Author Topic: Case study: Paid off student loans today - woo! Now, where to go next?  (Read 5591 times)

jwc082

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This morning, I made the last payment on my student loans.  That was ~$20,000 that was paid back total, and I wonít miss that debt one bit.  The feeling hasn't sunk in just yet.  By the end of the month when I start seeing my contributions to the freedom fund increase, that's when the party will start.

Now that that hurdle is cleared, Iím looking for some feedback, suggestions, or advice on how I can reach financial independence sooner.  Sure, the obvious thing to say is ďspend less, invest more, dummy,Ē but Iím looking for some more specific guidance.  I read a lot about FI, and Iím sold on the idea of freeing myself from the chains of labor to go do what I choose to with my time, and so Iím hunting for ideas to get me there quicker.  Any guidance is super-appreciated.

Iíve been a longtime reader of MMM (since late 2011, which is forever in blog years), although Iím a total newbie to the forums.  This is my first post on here.  Iím tempted to ask you to go easy on me, but Iíd rather receive honest criticism than thinly-veiled praise.


That said, here goes:

Iím 26, single, and male.  My primary job is as a high school teacher, which I enjoy most days, but donít want to stick with forever.  I foresee myself moving in the next two years to a different school elsewhere in the state.  I also serve in the National Guard, which brings in some extra income and has some unique financial perks, and during the summer I operate my own small-time agricultural and fertilizer business (thus my owning a dump truck, listed below).

Iíve been working hard at saving and investing since I was bitten by the personal finance bug at age 20.  Since then, my net worth has shot up from around $1000 to just under $120,000, according to the figures I posted here.  However, since Iíve been reading online about FI, Iíve learned that thatís more typical than I thought - so much for being smug about my financial success.  It pales in comparison to some of the amazing stories on here.

I admit that Iím nowhere near as financially extreme as I was when I started chasing FI.  I need to get back with the program - the middle-class life has started rubbing off on me, as evidenced by my unnecessarily lavish expenses.

One of my current goals is to be able to take a year or two off and travel abroad while Iím young and donít have any dependents.


My current financial picture looks like this, according to Mint.com:

Assets:
Cash on hand                   $1,472
Roth IRAs                         $39,051
Stocks/Investments          $49,394
                                       subcategories
                                       sharebuilder     $35220
                                       betterment      $12529
                                       lending club     $782
                                       thrift savings   $863


Debts:
Credit card debt                $0  I only put this up here to point out that I pay my credit card off every two weeks, and have never owed even a dime in 
                                                      interest.  However, Iíve made hundreds of dollars from reward programs, because I love screwing over credit card companies.
Student loan                     $0


Property worth noting:
2004 Chevrolet Corvette              kbb value approx $15,000
                                                   I know right now that this is going to be the biggest Anti-mustachian factor thatís on this list and is going to bring the wrath of       
                                                   the forum down on me. 
2004 Hyundai Santa Fe               kbb value approx $3000
1990 International dump truck    $5500
1989 Coachmen campervan         $3000
Sporting goods                             $1000
Musical instruments                     $1000
Money owed me                           $1500

Net worth, based on these numbers      $119,917


Income: Somewhat variable, but works out to about $3550 on average.
Primary job                                  $2700
Dividends                                     $50
Seasonal job, stretched annually   $400
National Guard                             $400

Total monthly income              $3550


Now letís get to the nitty gritty - How Iíve been spending my money:

Expenses
Rent                                            $500 That beat-up old campervan looks more and more attractive every dayÖ
Car insurance for 3 vehicles          $80
Fuel                                             $200
Car repairs                                   ~$100
Life insurance through SGLI         $28
Health insurance                          $51
Cell phone                                    $65
Storage unit                                $55
Groceries                                     $75
Eating out                                   $125
Electric                                        $45
Internet                                      $30
Student loan                               $0 going forward! I only put it here because Iím proud :)

Typical monthly expenses        ~$1354



That means that in a typical month, I net about $2000 that I can put toward my FI goals.

