Author Topic: Case study: Fairly new to the US and could use the advise!  (Read 5097 times)

iRevan

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Case study: Fairly new to the US and could use the advise!
« on: October 30, 2014, 11:42:24 AM »
Income: 135 400 dollars a year. No rental or other income... 15% of my salary goes to my ESP fund which gives me two payments of 3100 dollars a month (+/-)

Current expenses:
Rent: 2624 dollars a month
Food budget: 300 Dollars a month
Cell phone: 75-80 dollars a month (75 dollars get reimbursed monthly by my employer)
Internet: 34.99 dollars a month
Electricity:30 Dollars a month (really should follow this up better, it's an average right now)
Netflix: 7.99 dollars a month


Total: 3067 dollars a month

Assets:

Savings account: 91038 dollars
ESP funds: 8640 dollars

Liabilities: No loans at all, CC debt of 1000 dollars that will be paid off this month (all CC charges get paid bi-weekly). 2 Credit cards available to myself: Amex with 2000 dollar limit and 1 secured (soon to be refunded to me) Visa with a 1000 dollar limit.

Specific Question(s):
So here's the thing, my wife and I move to San Francisco for work about 6 months ago and we had to use up all our savings for the deposits(very high as I had no credit history) & furnishings of our apartment (1 bedroom, nothing fancy even...). I do not contribute to the 401k (50% match up to the first 6% of my annual salary) as I have no clue how this works if we move back to Europe in 4-6 years. Is it still worth it or will I be taxed to death?

My wife wasn't able to work for the last 2 years as she had a number of dislocated disks but is starting work again as of last month. Seeing she used up all her savings I'm carrying on the costs for our living here until next month where she will start carrying her part.

So far I'm saving 1728 dollars in the ESP fund (10% discount) and 2000 dollars a month towards my savings account. I have no clue how I'm doing, this is more than I have been able to save up since I started working 10 years ago!

Our long term goal is to be as fiscally independent as we can, though all of this is really new to us. My wife is Dutch and has that "spend as little as we can" mentality but we still like to do "nice" things together, such as dining out once in a while and seeing the US (I moved here without having ever been to any other part than Seattle...). We have a new years eve planned in Vegas (first time ever we splurged on new years and I feel guilty for it) and possibly tour South California around thanksgiving.

Any support, face punches and advise would be highly appreciated. We're trying to save up as much as we can without locking ourselves up, don't own a car (I zipcar when I need one), cycle or walk as much as possible. Yet I still feel I am not doing enough. There is a 1000 dollar gap in my summary that I feel pinched about as it goes to various different things that need to be put a handle on.

Should I put the savings account money in Index funds? I still want to have an emergency fund, but looking at the other side of the coin, if I lose my job we have to leave the country within 2 weeks....




Rein1987

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #1 on: October 30, 2014, 12:01:02 PM »
I think it's a good idea to contribute 401k up to the company match, even if you plan to leave US later. You get 50% match, so even you withdraw early with 10% penalty, you still win quite a bit.

Currently the interest rate is quite low, so maybe you want to put some of your savings into a stock index fund and a bond index fund.


iRevan

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #2 on: October 30, 2014, 03:16:19 PM »
Thanks Rein,

I'll have to look in to that further then!

flashpacker

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #3 on: October 30, 2014, 03:49:55 PM »
You could take the opportunity while you're here to get some of the awesome credit card bonuses on offer in the US. When we moved here, it took us under a year to get credit scores good enough to qualify for some of the best offers, which was a big positive surprise. The best info I learned was to keep your utilization rate (credit used/credit available) under 8% by paying the card down multiple times in the month if needed.  Even getting one credit card per spouse each year for the bonuses is a nice boost!

nereo

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #4 on: October 30, 2014, 03:50:24 PM »
Quote
So here's the thing, my wife and I move to San Francisco for work about 6 months ago and we had to use up all our savings for the deposits(very high as I had no credit history) & furnishings of our apartment (1 bedroom, nothing fancy even...).
Use craigslist to buy used furnature, and then turn around and sell it for most of what you paid if/when you move.  You are in the mecca of craigslist-land.

