Case Study: Recent grad -- Am I on the right track?

[Logic_Lady]

Age: 24

Income: Salary: $50K/yr + $70/day untaxed living expenses stipend (About $60K/year total after tax)

Current expenses:

Monthly:

Rent (includes untilities and some groceries--I live with my parents): $650

Gas: $50
(car + insurance provided by employer)

Additional Groceries: $40
Eating out/Entertainment: $50

Pharmacy/Incidentals: $20

Fitness Classes: $250 (I know this is a lot; I take classes in aerial silks, and I hope to become a part-time instructor when I'm retired)

Shopping (clothes, electronics, books, hobbies): $100

Charity: $50

Haircut: $12.50 ($25 haircut every 2 months)

Cell phone: $20 (my part of family plan)
Medical Insurance: $50 (my part of family med. insurance)

Total monthly expenses: $1,293

Yearly expenses:

Dentist: $500

Vision: $120

Medical: $200 (I am on my parents' health plan; this will likely increase in the future)

Travel: $1,000

Tax preparer: $200 (my tax situation is complicated due to filing returns in multiple states)

Total Expenses per Year: $18,000(approx.)

Assets:

These accounts are managed by my family's investment adviser. I plan to take them over sometime in the next few years. Many of the investment decisions were made by the previous adviser, who was terrible. My job does not offer any retirement or health benefits.

Roth IRA: $34,500

In various funds--some passively managed funds, some actively managed funds. I have spoken to my adviser about moving to all passively managed index funds with lower expenses. I contribute the max every year.

Taxable Investment Account:
$145,500

Much of this is in individual stocks that will incur significant capital gains if sold, and about 15% in an American fund. There is also $40K in cash (mostly recently deposited) that will be invested in index funds.

Additional Taxable Account:

$30,000 (approx.) in bonds, managed for free by family member

Total Assets: $210,000

Liabilities: N/A

Anticipated ER Expenses: Not sure. Higher than current expenses: I will have own place to live (rented or bought), and probably children. Anyone have an idea of what a good number to shoot for would be?

Specific Question(s): I am 24, and I hope to be able to retire by age 35. I am a single woman, no children. I plan to have children after I retire, with or without a partner. Am I on the right track? Should I change anything? My job has been really stressful of late, which has made me reconsider that timeline--could I retire earlier than 35 and still have enough to support myself and 1-2 children?

I have been thinking about moving out of my parents' house, but rent would be at least double what I'm paying (I don't want to have a roommate; If I'm living with other people, I'd rather them be family members). In addition, my parents don't have enough saved for retirement and by paying rent I am helping them out. I am in a high COL area, and don't plan to move in the near future because my job is here, and I couldn't find a similarly paying job elsewhere.

I have also been thinking about when/if to buy a house. The houses near my job are at least $1 million for a small house, which seems unreasonable. More reasonably priced houses (about $300K) are at least an hour commute each way. I may be able to move to a lower COL area and telecommute in a few years though. I will probably be able to work part-time for my current company if I want. When I move to my own place I will probably get a dog. Thoughts?

[mozar]

You're doing really well for your age. My thoughts are live with your parents as long as possible to save money even after you get married, even until your oldest kid is 7. Maybe even live with your parents until your kids are raised?
Most important thing for you is to be very picky in the dating department but you didn't ask about the specifically so I'll leave that alone.

18k * 25 = 450k which is how much you need to retire. Whether you retire earlier depends on what you want for your children. Ex. daycare, babysitting, activities, camp, college?

[LadyStache]

It seems like you're doing really well. Try to continue living with your parents for a while longer -- it seems like it's a win-win for all of you. Save up for a large down payment while you're there. Maybe you can set a savings goal to reach before you can move out, to keep yourself a little bit more motivated.

Your expenses are pretty low, but 20% of your monthly expenses are going towards your fitness classes. That is a big chunk. Is there any way to reduce this?

I file returns in multiple states as well, and I was able to do my own return this year instead of going to a tax preparer. There were a couple things I was unsure of, so I just looked at my previous returns to see how they were handled, since my situation hasn't changed much since last year (just slightly different numbers). I'm sure you could do it, too!

For travel expenses, you should be able to save by using rewards credit cards, especially those with high sign-up bonuses.

[mozar]

I used tax act to file in multiple states. Cost $30.

[Ynari]

Interesting case study!  Also, love the aerial silks. I do trapeze and contortion primarily. It's definitely worth the money, but do seriously consider if you can volunteer in exchange for classes, etc. My studio doesn't have a ton of opportunities, but they have a work-study program where you can clean, help with tech and behind the scenes stuff in exchange for a discount if you sit in the waiting list for long enough.

