Author Topic: Case Study: Getting my Priorities Straight  (Read 3464 times)

moonsheep

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Case Study: Getting my Priorities Straight
« on: November 04, 2016, 02:15:28 PM »
Life Situation: Single 31yo woman in HCOLA (SF Bay Area).

I'm very new to the MMM community and have been intrigued by the reading I've been doing. I've been using YNAB for almost three years now, starting just before I finished graduate school. I've been in my current job for two years, and only really started saving for retirement upon starting. I've always thought of myself as financially responsible / thrifty, but obviously I am nowhere near the level of most people here! I also definitely fell prey to indulging myself a bit more once I landed my current job, which is well-paying for my field. It gave me the feeling that I didn't have to be as careful with my money, which I don't -- unless I want to be very serious about growing my net worth and getting out of debt! Still mulling over early retirement; I think at this point I mostly want it to be a feasible option once I hit 55 or so; I like working, but also find that having a nest egg or even just a savings account makes me feel secure. I'd just appreciate having some other folks look over my numbers and maybe give me some firm-but-gentle words on how I can do what I need to do!

Figures below are averages from 2016 so far, and are mostly based on average expenditures or what's currently set aside in YNAB for some sinking funds (Christmas, for instance). I've bolded categories where I was myself surprised at how much I managed to spend, and where I want to concentrate efforts to reduce my spending.

Goals: Get out of debt. Save at least 40% of income. Be generous and kind to others.

CategoryMonthlyComments
Salary/Wages for earner #1$6,833
Pretax Health Ins.$34
Employer-sponsored HSA$179Employer contributes $100/month as well; in total contribute max amount
401(k) / 403(b) / TSP / etc.$1,092Room to increase?
Employer Match$55Match 25% of all contributions up to IRS max. Currently 20% vested, so 5% effective match.
Total income taxes$1,684
Income before other expenses  $3,844
Monthly Average Expenses:
Rent$1,250Live alone in studio apt, SF Bay Area. This is not going down; I love my apartment and I hate having roommates, and there is literally nowhere within an hour commute of work where I can get a similar place for less.
Natural Gas$5Literally just natural gas for the stove. All other utilities included in rent.
Internet$45Have asked neighbors about maybe sharing wifi; no bites.
Groceries$160
Cat$40One cat. Wet food only, the spoiled brat.
Transportation$60Pay-by-the mile insurance; usually $20 - $25. Rest is gas, public transit fares above employer subsidy, the occasional lyft, and infrequent bike stuff
Misc. Household$30This includes laundry (quarters), soaps/detergents, hardware and handy stuff, paper goods, sponges, etc
Car Repairs$75"Genuine Volvo Parts" - my nemesis. (Car is 2000 Volvo s70 with 180k miles, I like it quite a lot and even expensive repairs are cheaper than a car payment)
"Cat" Repairs (Vet Bills)$50Cat needed dental work so this was an expensive year.
Medical$20I pay for everything but two generic prescriptions out of my HSA. The prescriptions I pay out of pocket because they are cheap.
Charity$100I wish this were more, actually
AAA membership$5Peace of mind.
Vehicle Registration$12
Renter's Insurance$11
Taxes & Financial Services$10Tax software, YNAB, any additional tax
Misc. Fees & Fines$10Drivers license renewal, permits, etc
Gifts$25
Clothing$75Way overspent in the past year, but I also changed clothing sizes and buying professional, not throw-away quality clothing in women's plus sizes has a price. Also includes some crowdfunding for fancypants, locally made clothing shop that I believe in.
Beauty$45Woman who works as consultant and likes having short hair; some of this is necessary but I could potentially cut by $10 or so
Replacements/Repairs$15Sinking fund in case the microwave explodes, I drop my phone off a cliff, etc
Christmas$55I love giving gifts and have a large family. Trying to shift the tradition to drawing names / spending limits but no luck so far
Eating Out$180I'm killing myself with work lunches, I know. I also know this is where I'll catch the most flak. Suffice to say I know what I need to do, but have lacked discipline in the past. Looking over the past year, around 40% of this expense was good food with good company, and another 10% for coffee; the remainder was just my own laziness.
Fun Money$160Again, bracing for face punches. A big chunk of this is performances (live shows (~$120), season ballet membership for two ($360), season musical theatre membership for one ($250)). I love those things and having a job where I could "afford" the tickets made me get a bit out of hand. The rest in rough order of expenditures is my cosmetics/bath product/scent addiction, nights out with friends/dates, video games, booze, stupid impulse buys, books, crafting materials, and movie/tv purchases.
Amazon Prime$9
Netflix$10
Home Stuff$15artwork, candles, cute throw pillows, etc. I like that stuff.
Electronics$70Bought new gaming laptop and smartphone this year.
Travel/Vacation$275Two trips across country to visit family per year ($400 to $500 per trip), four camping trips (maybe $100 per trip all in), a few visits across the state to see friends ($150 - 200 per trip), one actual vacation (this past year to Hawaii, around a grand).
Total Not Including Loan Payments$2,817
Student Loan 1$151
Student Loan 2$116 minimum + $750 extra payment