Quote
I do not contribute to the 401k (50% match up to the first 6% of my annual salary) as I have no clue how this works if we move back to Europe in 4-6 years. Is it still worth it or will I be taxed to death?
You should absolutely contribute for two reason.  1) you get a 50% match, which is good even if you wind up paying a 10% early withdraw penalty later.  2) you'll pay less in taxes each year you contribute.  win win. 
In 4-6 years should you decide to move there are a couple things you can do.  First is cash out your 401(k) and take the 10% penalty and pay associated taxes.  Another option is to just leave the money there (or roll it over into an IRA account and leave it THERE) until you are ready for retirement. Even if you live on another continent it can stay in your US brokerage account, earn interest, and then be cashed out and converted into any other currency at a later date.

Quote
So far I'm saving 1728 dollars in the ESP fund (10% discount) and 2000 dollars a month towards my savings account. I have no clue how I'm doing, this is more than I have been able to save up since I started working 10 years ago!
almost $4k/month is pretty good.  There are way of optimizing this, including taking advantage of your 401(k) and other tax-advantaged accounts, and shaving a bit off your budget (what you listed is pretty thin info-wise)

Quote
Our long term goal is to be as fiscally independent as we can, though all of this is really new to us. My wife is Dutch and has that "spend as little as we can" mentality but we still like to do "nice" things together, such as dining out once in a while and seeing the US (I moved here without having ever been to any other part than Seattle...). We have a new years eve planned in Vegas (first time ever we splurged on new years and I feel guilty for it) and possibly tour South California around thanksgiving.
Sounds good - but not sure what the 'question' here is... plenty of ways of doing Vegas on the cheap.  See priceline.org for hotel deals, and long as you avoid massive gambling and the trendy bars/restaurants it can be a cheap vacation from SF.

Quote
Any support, face punches and advise would be highly appreciated. We're trying to save up as much as we can without locking ourselves up, don't own a car (I zipcar when I need one), cycle or walk as much as possible. Yet I still feel I am not doing enough. There is a 1000 dollar gap in my summary that I feel pinched about as it goes to various different things that need to be put a handle on.

Should I put the savings account money in Index funds? I still want to have an emergency fund, but looking at the other side of the coin, if I lose my job we have to leave the country within 2 weeks....
First, as you've said, figure out the extra $1k/month gap.  An emergency fund is good to have, but I wouldn't go overboard here - especially if you have your savings and not a lot of other debt.  I always tell people that low-cost index funds are a good choice (Vanguard and Fidelity SP500 and Total Market Index are very popular choices).  REITs can also be good, but i"m less knowledgeable about them.   

Welcome!

iRevan

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #5 on: October 31, 2014, 09:55:09 AM »
Thanks Nereo,

I've started looking in to the 401k and how this would affect my take home pay as well (first salary check I'm generally using to pay all expenses...) as I'm still used to being paid once a month. Vegas wasn't so much a question as it was my mind rambling on a guilt trip for spending money on holidays even though they are needed from time to time :)

Goldielocks

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #6 on: November 01, 2014, 10:43:50 AM »
Your rent seems very high for two people, even for SFO.  ... Any chances that can change?

iRevan

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #7 on: November 01, 2014, 07:38:55 PM »
Unfortunately I can assure you that my rent is not that high for San Francisco :(. We looked around quite a bit and the only places we would be able to live cheaper are the places you really don't want to live (and having lived in bad neighborhoods' most of our lives we were tired of it...)

The apartment identical to ours in the block are now being rented out for 3099 and 3499 (if they got a newer kitchen) dollars a month.

iRevan

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #8 on: November 01, 2014, 08:10:43 PM »
Thank you Cathy,

I'll definitely have to go and look in to what you said, but I fear for that with European countries! Worth the trouble though... On the emergency fund I'm really pulled between two directions. On one side I agree with you and would want to keep as little as possible in my accounts, on the other hand it was ingrained in to my thick skill to stay away from any sort of debt whatsoever and to always keep an emergency fund of 6 months or more.

I've moved 4000 dollars to Fidelity SP500 (FUSEX) and need to figure out what I am comfortable with keeping in my account. It's a balancing act :)

Goldielocks

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #9 on: November 02, 2014, 11:46:56 PM »
I also recently moved to the bay area, and from a foreign country (namely, Canada).

