Author Topic: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.  (Read 4604 times)

COLONEL_TASK

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STATS

35 years old, software developer employed full-time, lives in Brooklyn NYC with my girlfriend who owns her home. If things keep going well, I would love to get married sometime in the next 2 years. No kids and no plans to have kids.

INCOME

Salary from full-time job until 7/31/2014: 97,000 + 3,000 bonus = 100,000 total
Freelance income: A very small amount -- so far this year I have collected only 1,282.

Salary from full-time job after 8/4/2014:
110,000 base
"Profit sharing bonus" at end of June and end of December each year averaging 16% of previous 6 months' salary, so projected bonus total for an average year is about 17,600.
127,600 total (EDIT: typo/miscalculation)

Projected freelance income: I have a bigger project that will probably come through next month which should gross 8,000. I will be phasing freelance work out as I start my new job (I want to work on my own projects).

>>> Total projected annual income as of 8/4/2014: 117,600+

CURRENT MONTHLY EXPENSES

1311.08 Rent (1/4 of my girlfriend's mortgage)
138.87 Student loan payment
50.00 Gym (prepaid through August 2015)
As for other things: I am not sure. One of my goals in Mustachianing my life is keeping track of ALL of my expenditures for a few months so I will be able to answer this question. The last time I did this was in 2011 to calculate my emergency fund amount. At that time, the bare minimum to pay my rent and bills and eat was about 1800. My spending has crept up since then to track my increased salary. I spend a lot of money on food (cheap-to-midrange restaurants/takeout) although I do bring my homemade lunch and dinner to work at least 3-4 days out of the week. I enjoy traveling, and I went on a trip to Turkey with my girlfriend earlier this summer. It was not extravagant or anything, but it was still expensive. I also own an older dog (and co-own a puppy) so there are pet-related expenses too.

>>> Total expenses: at least 1500, probably in the neighborhood of 2500, maybe even as high as 2700, which seems so unnecessary and excessive even as I type it out right now. :|

ASSETS

7,990.56 Great-West 401k from current employer
1,161.25 Great-West profit-sharing from current employer (vested amount)
13,060.81 Vanguard Roth IRA
5,076.58 Vanguard 403b from old employer (account #1)
5,713.03 Vanguard 403b from old employer (account #2)
25,731.75 Vanguard 403b from old employer (account #3)
* All retirement accounts are 100% in VTIVX (Vanguard Target Retirement 2045)
7,095.67 Local bank checking
8,741.92 Capital One 360 savings
15.86 HSBC Advance (I should close this one as I haven't used it since it was called HSBC Direct)

>>> Total assets: 74,587.43

LIABILITIES

10,326.98 Sallie Mae student loan fixed at 2.38%
3,528.86 United MileagePlus Visa. I put as much of my spending on this as possible. I pay the statement balance every month. (EDIT for clarity: I don't carry any balance on the card that incurs interest!)

>>> Total liabilities: 13,855.84

SPECIFIC QUESTIONS (only two, because they are long-winded!)

I did not fund my 401k very much while I worked at my current job from late 2011 through this month.

I had a plan to save for a down payment on a 2-family somewhere in non-prime but kinda-safe outer-borough NYC. I had an epiphany this weekend after reading the biggerpockets.com forums for a day straight, and then going back to the MMM forums for another day. I realized this idea is not very smart. It doesn't seem like a realistic option given the sheer amount of downpayment that is required to make it cash flow. Plus there are the delays, hassles, and expense of buying or selling, AND the influx of all-cash buyers in the city right now. I also read some pretty convincing threads on the MMM forums, e.g.
http://forum.mrmoneymustache.com/real-estate-and-landlording/investment-property-sell-at-a-loss-wwyd/
http://forum.mrmoneymustache.com/real-estate-and-landlording/keep-or-sell-nyc-apartment/
http://forum.mrmoneymustache.com/real-estate-and-landlording/case-study-rent-or-sell-in-manhattan/

I also considered buying single-family 2BR rowhomes in my old neighborhood of University City Philadelphia. I lived there for 14 years and know it well. They are much cheaper and I would have a better chance of making money in the average month. But even then I realized I want to work hard at my new job and enjoy my day-to-day life in NYC. I don't want to be saddled with the hassle of Victorian-era rentals 2 hours south. Plus ongoing expenses. I don't even own a car.

I came to the conclusion that my spare time should be invested in improving my job-related skills, since this time investment is most likely to make me money. (I also enjoy it!) My downpayment-saving plan was a failure anyway, as you can see from my cash assets. I decided that it may suit me much better to take the hands-off approach and put ALL of my non-EF cash into retirement and taxable mutual funds.

