Author Topic: Case Study: Early career shift, or am I over-reacting? And other questions.  (Read 4005 times)

so.mpls

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Hello MMMers,

I am 25, married, and looking for financial advice from strangers.

Income:

Me - 43k
DW - 42k

$5,300/mo after tax, health insurance, retirement contributions

Current expenses:

Mortgage - 1,050
Utilities - 200
Internet - 50
Cell Phones - 53
Gas + Insurance - 270
Groceries - 250
Dining/Bars/Going out/Coffee Shops/Eating out at work - 175
Home furnishings/improvements/misc supplies - 100
Shopping/clothes - 150
Charity - 50
Misc other - 100
Total - $2,448/mo

Assets:

Cash - 36k
Vanguard - 12k
DW IRA - 5.5k
Me IRA - 4k
DW 401k - 3.5k
Me Pension Fund - 2k
Me Simple IRA - 2k (old work account, will move in Nov)
House - $172k (purcahse price in 2012)

Liabilities:

Mortgage - 146k
CC Debt - 1.8k (current balance, paid off every month)

Net Worth: 89k

Specific Question(s):

1) WHAT CAN WE DO BETTER?

2) On paper, our savings rate is above 50%, and while we hit this most months, our overall savings rate over the past couple years is closer to 40% due to some larger expenses (old cars, old house, medical bills,  vacations).   Do people account for this when calculating their savings rate?  Is my savings rate a nice, stubbly 50%? Or a weak, paltry 40%?

3) I see people all the time who are my age or younger with much higher salaries than mine.  I chose marketing as my degree because it is somewhat interesting to me and was usually listed as a 'degree that will get you a job'.  Now I feel like I done goofed.  I like my job alright, but I feel like I'm missing out on a lot of income potential by not being in a more lucrative field.  I also feel like it's kind of foolish to go back for a 2nd undergrad (CS probably) when I'm less than 3 years out of school and just paid of my student loans.  I've also thought about an MBA, but that would be more expensive, and there seem to be a lot of mid-20 year olds with MBAs and not a lot of experience.  I don't know how "in demand' I'd be.

Thanks in advance, this is a great community.

waltworks

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #1 on: September 29, 2014, 10:23:39 AM »
What are your goals? IMO, you don't particularly need to go crazy looking for more income - you have only been out of school for 3 years. Promotions, raises, and offers from other companies (or starting your own) are all in your future assuming you are good at what you do. At your current rate of saving and spending, you'll be FI pretty darn quick if you want to be.

As for specific advice, it's the usual stuff:
-Kill eating out and bars and put away another $3k/year or so.
-Clothes and shopping are $150/mo? I haven't spent more than about $10/mo on clothes for myself (and I'm hard on clothes) in many years. What are you buying when you go "shopping"? Get your clothes at the thrift store or just wear stuff until it wears out.
-Utilities seem high but that depends on where you live and the age (old, right?) and condition of the house. Get a (probably free) energy audit and insulate. 
-Drive less and ride a bike, or sell the car completely if you live in a city with good PT and bike access.
-Figure out where your "misc" money is going. Maybe it's crucial, maybe it isn't.

And finally, for god's sake PUT THAT CASH TO WORK. You need almost nothing in cash right now, since you are able to live easily on one partner's income and presumably have decent health insurance. You are probably not in a super high tax bracket but it's still worth maxing the 401k and IRAs every single year. That cash is rotting away doing nothing for you and it's almost 40% of your net worth!

To end on a positive note: You are doing awesome and way, way ahead of where I was at your age. You don't really have to change anything unless you want to get to FI a bit earlier. Kudos. Keep it up.

-W

frugalecon

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #2 on: September 29, 2014, 10:29:30 AM »
In my household budget, I include allocations for things like vacation and home maintenance, meant to capture average monthly expenditures on categories like that. That way I have a clearer sense of what the true savings percentage is likely to be, on average.

