Author Topic: Case Study: Mustache me please!  (Read 7708 times)

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Case Study: Mustache me please!
« on: September 07, 2014, 07:52:19 AM »
Hard to believe I was referred to the MMM blog barely a week ago...I've been devouring it ever since. I am really excited to find a group of like-minded individuals, and am ready to grow my own fantastic mustache.  I still don't feel fully confident that I will make the best choices, so I would love all the advice I can get.

A little about my situation...
29, unmarried, no kids.  Not really on the Mustache Track with the goal of early retirement, because I currently want to keep working until I die (just a touch of sarcasm, but I do love working).  However, I suppose preparing for it in case I change my mind later wouldn’t be a bad idea.

I started my first “career” job about a year and a half ago, which explains why my total retirement contributions are fairly low. 

My finances:

Income:    
-->Base salary $60,587.  Annual raise of about 1%, although I do expect a few promotions over the next 30 years or so.
-->Will add $20,000 to $30,000 this year in overtime

Retirement:   
-->$13, 613 combined in all work retirement funds
-->$1,822 of that is in the TSP (Government’s Thrift Savings Plan).  I had been contributing 5% to the L2050 Traditional Lifecycle fund (https://www.tsp.gov/investmentfunds/lfundsheet/fundPerformance_L2050.shtml), however I just upped it to 50% since my current living expenses are $300-400/month.  I plan to reduce contributions to about 29% in January as my expenses will return to more human levels. This should meet the yearly max contribution of $17,500.
-->Still considering a Roth, but everything I’ve read makes me think the traditional is a better option for me.

Investing:   
-->30,000 in Vanguard VFINX

Checking and Savings:   
-->$33,000

Debt:       
-->None.  I use a credit card I pay off every month for the airline miles.

Expenses
-->Currently abnormally low as I mentioned, but will around $1500/month beginning in January.  I was not planning to provide an expense breakdown because my focus here is more on what to do with my current earnings than where to cut spending.

Advice Please!
Obviously I need to do something with my savings account.  I would like some of it in more stable bonds to balance out the VFINX.  I am not interested in real estate at the moment, primarily because of my job.

Just looking for general advice.  If that advice is “find a financial advisor”, that’s great too!  Seems like most financial advisors have a $50,000 minimum.  While I meet the minimum, I also don’t want to be paying fees if this is something I can handle myself, at least for a time.

Thanks in advance for advice or guidance!

Paul der Krake

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Re: Case Study: Mustache me please!
« Reply #1 on: September 07, 2014, 08:33:19 AM »
You already know what to do with that sizeable checking account... leave the large cash balances to real estate investors and people with families to support. To give you a starting point, my personal emergency fund is just 150% of my medical deductible. Whatever is necessary for you to sleep soundly at night is good.

Read up some more on Traditional vs Roth. The Mad Fientist's blog has great articles on why you would or would not want to minimize taxes right now instead of later. See if it applies to you.


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Re: Case Study: Mustache me please!
« Reply #2 on: September 07, 2014, 10:20:34 AM »
You already know what to do with that sizeable checking account... leave the large cash balances to real estate investors and people with families to support. To give you a starting point, my personal emergency fund is just 150% of my medical deductible. Whatever is necessary for you to sleep soundly at night is good.

Read up some more on Traditional vs Roth. The Mad Fientist's blog has great articles on why you would or would not want to minimize taxes right now instead of later. See if it applies to you.


Yeah, I do really need to put all the little employees in my checking account to work, I'm just looking for advice on the best place to put them.  I thought by putting them in bonds there would be something there a little more stable in case of an emergency or a big purchase, like a house.  This is the main aspect I'm looking for suggestions on.  Any thoughts?

