Author Topic: Case Study: How can I get to FIRE more quickly?  (Read 3417 times)

TXScout2

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Case Study: How can I get to FIRE more quickly?
« on: January 11, 2016, 03:37:23 PM »
Life Situation:  Single male, 34 years old, attorney, no dependents, living in Texas, trying to pay off debt.

Gross Salary/Wages: $120k plus discretionary bonus (was $22.5k) last year

Pre-tax deductions: Maxing out 401k, so $1500/month; FSA $208.19/month, Dental insurance $21/month

Adjusted Gross Income: $99,249.72

Last year my monthly take-home was $5592/month.  Should be slightly higher this year from raise.  Haven't got first check yet.

Taxes: Social Security, Medicare, and Federal Income added up to around $35k last year

Current expenses:
Rent:              $1056
Student Loan:         $1500
Electric Bill:          $50
Internet:                 $30
Gym:            $40
Car Insurance:         $40
Food and Dining:      $1200 (tends to vary, I would estimate between $600 and $1500)
City Bike Rental:      $11
Other:            $100  (clothes, haircuts, dry-cleaning, etc.)
Total:            $4027

Assets:
2001 Toyota Corolla      $2,000
Checking Account:       $10,000
Savings Account:      $26,000 (emergency fund)
401(k):            $51,000
IRA:                    $11,000
After Tax Brokerage Account:   $20,000
Total:            $120,000

Liabilities:
Student Loan $78,000 @ 2.4% variable rate (was once 150K at 7.1%, refinanced it to 5.1%, then 3.5%, now 2.4%)

Net Assets: $42,000

Specific Question(s): Any ideas as to how I could save faster or earn a better return on my money.  I have been out of law school 5 years now and I feel like I am not really making great progress towards FIRE.  I feel like I have done pretty well paying down my student loan, generally I have paid the required payment +$500 per month, and then put my entire bonus into it each year.  I have refinanced it 3 times now and got a lower rate each time as my income to debt ratio improves.  I feel like I can probably cut spending on food, some months I do better than others.  Also I feel like I should do something with the emergency fund, it doesn’t earn any interest and it sort of just sits there.  The market going sideways for the past while has also sort of made my progress seem slow.   

Thanks for any ideas!

onlykelsey

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Re: Case Study: How can I get to FIRE more quickly?
« Reply #1 on: January 11, 2016, 03:42:46 PM »
Also an attorney (Class of 2011, but with NYC prices and NYC salary).  Mostly posting to follow, but two things jump out at me:
  • That is a high food bill for one person.  If you're working 80 hours weeks it might make sense, but I think you can at least cut out a couple hundred there.
  • Can you start a Roth IRA? 26K in emergency savings is a bit high, but that's sort of a matter of personal preference.  If you can put some money where you can access it but still have it retirement savings, that would be a good deal for you.

kaizen soze

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Re: Case Study: How can I get to FIRE more quickly?
« Reply #2 on: January 11, 2016, 03:57:32 PM »
Idea #1: stop paying extra towards your student loans. Since your student loans have a low interest rate, you should come out ahead in the long run just paying the minimum and investing your annual bonuses. 

Idea #2: even when I was an unmarried and busy attorney, I didn't spend anywhere near $1200/month on food.  Even if dining out is something you're not willing to entirely give up, make something on Sunday to eat for dinners until Wed (like a lasagna).  I had a rotation of like 8 meals that I cycled through.  Then dine out Thur-Sat, but only if you're being sociable (otherwise have a few go-to 15-minute meals).  Pack your lunch 3-4 times a week.  The internet is full of ideas here.  If you're dining out so much because you're working through dinner on a regular basis, see if your employer will comp meals if you work late.  And if not, see idea #4.

Idea #3: get a roommate.

Idea #4: consider if you can get another law job that pays a bit more and/or requires fewer hours to free up time.

Good luck!

*EDIT* I just noticed that your student loan is a variable rate loan.  In that case, it may make sense to pay it down faster.  But as a bit of a hedge, I'd still put half your bonus into the loans and half into investments.  Or any other savings you find in your budget, put those into investments and not into your student loans.  You can retire early without first paying off your student loans, but you can't retire early without investing.
« Last Edit: January 11, 2016, 04:00:34 PM by kaizen soze »

soccerluvof4

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Re: Case Study: How can I get to FIRE more quickly?
« Reply #3 on: January 11, 2016, 04:28:48 PM »
Your food spending is eating away a big chunk of your money! pun intended..We eat very very well a family of 6 including two teenagers on under 200$ a week. Start there!

