Author Topic: Case Study - new mustachian, 26/f, fed employee, need help w/ budget/savings  (Read 3210 times)

Kwtraveladdiction

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Life Situation: IRS filing - single, 0 dependents, no mortgage, recently moved to Washington DC Area (still in Virginia). 26 yr old.

Gross Salary/Wages:
$37.89 / hour
$79,079/year
26 pay periods (fed employee) = $3,031.20

Other Ordinary Income: I coach sports as a 1099 ~$2500-3000/year

Deductions Based on paycheck (not including TSP):
FEGLI $12.30
MEDICare $42.75
FERS RETIRE $24.25
FED TAX $475.81
Vision $5.11
Charity $10
FEHB $68.48
OASDI $182.75
TAX STATE $142.18
DENTAL $9.92

***Fed match 5%*****
Currently contribution towards TSP: 5% TSP, 1% Roth TSP
Current balance of TSP (i only started 1% roth 2 paychecks ago): $25,241 total
Current TSP distribution
9% G fund (gov security)
5% F fund (fix income index)
50% C fund (common stock)
30% S fund (small cap stock)
6% I fund (international)

Current Balance:
$2,727 in G
$1,559 in F
$12,797 in C
$7,283 in S
$875 in I

Current expenses: $600 (currently living with family in NoVA, trying to sublease my old apartment), $250 (to my grandparents to pay off my car, will be finished in january), $125 storage unit, $366 (transportation, parking, gas, car repair savings), $500 (food, restaurants, entertainment), $1000 towards regular savings account, $200 (rental insurance, car insurance, professional liability insurance, cell phone plan), remaining funds go towards debt or unaccounted for expenses

Current Savings Account balance $9K
Current Credit Card Debt: $6K ($3K is on 0% APR until May, remaining $3K on 9.9%)
- I have strategy to pay off debt, without using savings, over next 2 months - questions will be focused on January.


For those unfamiliar with the DC/NoVA area, the rent prices here are ridiculous near work, or you have the added cost of commuting (driving/tolls, or bus & metro fares). Currently living with family until I can get rid of my old apartment (~1 more month). I have been looking at purchasing a 2BR/2BA condo (for me to live in, possible rental income down the road) or an apartment to rent. Since i'm living with family, i have time to save and see what is going to be the best option. I'm currently commuting 1HR by bus ($18/day, subsided $255) 4 days a week, but drive in 1x a week (current non-negotiable) with parking/tolls cost ~1.5HR

Specific Question(s): Two goals - condo purchase & FI by 40. Currently confused on investing/savings. After debt, apartment rent, and car payment are gone (starting in January), I'm re-distributing my budget to allow for more saving/investing. I've read a LOT on here and a few other FI websites, and was able to get a jist of I should contribute maximum to my TSP $18000(~22%) starting in January. From there, I'm having difficult calculating how much I should be saving on top of that. When factoring in how much i should be saving, based on when I want to be FI, do I look at my salary, take home pay, or something other? How much, on top of my TSP, should I be looking at investing? I think my current TSP is rather aggressive, and I think i will make the full 22% in regular TSP rather than Roth.

Thoughts?

If you made it this far, thank you!
« Last Edit: November 07, 2016, 06:35:20 PM by Kwtraveladdiction »

Mikila

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26 yr old.

When factoring in how much i should be saving, based on when I want to be FI, do I look at my salary, take home pay, or something other? How much, on top of my TSP, should I be looking at investing? I think my current TSP is rather aggressive, and I think i will make the full 22% in regular TSP rather than Roth.


The total amount you need to save is a factor of your spending.  You will need roughly 25 times expenses, and you have given yourself 14 years to save that amount.   
Look at "The Shockingly Simple Math Behind Early Retirement"   http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
 
The TSP is a FANTASTIC savings vehicle because of the ultra low fees.  I would prioritize topping that off every year.  Then, I would contribute the $5,500 to an IRA to get the tax savings. Then, I would save as much as possible in the Roth TSP.

Given your goal to retire in 14 years, I would not buy an expensive home.  Look at the rent/buy calculator here for a guideline of what makes sense for you, plugging in your numbers:   http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Kudos to you getting on the right financial track so young.