Commute: 10 miles each way.


See anything glaring there that I could do to improve?

Now, to address some of those above issues that I know Iím going to hear about.  True Mustachians will tell me to ditch the Corvette, extra vehicles, and storage unit at all costs.  In order to get to FI quickest, yeah, theyíre right.

That said, the Corvette is the biggest issue thatís going to be poked at, and deservedly so.  No, itís not Mustachian.  Yes, itís going to cost me hundreds of thousands of dollars worth of opportunity cost when Iím 65.  I get that, and itíll likely be sold soon.  Itís ongoing cost of ownership isnít substantially higher than other ďregularĒ cars, though - it costs me $55 per month to insure, and gets around 26 mpg on average.  Not fantastic, but not as terrible as youíd expect.

The reason that the other car - the Hyundai - exists is because the Corvette is a summertime-only vehicle.

That $55 per month storage unit expense is dumb, I know.  The reason itís there is because I moved out of my apartment and Iím in between work while Iím fulfilling some over-the-summer National Guard training, so I put all my stuff in a storage unit.  Yeah, storage units are dumb.  I figured paying the $55 per month was justifiable in the short term, though.  Once I have a place of my own again, that expense will disappear quicker than you can say ďShoot me in the face, idiotic storage shed.Ē


As for some habit-y personal stuff:
I track my spending regularly.  Save all receipts and tally and tabulate for fun sometimes.

Donít smoke, drink, or blow money on shit that doesnít give me some return (restaurants are another story).  I have drank too many sodas lately, so that needs to stop.  Eat out too much and pay for convenience too often.

I donít own a home, and until Iím settled in to one geographic place, I know that renting is a dumb move - Iím throwing that money down a black hole every month.  I hate it, but because I donít know where Iíll be living in a couple years, itís a necessary evil for now.


So, with all that said, any suggestions?  Where should I put the extra cash I bring in - same old SPY, high-yield Dividendmantra-style stocks, real estate, or something else? 

Where should I cut my spending?

Tell me if Iím being stupid anywhere, please.

How do I measure up for my age, do you think? 

And perhaps biggest of all, when is a reasonable time you think Iíll make it to Early Retirement?


Thanks for reading, and thanks in advance for any suggestions!
« Last Edit: May 13, 2014, 09:43:36 PM by jwc082 »

FIreDrill

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Congrats on paying off the student loans!  Honestly, you sound like you have already thought all of your expenses through and are pretty happy with where you are.  Dropping the Corvette would definitely help with reducing expenses and freeing up some cash to invest increase your portfolio.  As far as savings I would just put everything into a VTSAX unless you wanted to start building an emergency fund.  Below are some changes I could see to improve on, but again, it sounds like you have already thought all this through.


Expenses
Rent                                            $500 Doesn't seem so bad.  Could you move closer to work and cut commuting costs?
Car insurance for 3 vehicles          $80 55 Try to get down to two vehicles. One commuter and the work truck.
Fuel                                             $200 150 This should come down if you cut back on vehicles.
Car repairs                                   ~$100
Life insurance through SGLI         $28  0 Why do you need Life Insurance? Does anyone depend on you?
Health insurance                          $51
Cell phone                                    $65 25  Republic Wireless for 25 a month.
Storage unit                                $55 0 Maybe sell the stuff and drop the costs?
Groceries                                     $75 100 Eat in more.
Eating out                                   $125 75 Eat out less.
Electric                                        $45
Internet                                      $30

New Typical monthly expenses        ~$1131



Well that's my quick go at it.  Also, you mentioned traveling and taking a year or two off but have you ever thought of teaching abroad? Might be another option to consider :)
« Last Edit: May 14, 2014, 10:22:07 AM by StudentStacher »

jwc082

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Thanks for the quick response and excellent advice, StudentStacher!  You sound like you know your stuff.  By all means, keep 'em coming.