Thanks for pointing me to that blog, I'll definitely check it out!  My thought process was that I will likely be in a lower tax bracket when I retire, but I could certainly use more perspective.

soccerluvof4

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Re: Case Study: Mustache me please!
« Reply #3 on: September 07, 2014, 10:36:54 AM »
To be precise to just answering your questing since your relatively young maybe 20% in Bonds look into VBTLS and add some VTABX for some international exposure. To cover real Estate maybe consider putting 5% into VGSLX. This would give you 75% into "Stocks" 5% into Reits and 20% into Bonds.  Again this is just one option to look at and see if it would satisfy your diversification. 

Exhale

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Re: Case Study: Mustache me please!
« Reply #4 on: September 07, 2014, 11:02:18 AM »
I'm pleased that you have access to this community and all the other great blogs. When I was your age there was nothing out there to help a beginner like me. You're already tapping into great resources and getting good answers. Here are some additional thoughts.

1) FIRE is not about stopping work. It's about not having to earn money. There are all kinds of good reasons for being FIRE such as:
- becoming disabled and needing a steady non-work related income
- having the freedom to do the work you love regardless of how much it pays

2) Open an IRA! I preferred a Roth IRA, but it doesn't matter - just open one. They're a great part of your portfolio.

3) You say that your expenses will go up. Might be fun to try the whole frugal living thing (you can always go back). I say this because I've found that doing this in just the last month has:
- made me get creative
- made me no longer waste food
- caused me to lose weight
- resulted in me having fun in new ways with my friends

4) Finally, I suggest thinking about your life vision and goals as well as you job skills. Having sense of what you feel your unique gifts/skills are, what you still wish to learn and where you'd like to be in 5, 10, 20 years can be valuable personally, professionally and financially.

Best of luck!

Calvawt

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Re: Case Study: Mustache me please!
« Reply #5 on: September 07, 2014, 11:09:42 AM »
There is nothing wrong with leaving it sitting there until you feel comfortable on where to put it.  I like soccerluvof4's recommendation, I would agree picking some index funds would not be a bad idea.  I would rather have those funds in a retirement account for tax reasons, so I would recommend getting a Roth and maxing that out each year.  Good luck, you are off to a good start.

And remember financial independence is what you make of it.  Some people retire, some travel, some keep working. The point is your job no longer a restriction.

RichMoose

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Re: Case Study: Mustache me please!
« Reply #6 on: September 07, 2014, 11:57:22 AM »
I second Pauls recommendation about MadFientist for IRA. Based on your age I would advise to keep an aggresive allocation, even Warren Buffet says no more than 10% in bonds in retirement. Consider VTSAX or something similar for its diversification benefits over VFINX.

JLCollinsNH has some good stuff on his blog regarding REITS and why he stopped investing in them.

I would consider limiting your chequing account to less than $10,000, which is no more than 6 months expenses.

You can easily invest and manage your money on your own, many financial advisors point you to higher cost funds, over-insurance, and other products that help line their own pockets, not yours.

Widget

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Re: Case Study: Mustache me please!
« Reply #7 on: September 08, 2014, 10:11:20 AM »
I can't thank you all enough for the suggestions and support!

To be precise to just answering your questing since your relatively young maybe 20% in Bonds look into VBTLS and add some VTABX for some international exposure. To cover real Estate maybe consider putting 5% into VGSLX. This would give you 75% into "Stocks" 5% into Reits and 20% into Bonds.  Again this is just one option to look at and see if it would satisfy your diversification. 

These are great suggestions and exactly the kind of help I was looking for.  I have checked out these funds, and really like the looks of the VBTLS.  I hadn't considered a real estate fund, but I suppose the time to buy is while the market is still recovering (rather than after it's fully recovered!).  Definitely something to think about.

I'm pleased that you have access to this community and all the other great blogs. When I was your age there was nothing out there to help a beginner like me. You're already tapping into great resources and getting good answers. Here are some additional thoughts.

1) FIRE is not about stopping work. It's about not having to earn money. There are all kinds of good reasons for being FIRE such as:
- becoming disabled and needing a steady non-work related income
- having the freedom to do the work you love regardless of how much it pays

2) Open an IRA! I preferred a Roth IRA, but it doesn't matter - just open one. They're a great part of your portfolio.