Full Beard

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Hi Kwtraveladdiction, welcome to the forum!  It sounds like you're in great shape so far.  I want to follow this thread because I'm also a federal government employee living in NoVa and working in DC.

I would definitely max out the TSP next year and I would go 100% traditional for the tax savings.  Then I'd open up an IRA and max that out at $5,500.  After that I'd look at opening up a regular taxable account wherever you set up your IRA. 

As long as you keep your expenses down and keep saving at a high rate it should be easy to become FI by 40 with your income and future step and grade increases.
« Last Edit: November 08, 2016, 10:58:33 AM by Full Beard »

JJsfr

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With open season coming up, unless you have a fair amount of dental or vision issues, I'd consider dropping those insurance plans. You might also look into an HDHP if you're healthy.

SomedayStache

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Also - if you are healthy, I would shop around for term life insurance quotes and drop your FEGLI.  (You can drop FEGLI at any time, doesn't have to be open season, however you may never be able to get FEGLI again).

You are paying $26/month for your FEGLI life insurance coverage.  Almost guaranteed you can get way more coverage for quite a bit less money if you try.

-----

Edited to add: take $3k of your savings and pay off that 9.9% debt.  Do that today.
« Last Edit: November 08, 2016, 01:07:19 PM by SomedayStache »

redbird

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If your savings account is at $9k currently, why don't you stop contributing to it temporarily and pay off that credit card just that much sooner? You can start contributing to it again as soon as you pay it off. But I personally find all debt to be an emergency. Especially when $3k of that money you're currently paying interest on.

I'd also suggest trying to dump that storage unit that you're paying for if possible. That's $1500/year just to store things.

Like others said, for FI you need to look at your expenses, not your pay. A person who makes $200,000/year but spends $198,000/year is never going to be able to become FI in their lifetime if they don't make changes. A person who makes $75,000/year but spends $25,000/year has a lot of leftover money that they can invest and then eventually become FI.

Kwtraveladdiction

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26 yr old.

When factoring in how much i should be saving, based on when I want to be FI, do I look at my salary, take home pay, or something other? How much, on top of my TSP, should I be looking at investing? I think my current TSP is rather aggressive, and I think i will make the full 22% in regular TSP rather than Roth.


The total amount you need to save is a factor of your spending.  You will need roughly 25 times expenses, and you have given yourself 14 years to save that amount.   
Look at "The Shockingly Simple Math Behind Early Retirement"   http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
 
The TSP is a FANTASTIC savings vehicle because of the ultra low fees.  I would prioritize topping that off every year.  Then, I would contribute the $5,500 to an IRA to get the tax savings. Then, I would save as much as possible in the Roth TSP.

Given your goal to retire in 14 years, I would not buy an expensive home.  Look at the rent/buy calculator here for a guideline of what makes sense for you, plugging in your numbers:   http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Kudos to you getting on the right financial track so young.

Thank you for the information! Using the rent vs. buying, if i'm living by myself, the calculator says buying would be more beneficial. If i live with roommates (random), then it is cheaper to rent. However, living with random people at this stage of my life is a non-negotiable. Once i decide whether to rent closer to work or purchase closer to work, my transportation costs from my budget will disappear. My gas costs would significantly decrease as well.

Kwtraveladdiction

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Hi Kwtraveladdiction, welcome to the forum!  It sounds like you're in great shape so far.  I want to follow this thread because I'm also a federal government employee living in NoVa and working in DC.

I would definitely max out the TSP next year and I would go 100% traditional for the tax savings.  Then I'd open up an IRA and max that out at $5,500.  After that I'd look at opening up a regular taxable account wherever you set up your IRA. 

As long as you keep your expenses down and keep saving at a high rate it should be easy to become FI by 40 with your income and future step and grade increases.
Thank you for taking the time to answer! Currently my transportation expenses are high due to living with family (for free). Once i find a closer place to live, those will decrease; though my living costs rent/mortgage would significantly increase my spending. I'm definitely changing over to 100% traditional. I just filled the paperwork out to fund it completely. After I re-adjust my expenses and get a handle on living up here, i'll look into opening the IRA and taxable account.