Since I'm new here, is VTSAX the best investment to build toward FI/ER? 

Awesome suggestions on the expenses - the cuts you suggest are certainly doable, and actually will likely happen in the near future - like the next year or so, once I get settled in to a more permanent place :).  However, I could definitely be more aggressive about cutting food expenses and especially vehicles, which in my case are higher than necessary.

Lastly, what are your thoughts on life insurance?  The typical suggestion is don't buy it unless you have dependents that would need to pay off your unpaid liabilities on the event of your death.  I'm breaking the rule here, because I don't have any debts or dependents, although sometime in the coming years I'll probably have some kiddos.  I'm paying $28 per month for $400,000 worth of coverage, so $336 per year.  Do you think it's worth it, or should I drop it until I have a family and unpaid obligations?

Thanks!
« Last Edit: May 13, 2014, 10:22:32 PM by jwc082 »

George_PA

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Since you are young, single, and have summers off, you could buy a junkier house (i.e. fixer upper) in a trendy neighborhood and put a little money and sweat equity into it to make improvements that will raise the value of the house, then you can sell it for big profits every 3-5 years.

This way your housing and FI investment are one in the same, thus it is kind of like you are living in some of your FI investments, otherwise you are shelling out $500 a month in rent, that is not going to your savings.

jwc082

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The fixer-upper idea sounds great, Geoge_PA.  Thanks!  You're right that at no other time in my life would house-flipping be as easy - and consequently as profitable - as right now... Guess I'll add that to the list of things to do before I ever settle down :)  Plus, I'd much rather be putting that rent money toward home equity than in the pocket of some landlord.  I guess the big question in my case, then, would be how long I'm going to be in one place - if it's only a year, fixing up a home is tough to justify.  If I'm in one town for 3-5, like you say, then that's something to seriously think about.

Thanks for the great suggestion!

FIreDrill

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Since I'm new here, is VTSAX the best investment to build toward FI/ER? 

VTSAX seems to be the general go to index fund for a lot of people here (Including me) since it covers pretty much the entire us stock market.  It tracks the DJI so it has more exposure to small and mid cap funds than say a S&P500 Index tracker.  VTSAX also has a ridiculously low expense ratio, I believe if you have over 10k invested it is .05% yearly.  Some people are also into dividend focused funds.  If you want to be allocated across stocks and bonds you could also get some sort of bond fund from Vanguard.  I am 24 and decided to go 100% into Total Market Indexes.

Awesome suggestions on the expenses - the cuts you suggest are certainly doable, and actually will likely happen in the near future - like the next year or so, once I get settled in to a more permanent place :).  However, I could definitely be more aggressive about cutting food expenses and especially vehicles, which in my case are higher than necessary.

Yes you could definitely make some leaps on the expenses side.  The value of that Corvette is equal to about one year of your living expenses ;)  I am actually trying to cut my expenses at the moment and I am in the process of selling my 04 Mustang Mach 1 so I know how you feel with the car ;)


Lastly, what are your thoughts on life insurance?  The typical suggestion is don't buy it unless you have dependents that would need to pay off your unpaid liabilities on the event of your death.  I'm breaking the rule here, because I don't have any debts or dependents, although sometime in the coming years I'll probably have some kiddos.  I'm paying $28 per month for $400,000 worth of coverage, so $336 per year.  Do you think it's worth it, or should I drop it until I have a family and unpaid obligations?

Thanks!

Well that depends on when you have a family and kids but ideally you will never need to buy insurance because your stache will be big enough to self insure yourself.  I currently have life insurance on myself because we are about to get a mortgage and I want to make sure my wife doesn't have to worry if something happens to me.  But once our stache becomes big enough I will drop it ASAP.

Say you get married and have a kid in 5 years.  If you continue to cut expenses and invest you could easily have a stache of around 300k by the time you have a spouse and kids.  Too me that would be enough to not worry about life insurance but that's just me.