3) You say that your expenses will go up. Might be fun to try the whole frugal living thing (you can always go back). I say this because I've found that doing this in just the last month has:
- made me get creative
- made me no longer waste food
- caused me to lose weight
- resulted in me having fun in new ways with my friends

4) Finally, I suggest thinking about your life vision and goals as well as you job skills. Having sense of what you feel your unique gifts/skills are, what you still wish to learn and where you'd like to be in 5, 10, 20 years can be valuable personally, professionally and financially.

Best of luck!

1) Wow, really great points I hadn't considered.  I do love the work I am doing, and would certainly not be able to pursue it on my own, but you're right, FI does open up a world of possibilities.

2) With this suggestion, Vawt's, and Paul der Krake pointing me to the Mad Fientist, I am definitely taking a second look at opening a Roth.  I think I'll leave my work account Traditional, but it doesn't really seem like I can go wrong with another IRA.  Roth makes the most sense here since I've already paid taxes on the money.  I'm also considering looking into an HSA through my employer (thanks to the Mad Fientist).

3) I will definitely be living frugal.  I'm planning on getting a roommate, carpooling to work, and cooking more at home.  My expenses are so low now because I am deployed, but $300 isn't realistic to live off of once I'm back home.  I am looking for ways to cut costs though; considering switching my cell phone plan, cutting back on health insurance, and even looking at bikes on craigslist.

4) Great suggestion.  As far as life goals, I am absolutely in a job that is a perfect fit for my skills, offers great potential for growth, and I am very passionate about it.  I hope to be working for the same company for the next 20 years!  Financially, I think shooting for a million is a fun and not-to-crazy goal.  I just need to figure out how to get there.

There is nothing wrong with leaving it sitting there until you feel comfortable on where to put it.  I like soccerluvof4's recommendation, I would agree picking some index funds would not be a bad idea.  I would rather have those funds in a retirement account for tax reasons, so I would recommend getting a Roth and maxing that out each year.  Good luck, you are off to a good start.

And remember financial independence is what you make of it.  Some people retire, some travel, some keep working. The point is your job no longer a restriction.

Thank you for the encouragement.  I do feel a bit rushed to do something with it, because I just think of it sitting in my bank account collecting dust.  Your suggestion to take a step back until I feel comfortable is much needed!

I second Pauls recommendation about MadFientist for IRA. Based on your age I would advise to keep an aggresive allocation, even Warren Buffet says no more than 10% in bonds in retirement. Consider VTSAX or something similar for its diversification benefits over VFINX.

JLCollinsNH has some good stuff on his blog regarding REITS and why he stopped investing in them.

I would consider limiting your chequing account to less than $10,000, which is no more than 6 months expenses.

You can easily invest and manage your money on your own, many financial advisors point you to higher cost funds, over-insurance, and other products that help line their own pockets, not yours.

Great input, thanks!  Perhaps I should read more of what The Buffet has to say.  My reasoning behind wanting to put a little more in bonds was because I am viewing is as more of a short-term investment, in case I need to make a big purchase in the future (like a house).  But the fact that that isn't even on my radar as a goal right now maybe means I should just do something more long-term with it, and start saving for a down payment at the point when I do decide to buy a home.

I agree there is far too much in my checking right now.  I think I'm even comfortable with something closer to 5-7k.  Thanks for the vote of confidence on doing my own investing.  I do feel like this is something I should be able to manage without screwing up too badly.  I'll check out this JLCollinsNH you mention...

Mother Fussbudget

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Re: Case Study: Mustache me please!
« Reply #8 on: September 08, 2014, 10:37:17 AM »
I haven't followed the Motley Fool for a long time (too much inbox hype for me), but once upon a time, they informed potential investors that YOU could do as well as Wall Street without the need for a high priced financial advisor.  Their '13 Steps to Investing Foolishly' http://www.fool.com/how-to-invest/thirteen-steps/index.aspx probably covers most of this ground.  If you decide to invest in individual companies, invest in ones you know.  Companies who's products you use and love.  Q: Ride a Harley?  A: Buy Harley Davidson.  Q: Can't live without your iPhone?  A: Invest in Apple.

