Author Topic: Case Study - New career, need direction  (Read 3097 times)

Wargent

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Case Study - New career, need direction
« on: September 24, 2014, 03:39:42 PM »
Topic Title: Case Study - New career, need direction

Hello MMM, I've been lurking here for a few weeks and I love the website so far. A little bit about me: I'm 25 years old. After a few mediocre physical-labor type jobs I finally landed myself a decent career at the end of last year. I spent the past 6 months in Virginia training for the position and will finally be fully qualified in one week. While I was staying down there (housing was paid for) I received site adjustment and some extra pay which allowed me to tackle my auto loan (now paid off 100%) and my student loans (not done yet). I've been listening to Dave Ramsay's radio broadcast for the past year or two and it lead me in the right direction but MMM seems like the next step and FIRE by 35-40 years old is now my ultimate goal. Now that I'm back home and living on my own, weeks away from a substantial raise (once I'm qualified officially) I figured it would be a good idea to post a case study so I'm prepared to tackle my finances even harder once I'm making more money. If you read this all, thanks for your time/help!

Income:
I currently make ~$52,000/year ($24.45/hour).
Take home ~$2,500/month

In a few weeks I will be making ~$62,000/year ($29.75/hour I believe)

I can't work any overtime until I'm qualified. I've been told by other employees to expect $75,000+ with overtime once I am.
I will update this post once I've had a month w/ the new income

Current expenses:
Rent: $400/month
Utilities: Unknown (Just moved in last month, will update)
Groceries: ~$175/month
Phone bill: $60/month (on my parents family plan)
Auto insurance: $120/month
Gas: $400 (50 minute commute each way, 19 MPG SUV)
Restaurants: $140 last month (this month is far less as I stopped buying food for breakfast/lunch @ work)
Bars: Avg. $120/month
Hair cut: $40/month
Total: $1455
Remaining: $1045
  - Last month the majority of this went towards student loans and paying off my SUV (now paid off)

Assets:
Savings: $1,000 (emergency fund)
401(k): $8,000 (I'm at 6% traditional w/ 5% company match and 2% roth)
Roth IRA: $800
Brokerage: $800
Windfall: $3,000 from relative that passed away, currently planning to use towards car down payment.

Liabilities:
Student Loans: $13,500 total (paid off approx. $10k in the past 5 months)
   - $7,600 @ 6.55%
   - $1,500 @ 4.25%
   - $4,100 @ 6.55%
   - $170    @ 4.25%
Specific Question(s):
1. Is renting for $400/month (fairly cheap IMO) worth being 45-50 minutes from work?
2. After my raise should I increase my retirement contribution or focus on student loans first?
3. Should I take out the money in my brokerage account and add it to my Roth IRA? I was going to attempt to invest in individual stocks but it seems like a better idea to pump it into my Roth and buy into a Vanguard index fund once I have enough money
4. I would like to pay off my student loans in a year at least which would require $1,125 per month approx. Is this do-able with my raise/less money spent on food/bar?


Minor Update: I emailed the dealership tonight and told them I want to cancel my order for the new car. I will be selling my SUV this weekend and looking for something reliable that I can buy in cash.

Next step, move closer to work!
« Last Edit: October 01, 2014, 08:55:44 PM by Wargent »

Seņora Savings

  • Stubble
  • **
  • Posts: 179
  • Age: 32
Re: Case Study - New career, need direction
« Reply #1 on: September 24, 2014, 04:25:59 PM »
You're doing pretty good, saving about 42% before you get a raise. 

You've got some easy money savers.  Get a Republic Wireless phone, savings of $35 with unlimited data.  Cut your own hair, unless you have a fancy haircut that gives you joy, figuring this out will save you time, money and hassle.

And here are my answers to your questions:

1. How much would you have to pay to live close to work?  MMM estimates that it costs $170 per year for each mile that you commute to work.  That mean each mile closer is worth paying $14 per month more in rent. http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/

2. You're already contributing to the company match, so I would knock out student loans.  Also, you've graduated from David Ramsey; pay off the highest interest loans first.

3. Roth IRA is better.  You probably shouldn't invest in individual stocks, but if you do, find a Roth IRA to do it in. 

4. Yes

5. You have about a 0 net worth.  Any money you put into the car is not going to pay off your students loans.  That means that any money you have to pay into the car before your students loans are done will be at that interest rate.  Loosing the $1,000 is a good idea if you can find a car that would probably save you $1,000 over the one you bought.  So probably.  Did you pick out your car with excellent gas mileage and reliability as the only criteria?

Wargent

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Case Study - New career, need direction
« Reply #2 on: September 24, 2014, 05:17:14 PM »
Thanks for the reply Senora Savings!

I read a little bit about Republic Wireless and Ting Wireless. I need to check with my parents to see if I'm still in contract with Verizon or not as I bought my current phone ~1 year ago. As soon as that's over I will be jumping ship and getting my own plan. That haircut amount is for two cuts a month, which I could drop down to one a month at the least. I will look into cutting my own hair also.