Hope that helps!
« Last Edit: May 13, 2014, 11:46:21 PM by StudentStacher »

MDM

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jwc082, nice going on many fronts!

Some thoughts:
  - StudentStacher's suggestions look great.
  - Stop the life insurance until/unless you get married and have a family depending on your income.  Exactly how does it benefit you now?
  - Renting is not necessarily a dumb move at all, even if you expect to stay in one place for a while.  See http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers
  - You can only see the best investment when you find your hindsight glasses.  See http://jlcollinsnh.com/stock-series/ for more background on VTSAX and other options.
  - Need to understand a little more before getting to "when is a reasonable time you think Iíll make it to Early Retirement?"  E.g., didn't see the word "tax" anywhere in the post.  Is that $3550 income before or after tax?  Any pre-tax deductions (e.g., 401k)?

Keep up the good work!
« Last Edit: May 13, 2014, 11:10:16 PM by MDM »

George_PA

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jwc082, you're welcome, if you plan to move in a year or so obviously do not buy something until have settled on the area you want to stay for awhile; I suggested that idea because I learned about from MMM as something he did around the same age and situation that you are at, see: http://www.mrmoneymustache.com/2011/07/20/get-rich-with-carpentry-and-home-renovation/

FIreDrill

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The fixer-upper idea sounds great, Geoge_PA.  Thanks!  You're right that at no other time in my life would house-flipping be as easy - and consequently as profitable - as right now... Guess I'll add that to the list of things to do before I ever settle down :)  Plus, I'd much rather be putting that rent money toward home equity than in the pocket of some landlord.  I guess the big question in my case, then, would be how long I'm going to be in one place - if it's only a year, fixing up a home is tough to justify.  If I'm in one town for 3-5, like you say, then that's something to seriously think about.

Thanks for the great suggestion!

If you do decide to go this route then make sure you do your homework and learn some of the basic rules such as the 70% ARV rule for flips.  Also, doing slow flips that are your primary residence can be great because you escape taxes on you gains if it is your primary residence for more than 2 years I believe.  This little tax benefit is really something to consider if you plan on being there say 3 years or so.  You can find more information on real estate investing at the website below.

http://www.biggerpockets.com/


Argyle

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Drop the life insurance, no question.  Why would you need life insurance?  You have enough money to cover your burial expenses.  That's the only thing you would need.  Life insurance is to keep those who depend on your income afloat in the aftermath of your death.  But no one else depends on your income, right?  So you don't need life insurance.

GadgetCat

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I am currently living and working overseas as a teacher and I heartily second the suggestion about teaching overseas for a few years! If you need advice on how to do it you can e-mail me. There are some outrageous packages out there,  like up to $5,500 a month tax free with free housing/medical/round trip flights home, end of contract bonuses, the works. I only have two years of experience and my average offers have been $3,500-$4,100 tax free with free housing. I'm jealous because as a man you can get insane packages in Saudi.

I love being able to live and work overseas and have had amazing experiences I could not otherwise have had. Also, your purchasing power is usually much greater, so even if the salary is the same as what you're making at home you're usually making many times over the local average income so you have a great standard of living, get to immerse yourself in a culture, and save a lot of money while traveling.

 

SunshineGirl

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You are doing GREAT.

I'm surprised by the idea that comes to mind when I read your post. Instead of craving to take a year or two off to travel, why not give up your summer business and travel then instead? Or, better, hire a trusted employee to work for you for a few summers while you indulge in the travel bug?

It's cool to see you make $50 in dividends a month. Easiest money ever made, hey?

jwc082

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Wow - I am amazed at all the great ideas and input.  Thanks for the help, everybody! 