But as one who lost most of his first fortune thanks to a 'financial advisor' who wouldn't sell-my-stocks when I wanted to sell... (and rode the dot-com-bust all-the-way down)  I say you're ahead of the game - you're AT LEAST as smart as any financial advisor/broker, and you should keep your own advice.   Get an account where you can trade for-yourself  (Vanguard, Fidelity, Sharebuilder, etc) direct control of your funds, and cut out the middle-man and his return-sucking fees.  Being here is a good start.

If you don't want to buy real estate, but want to take part in real-estate price movement (like me), then REIT's may make sense:  own property(ies) without owning "real-estate" (or fixing toilets).

You're too young to own too many bonds (IMHO): 10% MAX - and think of that 10% as an Insurance Policy against the economy tanking.
But DO open that Roth-IRA, and MAX out your 401k or other work-sponsored retirement account.

I've been all over the place regarding investing:  Day Trading, Index fund trading, Call/Put option trading, and now entire-stock-market non-trading (investing in VTI in lieu of VTSAX).
« Last Edit: September 08, 2014, 10:40:38 AM by Mother Fussbudget »

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Re: Case Study: Mustache me please!
« Reply #9 on: September 08, 2014, 11:11:36 AM »
I haven't followed the Motley Fool for a long time (too much inbox hype for me), but once upon a time, they informed potential investors that YOU could do as well as Wall Street without the need for a high priced financial advisor.  Their '13 Steps to Investing Foolishly' http://www.fool.com/how-to-invest/thirteen-steps/index.aspx probably covers most of this ground.  If you decide to invest in individual companies, invest in ones you know.  Companies who's products you use and love.  Q: Ride a Harley?  A: Buy Harley Davidson.  Q: Can't live without your iPhone?  A: Invest in Apple.

But as one who lost most of his first fortune thanks to a 'financial advisor' who wouldn't sell-my-stocks when I wanted to sell... (and rode the dot-com-bust all-the-way down)  I say you're ahead of the game - you're AT LEAST as smart as any financial advisor/broker, and you should keep your own advice.   Get an account where you can trade for-yourself  (Vanguard, Fidelity, Sharebuilder, etc) direct control of your funds, and cut out the middle-man and his return-sucking fees.  Being here is a good start.

If you don't want to buy real estate, but want to take part in real-estate price movement (like me), then REIT's may make sense:  own property(ies) without owning "real-estate" (or fixing toilets).

You're too young to own too many bonds (IMHO): 10% MAX - and think of that 10% as an Insurance Policy against the economy tanking.
But DO open that Roth-IRA, and MAX out your 401k or other work-sponsored retirement account.

I've been all over the place regarding investing:  Day Trading, Index fund trading, Call/Put option trading, and now entire-stock-market non-trading (investing in VTI in lieu of VTSAX).

Thank you for your thoughtful advice.  I had a passenger-seat view to a bad financial advisor; watching my mom deal with one really just turned me off to the whole idea.  I'm sorry you had to experience it first hand.  At some point I think it'll be too much for me to handle, but for now I seem to be doing ok with all of these excellent, level-headed, internet resources (who aren't charging me crazy fees).

Good bond suggestions.  10% seems to be the consensus.  I think I just need to take a hard look at what I might realistically need in the next 5 years or so.

Regarding stocks in companies I like, I'd love to buy some SBUX, but the P/E right now is 256!  That just seems way too high to be a good idea.  Maybe if they take a dip one day.

Widget

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Re: Case Study: Mustache me please!
« Reply #10 on: July 04, 2015, 10:20:07 AM »
Just wanted to update, I can't believe how far I've come since I first posted, not necessarily in terms of savings but in my confidence in my ability to make sound investment decisions.  The encouragement I found here (and from a CFA friend) really gave me the boost I needed to trust myself.  I recently started using the Personal Capital website to aggregate my investments into one place, and was very pleased to see that I hit the nail on the head; my "recommended target" was right on top of my actual investments!