ACTUAL QUESTION 1: Am I stupid for giving up on the landlording idea in lieu of investing?
 
ACTUAL QUESTION 2: My new job doesn't allow any 401k participation until 1 year of employment. After that they will match 4%, and they are partnered with Vanguard. So that is great. But until then, what should I do?

I think my income will be too high to continue contributing to the Roth IRA I already have. Am I wrong about this?

Should I open a traditional IRA at Vanguard and roll all of my old 403b accounts and my current employer's 401k into it?

Which fund? Should I stick with VTIVX even though I may be trying for FI much earlier than 2045? Should I just go all in to VTSAX (Total Stock Market Index Admiral Shares with its 0.05% expense ratio)?

THEN, since I can only contribute 5,500 aside from the rollover amount to an IRA, what should I do with the remainder of my excess income in 2014?

Thanks a lot, and let me know if I can provide any more info.
« Last Edit: July 23, 2014, 07:57:43 PM by COLONEL_TASK »

majdomo

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Re: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.
« Reply #1 on: July 23, 2014, 03:45:45 PM »
answer to question 1 - the landlording idea is not necessarily a good one for you right now. there are plenty of other ways to invest your money. like paying off your student loans. get rid of your debt emergency first and punch that s**t in the face! the answer to getting out of debt is to NOT get into MORE debt (mortgage or otherwise). so pay off your student loans and stop using your credit card. but i think you already knew this.

answer to question 2 - see the answer to question 1. you get a guaranteed return when you invest in paying off your loans.

after that, it gets more complicated. i don't know if your ultimate goal is FI or not, but if you want to be a hardcore mustachian (brian wilson-style beard) then that would be your goal. in that case you may decide to keep your expenses super low and throw all your excess cash into savings / investments until they total 25x your annual spending. then you could probably retire.

you could also do a mild mustache (like a fu manchu or a soul patch) and save for retirement and a rainy day and call it but that's up to you. i'm somewhere in the middle, personally, and i'd guess most people are too.

however, in any case i would start tracking your expenses in extreme detail and get on a budget, then start tightening the screws on the leaks. start with something in a spreadsheet then graduate to a software program (like YNAB).

oh, and go back and read more MMM. all you want to know and then some is probably on the site somewhere.

punch your loans in the face. that's step 1 and 2 and like 100 until you are done with your debt. and stay off the sauce. cut up the credit cards if you have to. good luck!

Jags4186

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Re: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.
« Reply #2 on: July 23, 2014, 04:07:32 PM »
How long have you been making this type of money?

Even with $2700/mo in expenses you should be saving at least that much a month with 100k gross income.  Why do you only have 75k?  I suspect either this income is relatively new or you spend way more than you think.

COLONEL_TASK

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Re: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.
« Reply #3 on: July 23, 2014, 04:15:49 PM »
Good question. It hasn't been too long.

2006: $29k
2007: $35k
2008: $39k
2009: $39k
2010: $39k
2011: $55k
2012: $82k
2013: $82k
2014: $97k

Most of my retirement account contributions came from my lower-paying university job in Philly before I moved to New York in 2011. I got a lot better at the work that I do, and NYC wages are much higher of course. I am embarrassed that I didn't take more of an opportunity to save in the past few years. (EDIT: got dates mixed up)
« Last Edit: July 23, 2014, 04:20:11 PM by COLONEL_TASK »

NoraLenderbee

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Re: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.
« Reply #4 on: July 23, 2014, 04:37:32 PM »
Welcome! I have just a few comments right now. Others will be along with more feedback soon.



>>> Total projected annual income as of 8/4/2014: 117,600+

CURRENT MONTHLY EXPENSES

1311.08 Rent (1/4 of my girlfriend's mortgage)
138.87 Student loan payment
50.00 Gym (prepaid through August 2015)
As for other things: I am not sure.

 . . .

3,528.86 United MileagePlus Visa. I put as much of my spending on this as possible. I pay the statement balance every month. (EDIT for clarity: I don't carry any balance on the card that incurs interest!)

If you pay in full every month (good for you!), that means you spent $3500 in the past month. Where is all that money going? Look at your VISA bill to identify your categories of spending, recurrent vs one-time expenses, and start to itemize how much you're really spending and on what. You may be surprised. That information will also help folks here help you.

Quote

ACTUAL QUESTION 1: Am I stupid for giving up on the landlording idea in lieu of investing?

No. This isn't the right time for you, and maybe not the right location, either. There are other ways to invest besides real estate. Besides, you can do it later if you choose to.
 
Quote

ACTUAL QUESTION 2: My new job doesn't allow any 401k participation until 1 year of employment. After that they will match 4%, and they are partnered with Vanguard. So that is great. But until then, what should I do?