1. After a few minutes on Craigslist I found an apartment community type thing that is 1 mile from my work. They have studio apartments for $699 per month or 1 bedroom, slightly nicer apartments for $850 per month. If I moved there I would be able to bike to work, which I know people here love. The area is not as appealing and I would then be 35 minutes from my girlfriend/friends as opposed to 10 minutes. The other option is stick it out here for 6 mos - 1 year and then find a place w/ my gf. She works in relatively the same area and has a similar commute, I just don't think she's ready for that yet. It seems like the right move and considering she works second shift I would really only be driving back down to this area on the weekends...2 days of driving is certainly better than 5+

2. Ha! Will do

5. It's a Fiesta ST which isn't the highest fuel economy fiesta (it's the turbo trim) but it gets 26 city/35 highway. This will be a tough one for me, I'll have to look at some used options and see what I can come up with.

Thanks!

Mortgage Free Mike

  • Stubble
  • **
  • Posts: 129
  • Age: 35
    • Save on Almost Everything
Re: Case Study - New career, need direction
« Reply #3 on: September 27, 2014, 01:56:03 PM »
That commute seems brutal. I always calculate that commute time into my daily work time-- so for you it's more like a 10 hour workday....

Sounds like things are in flux at the moment... Lots of moving parts... Maybe stay where you are a few months and see how it goes? No need to rush a move, especially if girlfriend may soon be ready to move with you.

But I do think you'll be happier in the long-term if you live closer to where you work. Again, no harm in the short-term.

Best wishes. You're gonna do great.

Terrestrial

  • Bristles
  • ***
  • Posts: 296
Re: Case Study - New career, need direction
« Reply #4 on: September 27, 2014, 04:09:11 PM »
Sorry, major face punch on the new car.  You JUST paid off a car and then decided to back into debt for another one? What is wrong with the car you have (and finally just paid off??).   If you're putting ~25% down that means you're borrowing another 17k, i'm guessing over a 3-5 year term?  That's anywhere from 275-475/month.  Lets split the difference and say 375.

I suppose I understand your limitations on the girlfriend/friend thing but consider what this is worth to you:

OPTION 1:
Current rent: 400
PLUS: 400/gas
PLUS: 375/new car payment
Total = 1175/mo

OPTION 2:
New Rent: 700 studio (you're 25, no need to be fancy, it's much fancier to have A LOT of money later in life and not have to work.  When your GF moves down then get a bigger place since you will split the rent)
PLUS: 100/gas (no gas spent commuting, just occasional errands or weekend trip to friends).
NO new car payment (dont need new car if you seldom drive)
Total = 800/mo

Also consider that didn't even account for the extra registration/insurance $ (new cars are much more to register in most states, new cars also cost more to insure).

So that's 375/month (4500/year) saved by basically doing nothing except moving and not buying an unnecessary new car.  To boot you will have lots of extra time for other endeavors by not driving almost 1hr 40mins each day and having a 20 minute round trip commute by bike instead.

I also see you are going to be eligible for over time.  If you just take the difference in commuting time (1 hour/day) and put that into an hour of overtime 4 days a week at your standard rate of ~30/hour that's another ~6000/year with zero extra 'time' spent out of your life (if you're driving you may as well be working and earning money).  If you are lucky enough to get time and a half for overtime that's $9k/year.

So there you go, there's an extra 10k-13k/year.   Enough to pay off your loans in your stated year time frame without even devoting a cent of extra money to it, this is all money that's either being wasted (or not optimized) now.  Over the long term 10-13k is a huge chunk of maxing out a 401k for the year...and that's how you will get to FIRE at 35.
« Last Edit: September 27, 2014, 04:17:45 PM by Terrestrial »

hyla

  • Stubble
  • **
  • Posts: 177
Re: Case Study - New career, need direction
« Reply #5 on: September 27, 2014, 04:38:40 PM »
No new car!  When I was 25, I managed to start retirement contributions at half the salary you are making now, and a major reason why I was able to do so was never having car payments - I bought small cars, as new and reliable as I could afford with cash (in the case of the first car, was pretty rusty and the AC didn't work but still made it across the country 5 times, the current car is a much nicer!) With your long commute, it could make sense to buy an efficient used car with the cash from selling your SUV.

I wouldn't want that long commute, but it sounds like it might make sense for you if you're close to your girlfriend, and if you don't want to move twice in a year if you might consider moving in with her soon. 

I'd concentrate the extra money on paying down high interest loans and growing your emergency fund ($1000 seems alarmingly low, one bad car repair or medical emergency could wipe that out!), but also set up at least modest monthly deposits to 401k or IRA.  I think there is something in getting some momentum going and seeing your accounts grow to encourage you to keep prioritizing saving.

Wargent

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Case Study - New career, need direction
« Reply #6 on: October 01, 2014, 09:03:27 AM »
Thanks for the responses (and face punching)! Okay, so I definitely understand now that a new car is a poor choice. I made the order before finding this forum and sort of convinced myself that I deserved it after getting through my training etc. But I could easily buy a cheaper car with cash and maintain it myself.

Now how do I go about canceling my order if I decide to do so? I made a deposit, signed paperwork etc. The order is in but has not been built yet so I'm sure they could cancel it. I don't expect to get a refund on the deposit.

As for the move, I think my girlfriend is getting closer to moving somewhere with me, she was looking at places a few nights ago. I'm thinking by January we could both move closer to work.