Here's my to-do list now, based on the suggestions:

1. Cancel that damn life insurance.
2. Sell that goofy Corvette.
3. Switch to Republic Wireless to reduce that phone bill.
4. Eat in more, eat out less.
5. Get all my furniture out of the storage unit so I can cut out that $55 per month bill.
6. Seriously consider finding chunks of time to devote to travel - the summer job seems like the least hairy place to cut out some free time.
7. Research teaching abroad opportunities - I remember reading about one in the UAE that sounded similar to the one GadgetCat mentioned, although I don't remember it sounding as generous as the one GadgetCat talks about.
8. More aggressively keep an eye out for affordable fixer-upper properties, since the opportunities out there won't be as attractive when I have a family of my own.  Definitely do my homework before buying and flipping.
9. Come to grips with the realization that renting isn't necessarily evil, though.
10. More seriously hunting a place to live that's closer to where I work.
11. Save and invest hardcore.  Total stock market and high-yield dividend and dividend growth stocks.

Any more are definitely appreciated!

And to clarify, my $3500 per month or so income is my take-home after taxes and whatnot are removed.  My employer doesn't offer a 401(k), sadly.  However, the Thrift Savings Plan that I put a measly 5% of my National Guard pay into does have some tax benefit, I think - I'll have to research it more to get a better answer.
« Last Edit: May 14, 2014, 06:27:38 PM by jwc082 »

MDM

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You might do better to use a traditional IRA (and contribute the full $5500) instead of a Roth - take the 25% tax savings now.

Have you asked your employer about starting a 401k?  Until one is available, could you put 100% of your National Guard pay into the TSP?  The TSP sure does have tax benefits - e.g. see http://en.wikipedia.org/wiki/Thrift_Savings_Plan.

Dibbels81

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How long did it take you to pay off 20k in student loans?  Gradually or hair-on-fire dedication? 

SDREMNGR

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I'm sold on tIRA vs Roth Ira if you plan on doing FIRE and backdoor Roth conversions.  It's worth reading into.

Glad you are getting rid of the Vette.  The money can be invested into your rehab home and also the insurance savings will be added bonus. 

+1 on not needing life insurance.  When you reach FI, you won't need it then either.

Also, TSP is like a 401k for fed gov employees.  It definitely is pre tax investing.  Very similar rules to 401k or tIRAs.  I would invest all of your Nat guard pay into it (max it out at least) and spend the money from your other jobs.  This way you invest as much into pre tax retirement account as you can.  And if you need to take out a loan from it for your home purchase you can.  The tsp is pretty flexible.

Lastly, think creatively in how you can make double the money from your side gig.  That's right double.  You will figure it out if you think about it.  Saving money is easy for the first little bit, then it begins to get harder to save that extra little bit, but at that point, don't try to squeeze money out of a rock, and instead brainstorm on how you can make more money.   I promise you that your brain will come up with something.   I seriously started finding money out of random places I hadn't thought of when I really started trying.
« Last Edit: May 14, 2014, 08:58:19 PM by SDREMNGR »

GadgetCat

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You're right, the positions with the most attractive salaries are in the UAE. There are also some really fascinating positions in Kazakhstan right now that pay up to $5K a month free housing/utilities/etc. if you have at least three years of experience. Check out TeachAway.com, which is what I use; someone will be assigned to certain positions and often a recruiter will contact you and you don't even have to apply- they've done it all for you and set up an interview, based on the online profile you've set up- it makes it all so easy.

I like TeachAway because they have tons of higher level jobs for certified/experienced teachers; however, Dave's ESL Cafe is an internet legend for finding jobs as well. The only issue is that site kind of aims at the bachelor's degree/TEFL no teaching cert ESL teacher demographic, so you'll have to sift through jobs that won't be worth your while in terms of pay and work load. There are often gems in there though- I found jobs at international schools in Albania and Laos through that site.

dude

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What are you keeping in that storage unit???  That right there is the most glaring anti-Mustachian thing on the list!

randymarsh

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The typical suggestion is don't buy it unless you have dependents that would need to pay off your unpaid liabilities on the event of your death.

Do you mean like a mortgage on the family home that you want dependents to pay off? Debt dies when you do, so there's no reason to worry about paying off liabilities.