TXScout2

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Re: Case Study: How can I get to FIRE more quickly?
« Reply #4 on: January 11, 2016, 04:33:05 PM »
I do have a Roth, my "IRA" line is actually a Roth account and a non-Roth account that I started when I was doing contract work.  I think it is probably a good idea to move some money from my savings account into a backdoor Roth, so thank you for that idea, I will do it.

On the student loans:  Yes it's variable rate, but you're right it is pretty low now after the last refinancing...I could divert $500 into a Vanguard account and then if rates went up a ton by the end of the year I could assess how much of my bonus to put in.  I initially didn't pay extra but the market has been so bleh that I started paying more, at least I was getting 3.5% (at that time). 

Regarding food:  I am working on this.  I used December as my model, I have a feeling it may be higher than a usual month with the holidays and all.  I have had months where it is lower.  I resolved to packing lunches everyday except one, and to use that as a business/networking lunch.  So far so good this year so if I keep that up it should save me around $300 a month.  Also in that line item I am including alcohol and dates...  Some months I go on no dates and some I will go on a bunch in a row so it tends to vary.  I get bored sitting around at home by myself sometimes and I will go out more.  I also eat breakfast at home, and I've stopped buying coffee.  I need to try to work out dinners, that's when I tend to go out, socially, or sometimes just get a $10-$15 takeout meal.  I may need to work out a meal rotation like you suggest.  I will need to re-check the monthly expenses after this month is over and see how it went. 

Roommate:  I actually have one, but it's my younger brother, who just graduated with a degree in petroleum engineering and hasn't gotten an engineering job yet.  So I've been giving him a break on the rent.  The rent is actually $1556 so if he gets a job and can pay his full-half then I will save another $300 per month. 

New job:  I consider it, I have applied to a lot of jobs and had a few interviews, but never had an offer.  Also a lot of the jobs I see pay less or the same as what I make now.  Legal economy isn't great, especially for litigation which is what my experience is in.  I still think eventually I will be able to make a jump in income. 

Any other ideas on the savings account?  I read an article once where a guy invested it in some sort of fund with really low volatility that he said averaged like 2-3% per year in gains.  I don't remember what the fund was though.  I have heard of some 1% savings accounts.  Anybody know anything better than that? 

FrugalWad

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Re: Case Study: How can I get to FIRE more quickly?
« Reply #5 on: January 11, 2016, 06:25:27 PM »
Instead of a savings account for an emergency fund, why not stacked CDs? Have one each of a six month up to 5-7 years, which will get you a better average rate than a savings account, and will mitigate penalty rates if you have to pull any out early in case of an emergency. That's what I've done with my emergency stash, and since an emergency is a worst-case scenario, that money has just been sitting and earning much better interest rates for me while karma continues to act in my favor.

TXScout2

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Re: Case Study: How can I get to FIRE more quickly?
« Reply #6 on: January 12, 2016, 10:47:38 AM »
So I was reading on Bogleheads about Backdoor Roth contributions.  Is there really no limit?  I could basically take my entire savings account and put it into an IRA, and then convert it to Roth to grow tax free? 

MDM

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Re: Case Study: How can I get to FIRE more quickly?
« Reply #7 on: January 12, 2016, 11:49:10 AM »
So I was reading on Bogleheads about Backdoor Roth contributions.  Is there really no limit?  I could basically take my entire savings account and put it into an IRA, and then convert it to Roth to grow tax free?
Read closer: there is a $5500/yr limit on contributions to IRAs, so the most new money you can put into your IRAs each year is $5500 (until you are 50+, in which case $6500).  Any money you already have in a tIRA may be converted to a Roth, but you do have to pay tax on it.

TXScout2

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Re: Case Study: How can I get to FIRE more quickly?
« Reply #8 on: January 12, 2016, 12:40:50 PM »
Okay I get it.  So I can convert an unlimited amount from IRA to Roth, but I can only put $5500 into IRA annually.  Makes more sense.

ZiziPB

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Re: Case Study: How can I get to FIRE more quickly?
« Reply #9 on: January 12, 2016, 01:16:11 PM »
So I was reading on Bogleheads about Backdoor Roth contributions.  Is there really no limit?  I could basically take my entire savings account and put it into an IRA, and then convert it to Roth to grow tax free? 

There is no limit on conversions but you have to pay taxes on it.  Also, keep in mind that if you have traditional IRA money, it gets in a way of doing backdoor Roth contributions.  Do some research on it before you do it.