Kwtraveladdiction

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If your savings account is at $9k currently, why don't you stop contributing to it temporarily and pay off that credit card just that much sooner? You can start contributing to it again as soon as you pay it off. But I personally find all debt to be an emergency. Especially when $3k of that money you're currently paying interest on.

I'd also suggest trying to dump that storage unit that you're paying for if possible. That's $1500/year just to store things.

Like others said, for FI you need to look at your expenses, not your pay. A person who makes $200,000/year but spends $198,000/year is never going to be able to become FI in their lifetime if they don't make changes. A person who makes $75,000/year but spends $25,000/year has a lot of leftover money that they can invest and then eventually become FI.

Thanks! I just paid off the $3K that i'm currently paying interest on. The remaining will be paid off by the end of December. The storage unit, unfortunately, is here to stay until I find a new place to live. We found someone to take over my previous apartment lease next month, so the $517.50 won't be spent anymore. Since i'm living with family for free, my belongings are in the storage unit. I would love to get rid of it, however, if/when i move out and live in an apartment - I'll need a mattress/liveable items, which is what is currently in the storage unit. Technically living with my family for the year saves me a LOT more money than if I chose to rent in this area (and didn't have the storage unit). Though i certainly don't enjoy spending that much money to store stuff! I'm trying to get a handle on my expenses. I'm currently going to use $40K as the mark for my expenses, meaning $1M towards FI. But, based on my current savings/investment rate, it's going to take me a little bit longer to get there, then the 14 years i have planned. So, I'm meticulously monitoring every expense, to see where I can adjust them in the coming months. It's difficult right now with the transition to moving up here and some costs solely due to my living situation (but ultimately saving me much more money than living elsewhere)

Kwtraveladdiction

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With open season coming up, unless you have a fair amount of dental or vision issues, I'd consider dropping those insurance plans. You might also look into an HDHP if you're healthy.

Thanks! I never thought about that as an option. Based on my previous location, my options were much more limited. I'm looking into different variations of the insurance plan. I got PRK last year, so my vision insurance would need to stay to ensure I can continue my follow-up appointments to ensure proper healing. Dental - I don't have issues there, so I'll look at reducing my current plan to a minimal coverage type plan.

Catbert

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Personally I would switch the portion of your contributions from the G and F funds to more aggressive options (C, I or S funds).   At 26 your portfolio is more conservative than mine is at 64 and retired.  You won't be touching this money for more than 15 years.  The G and F funds will drag down your overall portfolio earnings.

Overall you are doing great!

JJsfr

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Personally I would switch the portion of your contributions from the G and F funds to more aggressive options (C, I or S funds).   At 26 your portfolio is more conservative than mine is at 64 and retired.  You won't be touching this money for more than 15 years.  The G and F funds will drag down your overall portfolio earnings.

Overall you are doing great!
I agree she could optimize based on her age and assumed risk tolerance, but she's probably in a lifecycle fund, which is ok if she doesn't want to worry about it. The I fund doesn't include emerging markets, int small caps, or Canada, so she'd still have to do some legwork there to get full international exposure.

bonkers40

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Personally I would switch the portion of your contributions from the G and F funds to more aggressive options (C, I or S funds).   At 26 your portfolio is more conservative than mine is at 64 and retired.  You won't be touching this money for more than 15 years.  The G and F funds will drag down your overall portfolio earnings.

Overall you are doing great!

Yup do this. I have mine as 75% C and 25%S which closely mimics 100% Vanguards VTSAX. Do some research on which the funds and which ones to choose, plenty of websites that give % allocations. Since as Feds we'll have pensions, we can be a bit more risky with our TSPs. I'm 30 and plan on retiring around 43 from the Government but don't plan on touching my TSP till around 55. And like others said, max your TSP! Don't think of it as a % of your salary, I find it easier to just put in $693 (18k/26) a paycheck instead of a %, makes it easier as your income increases to keep your contributions the same.

chasesfish

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Interesting case - I know you need a car today, do you need a car once you move and eliminate the old apartment cost?

DC 1 bedroom apartments are insanely expensive.   

I also think you should look into what you can do to make more than $3,000/year on the side.  As a federal employee, you get the benefit of a 40sih hour work week, but don't have the capitalist upside of working hard.  You might still have a $10,000 to $20,000 more you can make in your current job, but you need to supplement that early on if you want to retire early.