RichMoose

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #3 on: September 29, 2014, 10:39:37 AM »
Don't get to hung up on whether you're saving 40% or 50%. They are just numbers. What's more important is to optimize your spending. Take a close look at your spending every month and find what's important to you. You could easily knock your "going out" budget down to about $50 - $80 per month and still be just as happy in life. Invite friends to your house instead of meeting at the bar, buy cheap brew/vino or consider making your own (fun friend activity by the way), make your own coffee at home and take it to work, and limit your work lunches. Depending on where you live, you may be able to cut your utility bill down. There are numerous threads on this forum on this topic alone. Cut down your clothing and pointless crap budget. Both of you can easily dress nice for $50/mo.

I wouldn't switch careers or further your education at this point in your career. If you enjoy your job, don't worry about what it pays today. You are only 3 years into it right now. Gain experience and try find a good mentor within your career track that you can learn from. Marketing managers make some great $$ and I am willing to bet that you know people with similar jobs to yours that have more experience who earn 3x your salary. Learn from them and find out what makes them successful.

What is that 36k doing? With your monthly expenses, age, no kids, dual income, IMHO you should have no more than $10k as an emergency fund. Invest the rest.

so.mpls

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #4 on: September 29, 2014, 10:51:36 AM »
What are your goals? IMO, you don't particularly need to go crazy looking for more income - you have only been out of school for 3 years. Promotions, raises, and offers from other companies (or starting your own) are all in your future assuming you are good at what you do. At your current rate of saving and spending, you'll be FI pretty darn quick if you want to be.

As for specific advice, it's the usual stuff:
-Kill eating out and bars and put away another $3k/year or so.
-Clothes and shopping are $150/mo? I haven't spent more than about $10/mo on clothes for myself (and I'm hard on clothes) in many years. What are you buying when you go "shopping"? Get your clothes at the thrift store or just wear stuff until it wears out.
-Utilities seem high but that depends on where you live and the age (old, right?) and condition of the house. Get a (probably free) energy audit and insulate. 
-Drive less and ride a bike, or sell the car completely if you live in a city with good PT and bike access.
-Figure out where your "misc" money is going. Maybe it's crucial, maybe it isn't.

And finally, for god's sake PUT THAT CASH TO WORK. You need almost nothing in cash right now, since you are able to live easily on one partner's income and presumably have decent health insurance. You are probably not in a super high tax bracket but it's still worth maxing the 401k and IRAs every single year. That cash is rotting away doing nothing for you and it's almost 40% of your net worth!

To end on a positive note: You are doing awesome and way, way ahead of where I was at your age. You don't really have to change anything unless you want to get to FI a bit earlier. Kudos. Keep it up.

-W

Great reply, thank you.  To answer a couple of questions.

-I guess my goal is to reach FI as soon as possible.  40 is the goal right now, and seems attainable, but if I can get there sooner all the better.

-Clothes & shopping - This was kind of a surprise when putting together my expenses.  My wife buys a lot of clothes, but almost all second hand.  I'm probably the bigger culprit here. I've had a couple big purchases over the last year (hunting boots, winter coat, suit) that are really dragging the average up.  Definitely a lot of room for improvement.

-Utilites are higher than normal right now because our gas (heat) bill skyrocketed after last winter(In Minnesota btw).  We do the monthly average thing and our bill is over $100 now.  Used to be $50.

-Biking - yes. I love biking.  Was a cyclist before I was an MMMer.  I ride my bike to work 3 or 4 times a week for 7-8 months out of the year, but I just can't do it in the winter.  Public transit is pretty good for me though, so getting down to 1 car is definitely a short term goal.  I'm just nervous about it.

Cash - Completely agree.  Thank you for the facepunch.