Assets:
$34,000 vested in 401k
$  7,000 in HSA
$16,000 in cash

Liabilities:
Student Loan 1 Remaining Balance: $11,500 at 5.41%
Student Loan 2 Remaining Balance: $  8,500 at 5.875% (currently paying off $750 extra per month)

Specific Question(s):
  • Should I continue to divide my forces regarding 401k contributions and my debt snowball? I am torn because my employer has no cap to the match; they match 25% of my money up to the IRS limit. HOWEVER, it is a very long vesting schedule, and while I have no plans to leave, I'm not certain the guaranteed 5% return I get currently (at 20% vested) is worth spending more time with my debt.
  • My goals for addressing my spending problems are to focus on gradually cutting fun money (no new cosmetics until everything in the drawer is gone, and no musical theater next year), eating out, and travel by 50% in the next year. That should give me $3-4k more to work with over a year's time. Any other ideas for trimming the fat from the budget?
  • I come from a family of compulsive spenders, and have those tendencies myself. I'd welcome any psychological tips from other forum members who have had this problem, and for whom frugality does not come naturally.

john c

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Re: Case Study: Getting my Priorities Straight
« Reply #1 on: November 04, 2016, 02:32:20 PM »
Your apartment is REALLY cheap.  Good job.  I don't think you could find a room in a larger house/condo/apartment for much less than that.  Plus it includes utilities. 

What is the vesting schedule for your 401k match?  Is it all at once at 5 years, or do you get 25% vesting every year?  Not that it matters much, the match is worth more than the interest on the student loans, barring an unusual vesting period.

My one piece of advice is to stop with charity until you pay off your student loans.  At that point, donate a little more to charity.  Right now, you're actually paying 5.875% more for charity than you could in the future, since you're not paying down your student loans as fast.  Now the extra goes to interest payments on the loans.  If you paid off those loans quicker, you could donate the interest you would be paying to the charity of your choice.  In the long run, it would have more impact.


Kapiira

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Re: Case Study: Getting my Priorities Straight
« Reply #2 on: November 04, 2016, 03:09:20 PM »
Sounds like you already know what you need to do to cut your spending.  For motivation, I regularly look at the 'What did you NOT buy today' thread in 'Share your Badassity'.  I find it inspiring.

4alpacas

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Re: Case Study: Getting my Priorities Straight
« Reply #3 on: November 04, 2016, 03:39:22 PM »
1. Should I continue to divide my forces regarding 401k contributions and my debt snowball? I am torn because my employer has no cap to the match; they match 25% of my money up to the IRS limit. HOWEVER, it is a very long vesting schedule, and while I have no plans to leave, I'm not certain the guaranteed 5% return I get currently (at 20% vested) is worth spending more time with my debt.
If I were in your shoes, I would opt to max out my 401k ($18k/year) even without the benefit of matching funds because you're able to avoid paying taxes on the income.  To max out your 401k, you'd have to cut about $285 of post-tax spending (or debt snowballing) to get the ~$5k to max out your 401k.  However, if your student loans cause you distress, then I would continue your current plan.

My goals for addressing my spending problems are to focus on gradually cutting fun money (no new cosmetics until everything in the drawer is gone, and no musical theater next year), eating out, and travel by 50% in the next year. That should give me $3-4k more to work with over a year's time. Any other ideas for trimming the fat from the budget?
It sounds like you have a solid plan!

