my purpose.

[seattlecyclone]

I think your goal of retiring by 40 is entirely achievable in your circumstances. You make a decent salary, don't spend all of it, and you have a very manageable amount of debt to deal with.

Most of your spending categories look pretty reasonable, though you've already identified a big area you could cut (coffee), and the cell phone bill could also go down considerably if you consult the Super Guide. Your mortgage interest rate is insanely low, so don't bother paying extra on that (except for possibly just enough to get rid of PMI).

My advice for what to do next:
1) Put as much in the 401(k) as possible before the end of the year. You can't go back later and max out this year's 401(k) limit, so I would prioritize this over your student loans until the end of the year.
2) Starting on January 1, ease off the 401(k) contributions for a bit and focus on paying down your higher-rate student loans.
3) Once those are gone, bring the 401(k) contributions up by enough to max out your contributions by the end of 2015.
4) Learn a bit more about investing. It sounds like you just let cash accumulate for a while than invest it somewhat arbitrarily. It's still early enough that you can afford to be suboptimal in your allocations, but as you accumulate more capital you should make an investment plan and try to be a bit more regimented about things.

[nereo]

:

   1) What does my spending look like compared to yours? Where is reasonable to cut, considering the fact that I'm cutting out of want not out of need?
   2) Obviously, I have a lot of extra money.What should I really do with it? Pay off mortgage until MI is gone? Pay off student loans aggressively?
   3)  Is my long term goal silly? My parents think I'm dreaming but I do the math and feel like it's achievable...

You are looking pretty good overall.  At 25 you are almost certainly going to increase your earnings over the next several years.  First, to answer your questions
1) you have a greater income than I do but your expenses are mostly in line.  Your pet expenses are abnormally high - with two cats I spend about $45, almost entirely in cat food.  Utilities also seem high for such a southern location.  Your "lattee" habit will obviously earn you a face-punch.  Buy a espesso machine if you must, sounds like you'd pay for it in the first month of use.
2) I would first pay off your SL that is at 6.8%.  there's no reason to keep that on.  As soon as that is gone fund your IRA while paying down your other SLs.  With a mortgage at 2.75% I would never, ever pay that down early.  Even though you've met your company match, you can continue to contribute to your 401(k) to save on taxes, up to $17,500/year.
3)your long-term goal is not silly at all.  With some simple back-of-the-envelop calculations you need to invest about $2k/month to be FI before you are 40.  If you can increase that to $3k/month you are looking at being FI sometime around age 37 (depending a bit on market conditions).  At your present pace you're likely to hit FI sometime in your early 40s. 

A final note: instead of your current strategy of letting extra money "build up until it reaches a silly number" and then putting it all towards (something), I would strongly suggest that you automate everything.  Set up automatic monthly (or even weekly) contributions to your IRA, and automatic contributions to your SL.  Then every couple of months try to increase those contributions by another $10, $25 or $50.  You will quickly become a saving machine and you'll never miss that money.

EDIT:  I actually mis-calculated your FI dates.  If you keep your expenses about the same you will have your SL paid off and your mortgage almost-so (giving you much lower monthyl expenses).  At your current pace you should be able to be FI by 40 with a typical market return.  Boost your savings a bit without increasing your spending and you could get there a few years earlier and/or have a larger margin of safety built in.

[feelingroovy]

1- Mine isn't all that comparable as we're a family of 4, but I would say you're generally doing reasonably well, but not optimized.

Reasonable places to cut are:

Cell phone
Restaurants (but you know this)
Taxes--increase your 401k contributions even as you're paying down your debt and so that you don't start getting used to lifestyle inflation on your new salary.

2- I normally think PMI is just ridiculous to pay, but yours sounds pretty low.  You should do the math to figure out what rate it really is costing you.  I would start with a combination of increasing 401k and snowballing the student loan debt.  Your hair is on fire with those debts.  Maybe not an inferno, but it's smoldering.

3- No, it's not silly.  The math is there.  You parents aren't thinking creatively enough.  :)

[2ndTimer]

I definitely second the idea of buying an espresso maker.  That will cure you if you are a person who walks out the door in the morning and buys a latte.  If your latte habit kicks in in the afternoon, I would suggest you add a good thermos to the mix.  We bought a top quality, buy-it-for-life thermos and it paid for itself in two months. 

[meyla]

I appreciate the positive reinforcement! It is very helpful to have people tell me I'm not crazy. It's a strange world we live in where people just accept the fact that "retirement happens at 60+". I wanted to question this belief and that's how I came across MMM.

 I have some negative things to say about myself.

I'm a cat food snob - I buy a semi-expensive grain free cat food because I feel like my cats vomit less that way. I actually switched from an even more expensive food a few months ago. I'll reconsider this, even if it's just buying in bigger bulk to save a little.

I have an espresso machine... I use it about 4 times a week and buy coffee 2-3 times a week, so this is actually an improvement from last year before I got the machine. I will try to be better but sometimes I'm really lazy. No excuses.

My SO is testing out republic. I am in contract for another year but I intend to switch once I'm out of contract. I did the math and paying to break my contract isn't worth it.

Okay, so I guess I need to structure my extra money each month. I kind of feel like it's complicated because of the fact that some months I want to do X and other months I want to do Y... I hate paying bills. I hate it with a passion. So having to think about all these things each month is really awful for me. Do you guys re-evaluate each month what to do with your income?