First status:
Income:    
-->Base salary $60,587.  Annual raise of about 1%, although I do expect a few promotions over the next 30 years or so.
-->Will add $20,000 to $30,000 this year in overtime

Retirement:   
-->$13,613 combined in all work retirement funds
-->$1,822 of that is in the TSP (Government’s Thrift Savings Plan).  I had been contributing 5% to the L2050 Traditional Lifecycle fund (https://www.tsp.gov/investmentfunds/lfundsheet/fundPerformance_L2050.shtml), however I just upped it to 50% since my current living expenses are $300-400/month.  I plan to reduce contributions to about 29% in January as my expenses will return to more human levels. This should meet the yearly max contribution of $17,500.
-->Still considering a Roth, but everything I’ve read makes me think the traditional is a better option for me.

Investing:   
-->30,000 in Vanguard VFINX

Checking and Savings:   
-->$33,000

Debt:       
-->None.  I use a credit card I pay off every month for the airline miles.

Expenses
-->Currently abnormally low as I mentioned, but will around $1500/month beginning in January.  I was not planning to provide an expense breakdown because my focus here is more on what to do with my current earnings than where to cut spending.

And my update:

Still 29, still unmarried with no kids.

Income:    
-->Base salary $73,360.
-->Will add about $50k in overtime between now and next March.

Retirement:   
-->$22,665 in TSP, intending to max out my yearly contribution.  (Not factoring in other work retirement, FERS, etc).
-->$11,306 in Vanguard Roth

Investing:   
-->$70,600 in Vanguard investments; including stocks and mutual funds (although I saved quite a bit, I also inherited some).  I did end up investing in SBUX and caught a stock split!
-->$38,700 in Betterment (an investment service) with a 90/10 allocation.  I primarily signed up to see if they could invest my money better than I could, and have been comparing their ROI to my own in Vanguard.  I really don't think they can do any better, especially given that their fees are higher. Contemplating transferring this to Vanguard to manage myself.

Checking and Savings:   
-->~$10k.  Could probably still invest some of this, especially considering I have $4,500 of my Vanguard investments in just a money market account and no large purchases on the horizon.

Debt:       
-->Still just a cc that I pay off monthly.

Expenses
-->Monthly expenses are less than I expected at about $1000, but I have been spending a lot on travel to see family.  For me, visiting family is a non-negotable, so I'm not sure how to eliminate that expense.  I do have a friend who signs up for credit cards to earn the bonus miles and then closes the account, so I've considered that but I'm not sure if it's worth the work it would take to meticulously track everything. 

My goal this year it to hit $200k net-worth.  With only one more trip home planned and no other large (foreseen) expenses, I don't see any reason why I shouldn't be able to make it!
« Last Edit: July 04, 2015, 10:22:57 AM by Widget »

RichMoose

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Re: Case Study: Mustache me please!
« Reply #11 on: July 05, 2015, 12:28:22 AM »
Nice progress! I'm happy to see you are more confident in making investment decisions, remember to just keep it simple. This will help you get ahead by keeping costs down.

You must be working ridiculous hours to earn that kind of overtime!

MDM

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Re: Case Study: Mustache me please!
« Reply #12 on: July 05, 2015, 01:09:25 AM »
Checking and Savings:   
-->~$10k.  Could probably still invest some of this, especially considering I have $4,500 of my Vanguard investments in just a money market account and no large purchases on the horizon.

You are doing great indeed - keep it up!

For the quoted item, yes, putting the $4500 into something other than a money market makes sense.  Given your cash flow and how rapidly you are building your stash, however, you do have the luxury of keeping that $10K in cash without affecting your time to FI much at all.  E.g., if you were to take $5K from cash and invest it now, that would likely shave less than a month from your time to FI.