I'd welcome any psychological tips from other forum members who have had this problem, and for whom frugality does not come naturally.
I use my laziness to save money. 
Going out to eat is a hassle if I have prepared meals at home (I bulk cook on the weekends).  Even ordering take-out or delivery seems like a pain in the butt. 
I opt out of shopping.  I just don't go to stores, so there isn't an urge to spend money.  I used to "shop" with friends (just walk around the mall etc.).  Now I schedule hikes or brunches at home. 

Good luck!

robartsd

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Re: Case Study: Getting my Priorities Straight
« Reply #4 on: November 04, 2016, 04:35:06 PM »
Overall, you're killing it for expenses in the SF Bay area. You've highlighted the biggest areas where you could do better already. $55 for Christmas and $25 for gifts could also be reduced. I also don't see how much you're spending on your phone bill - where's that hiding?

$16k in cash is not working for you - pay off the higher interest student loan right now. Student loan rates aren't quite high enough that I'd forego tax advantaged accounts to pay them off; but use your cash to pay off the higher rate loan now - you'll still have about 3x your monthly expenses left.

I'd also max your 401(k) match before maxing your HSA, you're currently giving up $320/mo in compensation there. After maxing your tax advantaged accounts (including adding an IRA), resume your debt snowball on the remaining loan.

moonsheep

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Re: Case Study: Getting my Priorities Straight
« Reply #5 on: November 04, 2016, 05:13:58 PM »
Thanks a ton, everyone! I stress out way too much about optimizing the balance between tax-advantaged savings and the stress my student loan gives me. I'm also a pretty risk-averse kind of person, which is why I'm sitting on so much cash as an emergency fund. My deal with myself was to pay off my higher interest loan once I've chiseled it down to $5k but I may accelerate that.

For phone, I luck out -- my dad worked his entire life for AT&T, meaning his family plan is practically free. I'm still on that. It'll probably phase out when he retires, but I'm holding out for another year; my next step promotion comes with company cell phone + data.

HSA situation -- I'll feel comfortable pausing at the start of next calendar year. My goal was to have a balance that could cover my out-of-pocket max plus a few, just in case. Current balance would cover almost two years of hitting my OOP max, so that seems wise.

Also, it's nice to hear some validation that my expenses are doing ok for the Bay Area. I lived here from 2008 - 2012 on a pittance (wooooo graduating into a recession), left for LA for grad school in 2012 and returned in 2014, and now the entire region gives me sticker shock on a regular basis. Psychologically, the lean years are also why I tend to impulse buy on luxury stuff, and I know that.

intirb

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Re: Case Study: Getting my Priorities Straight
« Reply #6 on: November 04, 2016, 05:20:51 PM »
By my calculation, you're already pretty close to a 40% savings rate.  (1092 + 750)/(6833 - 1684) = ~36%.  Once you pay off those student loans and save that money as well, you'll be there.

At this rate, you'll pay your student loans off in a little less than 2 years, paying about $1k in interest.  You could use your cash savings to pay off loan2 and keep your total payment the same and save a year to being debt free and also $500+ in interest.  I know having that money is a nice safety net, but you have to consider how much the safety net is costing you.

Are these loans private or federal?  If they are private, have you considered refinancing?  Check out the forum for personal experiences with SoFi.

Honestly, I think your budget looks pretty good.  Sure, you have a little you could cut, but at your current rate, you should be FI by 55.

tonysemail

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Re: Case Study: Getting my Priorities Straight
« Reply #7 on: November 04, 2016, 05:28:39 PM »
hey, welcome to the forums :)

Your expenses look quite low for the bay area.  You're doing great!

I would also max out the 401k.

if you're not travel hacking, then that's a good option to optimize travel expenses.

some people rely on credit cards as emergency savings.

home brew coffee, thrift stores, and cutting netflix are other ideas.

I just quit netflix last month.  I sign up one month a year to binge watch my favorite show and it works well for me.

MrsCtank

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Re: Case Study: Getting my Priorities Straight
« Reply #8 on: November 04, 2016, 07:05:42 PM »
I don't have much advice except to second the donate less now and you'll be able to donate more later comment, but I had to log in just to reply - i was going down the list and lost it at cat repairs, it made my night. As a vet i frequently find commonality with mechanics, even down to hey doc shes making this weird noise! (insert horrible immitation).