[doughpat]

Hey Meyla-

Nothing to be ashamed of re: taking care of your cats, though you are paying way more than you need to to keep them healthy. I believe it is a false economy to buy cheap-o cat food.  Cats are obligate carnivores.  Cat food manufacturers add grains purely to increase bulk and make you feel like you're getting a good deal, at the sacrifice of your cat's long-term health.  They simply shouldn't eat significant quantities of grain.  But I don't have to tell you that!

I would, however, point out another option:  Make your own cat food!  I started doing this about a year ago, and I'll never go back.  It really isn't that hard.  I use a Vita-Mix (yes, expensive, but a 'forever-appliance') to blend up an entire chicken--bones and all. (I am a little concerned about burning out the motor, but I process small batches and hack up the big bones with a butcher knife before putting them into the blender.  This will definitely burn out a normal blender!)   Add a few easily obtained supplements (a few extra organ meats, some fish oil, spirulina, vitamin tablets, seaweed) and make a nasty-looking pink paste.  Spread it into ice cube trays and freeze.

My little guys eat about 2 ice cubes of this a day, and they have never been so healthy or happy.  I buy organic chickens for $6 each, and I estimate they go through about 1-2 per month!  They never vomit, and their turds are way smaller and less stinky. http://www.catnutrition.org/foodmaking.html

[MsWillow]

I agree with the other posters, the latte purchases for sure. We have a portable espresso maker that we take on trips and my husband takes to work.
http://www.amazon.com/Handpresso-HPWILD-Hand-Pump-Portable-Espresso/dp/B001J0TI58
You could pay for it and pods in one month at your current spending. You could keep it at work.

Great job at 25. I wish I had read this website at your age. You will definitely meet your goals at this rate.

[DoItYOURSELF]

Okay, so I guess I need to structure my extra money each month. I kind of feel like it's complicated because of the fact that some months I want to do X and other months I want to do Y... I hate paying bills. I hate it with a passion. So having to think about all these things each month is really awful for me. Do you guys re-evaluate each month what to do with your income?

I would suggest using YNAB (www.youneedabudget.com) to help you out with making things less complicated.  It will allow you to give each dollar a job and make paying bills stress free.  It will also help you get any loose spending under control.  YNAB has revolutionized my spending habits.

[UnleashHell]

As mentioned above - you can earn more if you want an earlier FIRE date.

the student loan loan interest isn't too bad but your approach depends on how you view the importance of getting rid of them.
The quickest way to get more money is to increase your 401K as you'll get the tax relief on it. However if you feel the need to have freedom from paying interest then I'd throw every spare dollar at the loans, including some of your savings. that way you'll eliminate the monthly obligation there. Then see if you can get rid of the Mortgage insurance - the value of your property may have increased enough to get rid of it - if not then pay down the mortgage until it has! Then build up the emergency funds (6 months of living expenses at your new budget) and max out the 401k.

It all depends on the importance of things to you. Personally I'd up the 401k contributions first as the money wouldn't even hit your bank account (and then you couldn't spend it on Lattes). then chase down the student debt while watching the mortgage to property value in order to get rid of the insurance.

[meyla]

Then see if you can get rid of the Mortgage insurance - the value of your property may have increased enough to get rid of it - if not then pay down the mortgage until it has!

I didn't know that the value of the property could affect the mortgage insurance. I bought the house in February of 2013 and according to Zillow it's worth about 16% more than what it appraised for at the time. (I take Zillow's Zestimates with a grain of salt, but it was within 3% of the appraised value at the time I bought it.) What do I do to have someone re-evaluate my need for MI? I knew I could ask to not pay it anymore after I pay off 20% of the initial amount but I thought that was the only way.

[Exflyboy]

Your not doing bad (unless the economy takes a downturn in the next 10 years and you end up jobless.. It does happen). Thats the argument against not paying the mortgage off.. I paid mine off cus I like owning the roof over my head, but its as much an emotional decision.. Financially your better off investing in stock ETF's. Pay the SL's off first though.

But there are some facepunches of course.. the latte habit, don't get me going..:)

As for internet, we have a local company around here that offers over the air internet for $30 a month.. Make sure Comcast is your only supplier.

Phones if you "need" a smartphone (and I really doubt you do) then see if you have Sprint coverage then go with Republic.. even then stick with the $10 plan.

If you have not got Sprint but can live without data then the airvoice wireless $10 a month plan or the $10 every 60 days with Ptel might work for you.

Your utilities seem very high but that depends on where you live.. do you run the heat all day or something?.. try turning it down (off when you are not there or sleeping). Do the opposite (except when your not there) for the AC if you have it.

[Catbert]

You've gotten some good advice, but here's a tiny suggestion if you can't/won't give up your latte addiction.  First figure how much $ you're willing to spend each month at the coffee shop, then automate it.  With Starbucks you can get a gift card or their gold card and have it set up to add $xx each month.  When its gone, no more lattes that month.  For other retailers you could manually add $ to a gift card each month.  Obviously only works if you frequent only one brand.

[mozar]

It depends how bad you want it. You could get rid of your student loans in six months. You could retire at 35.

Can you find another renter? My renter has a snake, Billy. Billy has't escaped...yet.