Cycling Stache

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Re: Case Study: Mustache me please!
« Reply #13 on: July 05, 2015, 03:20:37 AM »
Retirement:   
-->$22,665 in TSP, intending to max out my yearly contribution.  (Not factoring in other work retirement, FERS, etc).
-->$11,306 in Vanguard Roth

Widget, if you're government and getting the 5% match in your TSP, just make sure not to hit the yearly maximum ($18,000 this year) until your last paycheck.  They match 5% per pay period, so you need to have contributions until the last pay period to get your full match for the year.  Thus, if aiming for max contributions, you need to spread it out through the entire year.

This is a little wrinkle that I didn't realize at first, because I used to accelerate my contributions at a previous job and hit my maximum before year end. 

Widget

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Re: Case Study: Mustache me please!
« Reply #14 on: July 05, 2015, 07:34:00 AM »
Nice progress! I'm happy to see you are more confident in making investment decisions, remember to just keep it simple. This will help you get ahead by keeping costs down.

You must be working ridiculous hours to earn that kind of overtime!

Thanks, great advice!  And yes, the hours are very ridiculous. But I'm willing to do it while I'm young...just planning to pull back before it makes me crazy. :-D

Checking and Savings:   
-->~$10k.  Could probably still invest some of this, especially considering I have $4,500 of my Vanguard investments in just a money market account and no large purchases on the horizon.

You are doing great indeed - keep it up!

For the quoted item, yes, putting the $4500 into something other than a money market makes sense.  Given your cash flow and how rapidly you are building your stash, however, you do have the luxury of keeping that $10K in cash without affecting your time to FI much at all.  E.g., if you were to take $5K from cash and invest it now, that would likely shave less than a month from your time to FI.

Interesting, thanks! I hadn't done the math on that.

Retirement:   
-->$22,665 in TSP, intending to max out my yearly contribution.  (Not factoring in other work retirement, FERS, etc).
-->$11,306 in Vanguard Roth

Widget, if you're government and getting the 5% match in your TSP, just make sure not to hit the yearly maximum ($18,000 this year) until your last paycheck.  They match 5% per pay period, so you need to have contributions until the last pay period to get your full match for the year.  Thus, if aiming for max contributions, you need to spread it out through the entire year.

This is a little wrinkle that I didn't realize at first, because I used to accelerate my contributions at a previous job and hit my maximum before year end. 

Yes, I shouldn't hit the max on percentage alone this year, and will have to make an additional lump payment towards the end of the year. The % is only from base pay, so none of my OT will be factored in.  But I am keeping an eye on it, thanks for the reminder!

2Birds1Stone

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Re: Case Study: Mustache me please!
« Reply #15 on: July 05, 2015, 10:08:30 AM »
Wow! Amazing progress indeed. The fact that you know you can add another $50k in overtime in 8 months is pretty incredible!

Lady Fordragon

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Re: Case Study: Mustache me please!
« Reply #16 on: July 05, 2015, 11:50:55 AM »
Awesome job!  I recently started applying for various credit cards in order to get the introductory bonuses.  It's definitely worth it since I also travel home quite a bit. You can set them up to be automatically paid off every month.  Also, you can track your expenses on them using a free service like Mint.  Best of luck!

Widget

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Re: Case Study: Mustache me please!
« Reply #17 on: July 06, 2015, 04:10:54 PM »
Wow! Amazing progress indeed. The fact that you know you can add another $50k in overtime in 8 months is pretty incredible!

Thanks!  I do have to pay taxes on it still, and it includes a lot of sacrifice (missing holidays, weddings, etc), but I feel fortunate t have the opportunity.

Awesome job!  I recently started applying for various credit cards in order to get the introductory bonuses.  It's definitely worth it since I also travel home quite a bit. You can set them up to be automatically paid off every month.  Also, you can track your expenses on them using a free service like Mint.  Best of luck!

Oh great to get a second opinion on this, thanks!