MDM

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Re: Case Study: Getting my Priorities Straight
« Reply #9 on: November 04, 2016, 10:20:52 PM »
Should I continue to divide my forces regarding 401k contributions and my debt snowball?
Sure, but perhaps a somewhat different division.  What do you think of the following?
1) Contribute the full $18K to the 401k
2) Contribute $5K (or whatever the maximum deductible contribution based on your MAGI) to a traditional IRA
3) Pay ~$200/mo (or whatever your cash flow allows) toward the SL debts

Quote
I am torn because my employer has no cap to the match; they match 25% of my money up to the IRS limit. HOWEVER, it is a very long vesting schedule, and while I have no plans to leave, I'm not certain the guaranteed 5% return I get currently (at 20% vested) is worth spending more time with my debt.
Remember that the employer match adds to whatever ROI you get on the investment itself.  No guarantees, but you are likely to do better investing.

robartsd

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Re: Case Study: Getting my Priorities Straight
« Reply #10 on: November 07, 2016, 09:48:48 AM »
Thanks a ton, everyone! I stress out way too much about optimizing the balance between tax-advantaged savings and the stress my student loan gives me. I'm also a pretty risk-averse kind of person, which is why I'm sitting on so much cash as an emergency fund. My deal with myself was to pay off my higher interest loan once I've chiseled it down to $5k but I may accelerate that.

For phone, I luck out -- my dad worked his entire life for AT&T, meaning his family plan is practically free. I'm still on that. It'll probably phase out when he retires, but I'm holding out for another year; my next step promotion comes with company cell phone + data.

HSA situation -- I'll feel comfortable pausing at the start of next calendar year. My goal was to have a balance that could cover my out-of-pocket max plus a few, just in case. Current balance would cover almost two years of hitting my OOP max, so that seems wise.

Also, it's nice to hear some validation that my expenses are doing ok for the Bay Area. I lived here from 2008 - 2012 on a pittance (wooooo graduating into a recession), left for LA for grad school in 2012 and returned in 2014, and now the entire region gives me sticker shock on a regular basis. Psychologically, the lean years are also why I tend to impulse buy on luxury stuff, and I know that.
You have a graduate degree and about 20k in debt. Plenty of people have twice as much debt (or more) after only getting a four year degree. You should not be letting that debt cause you stress.

I understand filling the HSA enough to be a medical emergency fund. Do be sure not to use it unless your regular emergency fund is exhausted (but save documentation of your qualified medical expenses to use to withdraw HSA funds tax free in early retirement). Also investigate what you can do to invest your HSA funds so that they grow for you - HSA funds do not always have to remain in a low-yield savings account.

Gimesalot

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Re: Case Study: Getting my Priorities Straight
« Reply #11 on: November 07, 2016, 01:05:21 PM »
As a fellow performance art lover, I suggest that instead of cutting all of the theater and ballet out of your life, you look for volunteer usher opportunities.  I used to be a volunteer but now I get paid minimum wage to show people to their seats.  I get to watch all of the performances, about 50% sitting and the other 50% standing.  It's a great gig that saves me $1000's every season.  Here's some sites to check out:

http://sfperformances.org/aboutus/jobs.html
http://sfplayhouse.org/sfph/usher/
https://www.shnsf.com/Online/default.asp?BOparam::WScontent::loadArticle::permalink=jobs&BOparam::WScontent::loadArticle::context_id=
https://www.ybca.org/jobs/volunteer-usher?source=IND

dreams_and_discoveries

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Re: Case Study: Getting my Priorities Straight
« Reply #12 on: November 08, 2016, 03:02:38 AM »
Hi from a fellow art lover in London....

I have a bit of a theatre addiction, and average about 8 visits a month ..... and I spend about 100 a month on tickets. Well worth it for the enjoyment I get - I make sure I don't buy any overpriced drinks/food/programs/merchandise so the cost is the tickets alone. I'm already in town for work :).

Ushering is on my FIRE part time fun job list - somewhere that plays in rep (and gives a good staff discount) would be like a dream.