Put aside the money anyway. Better to save after taxes than not to save!

Quote

Should I open a traditional IRA at Vanguard and roll all of my old 403b accounts and my current employer's 401k into it?
You can't roll over a 401k from your current employer until they become your past employer. You should definitely roll over old 401k's into a Trad IRA. Just call or email Vanguard--they make it very easy. You can probably do the same with 403b's, but ask Vanguard--there may be special rules for them (I'm not familiar with 403b).

Quote
Which fund? Should I stick with VTIVX even though I may be trying for FI much earlier than 2045? Should I just go all in to VTSAX (Total Stock Market Index Admiral Shares with its 0.05% expense ratio)?

Do the rollover first. Then read and learn. You can change funds later you figure out an asset allocation plan for yourself.

Quote

THEN, since I can only contribute 5,500 aside from the rollover amount to an IRA, what should I do with the remainder of my excess income in 2014?

Hookers and blow!


randomstring

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Re: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.
« Reply #5 on: July 23, 2014, 05:02:04 PM »
You should definitely roll over old 401k's into a Trad IRA.

I disagree on "definitely". If you are planning to do backdoor Roth, do not roll over your 401k to TIRA. For easiest backdoor Roth you should not have an IRA with a mix pre and post tax money.

thirtysomething

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Re: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.
« Reply #6 on: July 23, 2014, 05:25:05 PM »
I also live in NYC. I make a little more, but we are a one-income family of 5. If monthly expenses are $2700, that's $33k per year after tax (50%? Of take home). No reason you couldn't save the other 50%. Agree with previous posts.

Q1)  I've had the same thought. But NYC real estate could be more trouble at this stage than it's worth. We have friends with nice places in the city who are losing money and are tired of the hassle. The stock market was up 30% last year with no repairs and no mgmt fees. We are going to invest in the stock market as our primary FI/RE plan. We are saving bonuses, etc to eventually buy a place (we rent in queens).

Q2) Save 50% in after-tax index funds. Once you are eligible (next year) max out the 401k. I'd combine all the old retirement accounts for simplicity.  I use an S&P 500 fund. Not a fan of retirement date funds.

Chrissy

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Re: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.
« Reply #7 on: July 23, 2014, 06:56:22 PM »
You qualify for a ROTH if your income is $117,600, but you can't contribute the max.  The phase out is $114,001-$129,000.  Put at least $4,000 in your 401k to get your income under $114,000, so you can put the max ($5,500) in the ROTH.

However, I think you miscalculated your income.  You said you will earn $110,000 in base salary + $17,600 in estimated bonus, which totals ~$127,600.  If this is the case, the answer is to put at least $14,000 into your 401k to get your income under $114,000.

http://www.rothira.com/roth-ira-limits

First world problems, man!

NoraLenderbee

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Re: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.
« Reply #8 on: July 23, 2014, 06:58:19 PM »
You should definitely roll over old 401k's into a Trad IRA.

I disagree on "definitely". If you are planning to do backdoor Roth, do not roll over your 401k to TIRA. For easiest backdoor Roth you should not have an IRA with a mix pre and post tax money.

The 401k rollover would be all pre-tax contributions, and then he could start a new TIRA with post-tax contributions. :)

COLONEL_TASK

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Re: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.
« Reply #9 on: July 23, 2014, 08:19:19 PM »
Yep, luxury problems for sure. Thank you all very much for the advice.

What I need most is to figure out what is going on with my spending. When I started writing this, I didn't realize how little I knew about it, and it's super embarrassing. I will try to remember to reply in the fall once I have proper stats from the Google sheet I just set up.

Aside from that, thirtysomething's suggestions seem most practical right now. I started the 403b->traditional IRA rollovers tonight on vanguard.com. I have to print, sign, and mail in 26 pages for each one of those 403b accounts!

gradstudent

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Re: CASE STUDY: Need to Mustachian my life in NYC. Any advice welcome.
« Reply #10 on: July 24, 2014, 12:54:52 PM »
My wife and I live in Manhattan. Apart from rent, we spend about $1,600 a month. That includes health insurance, food, public transportation, several plane tickets and vacations a year, and all the other miscellaneous things that come up. We go out to eat about once a month, and about the same to a play/musical/opera production. We find it is easy to live a great and interesting life here. Like some of the other posters have said, you have to get your spending under control. After maxing out tax advantaged savings, you should easily be able to save half of your monthly take home pay.

You also already know what your expenses have been for the past few months. Just look at your old credit card statements since that is where you put everything. No need to wait for a few months before doing something when you know what you need to now.