NeverWasACornflakeGirl

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Congrats!! Good for you!  I know how great I felt when I paid off my student loans, so thanks for sharing this so I could re-live the moment vicariously! 

jwc082

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Thanks for all the great input!  I've already made some minor progress - did away with life insurance altogether.  Now, fingers crossed I don't get hit by a bus tomorrow.  Since I don't have any debts (and won't be taking out a mortgage for at least a few years, if at all) I figure the odds are in my favor that I'll survive and can bank the $28 per month that I was paying out. 

I also upped my Thrift Savings Plan contribution from 5% of my National Guard paycheck to 50%.  Since I'm basically investing in the S&P500 through the TSP, I figure that I might as well invest automatically through there rather than me turn around and invest it myself in the same thing.

What are you keeping in that storage unit???  That right there is the most glaring anti-Mustachian thing on the list!
Next stop is that storage unit that I'm paying $55 per month for.  Since I'm currently doing some full-time National Guard duty, I did away with my apartment, and needed a place to put my furniture and odds and ends.  Yeah, die-harders would tell me that I should sell the stuff and be out from under a payment to a dumbass storage unit altogether.  While I'm all for simplification, I figure the couple hundred that I'll pay out means that I won't have to replace all the stuff when I get back into an apartment this fall - when I'm back from my military service.  Rock and a hard place on this one.

Oh, and selling that Corvette.  Know anybody who wants to buy one?  :D jk



How long did it take you to pay off 20k in student loans?  Gradually or hair-on-fire dedication? 


Took me about two and a half years to pay them off altogether.  I could have paid them back long ago, since I was sitting on all those stocks and such that could have more than paid them off.  However, I had a good reason to drag out paying them: I was enrolled in the rather-generous FSLRP as part of my National Guard benefits, and they were going to pay $20,000 back.  Catch is, they only pay back a couple thousand per year - they drag it out themselves - and if I had paid any extra, it would have been forfeited.  All said, I paid about $15,000 out of pocket and there was about $15,000 paid back by the Guard, some of which was before I was even out of school so I didn't count it in the $20k that was paid since I started paying on them myself.  I also forfeited about $5000 worth of student loan repayments because I earned an officer's commission - one of the criteria that as part of my contract would boot me out of FSLRP - in the hopes that long-term I'll more than make up the difference with hugely increased pay and massively increased retirement from the Guard.

Wow.  That sounds like a hyperconvoluted answer.  Make sense?


  - Need to understand a little more before getting to "when is a reasonable time you think Iíll make it to Early Retirement?"  E.g., didn't see the word "tax" anywhere in the post.  Is that $3550 income before or after tax?  Any pre-tax deductions (e.g., 401k)?

Those numbers are all after taxes are paid, so that's what I actually have that I can work with.

That said, my taxes are also pretty low - I haven't actualized any gains or anything in a while, and my effective rate was around 15% last year.  Since I'd hope to pull in more and more income from dividends as I work and invest more, since dividends are taxed at 15%, hopefully my tax rate will stay somewhat constant.

In addition to the side gig - the agriculture summer job - and National Guard, which is like a second job in its own right, I'll likely find a second job when I'm going to be in one place for the foreseeable future.  I didn't teach high school this past year on account of my National Guard service, and as a result my year has been so cut up with military service - two months on, two off, three on, one off, three on - that taking a second job somewhere wouldn't be super justifiable (although I'm sure the supermustachians will disagree) considering I'd be leaving for months not long after I'd be starting. 

Then my sources of income would look like this (very rough estimates, of course):

Teaching:                   $40,000/year
National Guard:          $10,000/year
summer farming gig:  $5000
Dividends:                  $750 and growing
"second" job:              $in the thousands

Without that crystal ball, some of that might change, too.  We shall see.

Thanks again - big time!
« Last Edit: May 21, 2014, 02:46:36 PM by jwc082 »