DecD

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #5 on: September 29, 2014, 10:55:08 AM »
I'd say the previous posters have hit the high points: put your cash to work, cut back on shopping and going out.  Your shopping, misc, home improvement, and going out budgets total a fifth of your total expenditures. That a huge chunk on unnecessary items.  Cut back in each of those categories and your savings will accelerate quite a bit!

minimustache1985

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #6 on: September 29, 2014, 10:59:40 AM »
Others have hit most things, but I do notice your mortgage is still 84% of the purchase price.  If you bought in 2012 you've either passed or are coming up on your loan being 2 years old, the minimum account age most mortgage lenders require to get rid of PMI.  Call them and see how much principal you need to pay to get rid of that, it'd be a very good use of some of that cash you have laying around.

so.mpls

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #7 on: September 29, 2014, 11:02:11 AM »
You could easily knock your "going out" budget down to about $50 - $80 per month and still be just as happy in life. Invite friends to your house instead of meeting at the bar, buy cheap brew/vino or consider making your own (fun friend activity by the way), make your own coffee at home and take it to work, and limit your work lunches. Depending on where you live, you may be able to cut your utility bill down. There are numerous threads on this forum on this topic alone.

We need to work on this.  It's hard though.  The vast majority goes to a) one meal at a semi-nice restaurant with the DW and b) going out with friends.  We don't hit the bar and spend $50 just for fun, but man oh man people are getting engaged, popping out babies, and moving away like crazy.  It's hard to say no when a good friend is going out to celebrate their engagement.  All it takes is one "dinner's on us!" and there goes $100.  We need to find a better way.

I roast and brew pretty much all our coffee, and we almost never go out to lunch at work.  I probably shouldn't have even mentioned coffee shops & work lunches. Homebrewing is intriguing to me, but we don't drink a whole lot at home and I'm hesitant to spend the money to get started.

whydavid

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #8 on: September 29, 2014, 11:05:00 AM »


2) On paper, our savings rate is above 50%, and while we hit this most months, our overall savings rate over the past couple years is closer to 40% due to some larger expenses (old cars, old house, medical bills,  vacations).   Do people account for this when calculating their savings rate?  Is my savings rate a nice, stubbly 50%? Or a weak, paltry 40%?


There seem to be a lot of ways to calculate a savings rate, but all of them that make any sense would include your retirement contributions in both numerator and denominator.  It doesn't look like you've done that here.  If you include those, are you closer to that elusive 50%?

As others have said, you are doing extraordinarily well, with room for improvement in future income and cutting some of the idle cash and excessive clothing/restaurant expenditures.  Early retirement is guaranteed unless you seriously start screwing around.  Congrats!

so.mpls

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #9 on: September 29, 2014, 11:07:40 AM »
Others have hit most things, but I do notice your mortgage is still 84% of the purchase price.  If you bought in 2012 you've either passed or are coming up on your loan being 2 years old, the minimum account age most mortgage lenders require to get rid of PMI.  Call them and see how much principal you need to pay to get rid of that, it'd be a very good use of some of that cash you have laying around.

Ah yes.  Good eye.  We are indeed paying the PMI, and are unfortunately stuck with it for 3 more years because we have an FHA loan.  We probably bought our house before we should have.  We qualified for $15k down-payment assistance and were afraid to lose it, so we took the crappy FHA loan (didn't qualify for conventional because I had just started a new job).  Our total PMI payments will be less than the 15k we got, so that helps ease the sting, but it's still face palm for me.

RichMoose

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #10 on: September 29, 2014, 11:37:19 AM »
We need to work on this.  It's hard though.  The vast majority goes to a) one meal at a semi-nice restaurant with the DW and b) going out with friends.  We don't hit the bar and spend $50 just for fun, but man oh man people are getting engaged, popping out babies, and moving away like crazy.  It's hard to say no when a good friend is going out to celebrate their engagement.  All it takes is one "dinner's on us!" and there goes $100.  We need to find a better way.

I roast and brew pretty much all our coffee, and we almost never go out to lunch at work.  I probably shouldn't have even mentioned coffee shops & work lunches. Homebrewing is intriguing to me, but we don't drink a whole lot at home and I'm hesitant to spend the money to get started.

I definitely know where you are coming from. My wife and I are the same age as you are and a lot of our friends are going through those life milestones. We have been able to almost completely eliminate dinners out by inviting them over instead to celebrate engagements, moving, etc. I love cooking, so I make interesting foods that our friends have never tried before and we always have a great time. A lot of them even comment how great the food is and they would've never tried something like that by going to a regular restaurant. If a friend really is set on going out to eat, we always "Dutch date" and buy them a small gift instead. I learned pretty quick that $25 worth of baby clothes is a lot cheaper (and more memorable on their part) than their $80 food and drink tab.