I agree with your rent being reasonable.

I don't maintain an "emergency fund" because it seems pointless. I have so many sources of low-interest credit I could draw on if I needed liquidity. It sounds like you have credit cards too. Having an "emergency fund" just means money that isn't generating returns for you.

Another advantage of not having an emergency fund is that you will feel poor when you look at your bank account balance (I usually leave just a few hundred dollars in cash), which causes you to really up the ante on frugality so you don't run out of money!

As for the 401(k), you should research your specific country's laws. There's no risk for me no matter what I do, because Canada allows you to rollover a 401(k) to a Canadian RRSP, and the best part is that, if I do so, I can claim the 10% early withdrawal penalty as a foreign tax credit on my Canadian return: in other words, going back to Canada is actually a loophole to redeem the entire 401(k) without penalty! This is highly country-specific. It will depend both on the statutory laws of your home country, and any tax treaties they may have negotiated with the USA. You should research it.

As the above poster mentioned, paying the 10% penalty won't be the worst thing, but if your home country has no special arrangement, it will be crucial to collapse the 401(k) while you are a US resident for tax purposes. If you are a nonresident for tax purposes when you take a 401(k) distribution, it will be taxed at 40% unless your country has concluded a better arrangement with the USA.

Yeah, that loophole did not open up until 2010/11, and is a direct result of us banks locking down in about 2009 and preventing any trades in a 401k account held by non resident Canadians ( as in you move back to Canada after several years).  This was a big problem if you still had decades to go.  Would you want to hold a portfolio for 25 years tgat you could not rebalance?

To OP, I thought rent was high because that was the rent I paid for a fancy 3 yr old 4bed, detached home in Dublin..in an extremely safe area, tennis club like.... So maybe look further out, but still on BART.  If rent is an issue.  We walked to store and park, shopping and theaters, too.

Goldielocks

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #10 on: November 03, 2014, 10:07:53 AM »
goldielocks, you're speaking in the past tense there, so I don't know how recently you've checked the bay area housing market. On average, rent has risen by like 8-12% each year over the last 5 years, so prices are dramatically higher compared to even relatively recent knowledge.



That said, it probably wasn't necessary to pay a large deposit. Personally I negotiated a $99 deposit for my apartment, also with no US credit history.

Yeah,  I think it does jump off the cliff, in rental costs, as you get through the pass too.  Not everyone wants an 1.5 hr commute by BART, after all...

Thanks for the reminder about time lapse, I just checked, and the cheapest available from our old property manager is a $1850 /month for 1035 sqft detached home, 3 bedroom, 1 ba, in Pleasanton  (nice biking & walking community, there).   $2700  shows up with 2 options for 3 bedroom home in san ramon (more expensive area), at 1600 sq.ft.   quite a few choices in between, but nothing is cheap.
« Last Edit: November 03, 2014, 10:14:39 AM by goldielocks »

iRevan

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #11 on: November 03, 2014, 12:10:29 PM »
My wife refuses to go live outside of the city so that's settled easily enough :). I tried to negotiate the deposit but the response was fairly simple: Take it or leave... Downside of dealing with an agency...

Goldielocks

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Re: Case study: Fairly new to the US and could use the advise!
« Reply #12 on: November 03, 2014, 01:33:39 PM »
My wife refuses to go live outside of the city so that's settled easily enough :). I tried to negotiate the deposit but the response was fairly simple: Take it or leave... Downside of dealing with an agency...
I love it.   Why?  When you get into the "valley", all the neighbors talk about is how scary / horrible it would be to live in the city, how they would never drive THAT route to the airport, etc.   I never understood them, and we actively looked for housing in Oakland (hills) for a while.  If you can afford it, your wife is probably the smart one here.

Enjoy where you are at, and see if you can get partial deposit back after a year, or in 6 months, request a credit report, and ask for your deposit reduction based on your new US credit report.  Just be careful to understand about taxation as residents / Expats, especially if you ever plan to leave USA.   

example:
I was surprised at not being able to pay taxes "Married filing jointly" in our final year in the USA, at the common tax deductions we were excluded from, and at how our 401k and IRA investment accounts were essentially locked on us after a couple of years due to a small change in the law that went unnoticed by most people.  (previously no problems when I set them up).