I've also found that we associate much more with our frugal minded friends now than before we took spending seriously. This past Saturday we hung out with my friend (who happens to be a diesel mechanic) and his wife. We changed the oil and washed all our vehicles while the girls polished the interiors. We then went out to shoot some skeet while the girls went to a local hippy farmers market. All in all, the day costed us about $10 per couple in clay and shells over an above our regular maintenance / grocery costs. In fact, I actually saved money because a year ago I would've just gone to the lube place for an oil change. We all had a hell of a lot more fun than we would've going to a pub for lunch.

As far as those restaurant outings with DW go, learn how to cook, I mean really get into it. My wife and I used to justify eating out by saying "we can't make this type of food at home so its a treat and we have to go out to eat it". I am currently working on mastering Indian cuisine. Its at the point now where my wife doesn't even want to eat out at Indian restaurants (our former favorite) anymore because the home cooking is better. I also do great job on American, German, Indonesian, Thai, Greek, and Italian. If you get into cooking, I can promise you it will save a lot of money and make for a happier wife. I'm told cooking is sexy ;)

minimustache1985

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #11 on: September 29, 2014, 11:42:02 AM »
Ah yes.  Good eye.  We are indeed paying the PMI, and are unfortunately stuck with it for 3 more years because we have an FHA loan.  We probably bought our house before we should have.  We qualified for $15k down-payment assistance and were afraid to lose it, so we took the crappy FHA loan (didn't qualify for conventional because I had just started a new job).  Our total PMI payments will be less than the 15k we got, so that helps ease the sting, but it's still face palm for me.

Gotcha, that's unfortunate.  It might be worth looking into refinancing, but interest rates were pretty damn amazing in 2012 so you'd be hard pressed to do better assuming you already have a sub 4% rate.

mxt0133

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #12 on: September 29, 2014, 11:51:15 AM »
Others have already tackled the expense side of your situation so I'll take a stab at the income side.  For your career the vast majority of people start out low and then get exponentially higher vs a CS or engineering career where you start out higher and then eventually plateau.  If you like/love what you are doing then the money will come you just have to be open to the opportunities.  Checkout glassdoor and other salary sites to get a good feel for what your market rate it, but the best way to know your market rate is to go out to interviews and see how much salary you can command.  I do this yearly to know what my market rate is and know what skills sets are in demand.

Regarding the MBA now would be a good time to start if you think it will help your career, no kids.  Going part-time partially paid by your employer can be very cost-effective.  This is what I did because I hit a learning/experience ceiling at work at the time and felt that if I can't expand my skill set at work then i'll do it outside trough school.  Was is a good ROI, I really can't quantify, but it did give me options and has been highlighted many times during interviews and I believe it help me stand out.

If you choose not to go the MBA route then a combination of consulting/part-time work with continuing education classes to build up your skill sets is another option.  Basically gain as much experience and skills as you can and don't, I repeat DO NOT, rely on your employer to give them to you.  As much as they say they are interested in developing your career, the can't promote everybody because someone has to do the grunt work, and they will delay your development to serve their interests.

Both of your are in a great position to really increase your savings rate by increasing your salaries or earning extra income on the side.

so.mpls

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Re: Case Study: Early career shift, or am I over-reacting? And other questions.
« Reply #13 on: September 29, 2014, 12:37:27 PM »
Thanks everyone for the responses.  Really great stuff.

TuxedoEagle - That's a good way to approach things.  I don't dislike cooking and I'm alright at it, but perhaps I should approach it as a personal challenge to become really good.  I'll definitely try having people over to celebrate more instead of going out.

ps if you want to send some indian recipes/techniques, I would not be opposed. yummm.

mini'85 - The interest rate is 3.0%, so at least our payments will be nice and low once we get rid of the PMI.

mxt - very, very helpful and insightful post.I've thought about starting a side hustle and perhaps it's time to bite the bullet. I do actually qualify for quite a bit of tuition assistance from work, so perhaps a grad degree would be a good investment.