According to the internet, the average child costs about $10,000 annually, (with $4020 to stay above poverty guidelines, which is probably closer to what you will spend if you are FIRE when you have kids as you will avoid day care costs etc) but this is only an 18 year expense (give or take), so the PV is about $100,000. ($50,000 if you spend $5000/year on each kid.)  So, depending on how much you think you'll spend, add $50-100k per kid to your FIRE number. It also might help to consider your housing costs separately from your annual expenses.

So, let's say your target is $800k in 2015 dollars (275k to cover 11k in annual non-housing expenses, 150k to cover 2 kids, and 375k for a house).  By my back-of-the-napkin calculations (ok, I actually have a spreadsheet that does this...), that'll take you about 9 years with modest raises and maxing out your 401k.  Well on track to retiring by 35 or even earlier.

To be honest, I think $800k is even being extra-ultra-safe. If you can become an aerials teacher when you retire, or find a cheaper house (or perhaps only pay half the mortgage if you find another wage earner who is compatible with you), or find any one of a number of ways to reduce your expenses, you'll be well set.

Hope this all made sense. Best of luck!

[lpep]

What do you do for a living? You're in really awesome shape, but seeing as you live in a high COL area and only make $50k (not that that's too low, but $1m houses suggests Silicon Valley or NYC), you might be able to earn more by switching jobs. For our generation I think it's especially true that we're only going to earn more when we switch companies.

Just a thought!

[Logic_Lady]

What do you do for a living? You're in really awesome shape, but seeing as you live in a high COL area and only make $50k (not that that's too low, but $1m houses suggests Silicon Valley or NYC), you might be able to earn more by switching jobs. For our generation I think it's especially true that we're only going to earn more when we switch companies.

Just a thought!

I work in education (curriculum design), and all the jobs I've seen on Glassdoor for someone with my experience pay significantly less than what I'm making now (which is more like $75K when you factor in the living expense stipend). I've also had significant raises since I started, though if my salary does stagnate in the future I probably will look elsewhere. I live in LA (there are cheaper houses in the city, but they're too far from my job when you factor in traffic).

[Logic_Lady]

I think you're on a good track but you can probably look into that shopping category and cut it back dramatically, with the library, thrift stores, and simply not buying more electronics. When it comes to the aerial silks, aside from what freznow said about volunteering in exchange for a discount, is there any way you can start teaching classes before you're retired? How many years of classes will it take to get to that point? I hope it's not a situation where you plan on that $250 a month continuing for 10 years (30k spent) before you start possibly making money back from it.

Edited to add: you might want to try actually looking for specific jobs in different areas before you give up. Also take into consideration the potential benefits of having health and retirement benefits somewhere else - could outweigh a slightly lower salary.

I'm not sure how much more I could cut back the shopping category--I usually buy clothes on clearance or at thrift stores anyway. Then there's underwear, socks, bras--that adds up, and I'm not going to buy that stuff used (I also have an unusual bra size, which the cheaper stores don't carry, so I order online). The majority of my books are from the library, but I do occasionally buy books to support the author or if they're something I want to have permanently. I generally buy electronics to replace stuff that wears out/dies, so if I cut that out completely I could be left without a working phone due to a dead charger or something. I will definitely focus on not buying new stuff I don't need though--I think there is some room for improvement there.. ($100 is also the average I aim for, but I don't necessarily spend all of it every month, though of course I also go over on the rare occasions when I have to make a big purchase like a new computer).

As for aerial silks, I'm not doing it for the purpose of eventually making money--that's just an idea of one way I could make it pay off and something that would be fun to do in retirement. It's something that makes me happy and I look forward to it, so I'm definitely willing to put money in even if I'm not going to any money back. I could probably get an instructor job in a few years, but I don't know if I'd actually have time. But once I've been taking classes for a year or so I will be at the level where I can practice on my own at open gym time, which is much cheaper than the classes--at that point I would probably take a class a week, or every other week, to learn new tricks, and practice on my own the rest of the time. Or, once I have my own place, if it has high enough ceilings I can install silks there and practice at home. Or maybe I'll get bored and move on to something else, thus saving myself the expense.

The one thing I'm not sure of is the retirement benefits issue. How much money would you say that is worth? Enough to take a $20K or more pay cut? (Especially considering 1/3 of my current compensation is tax-free?) Health benefits aren't an issue for the next few years, because my parents' plan is probably much better than anything I could get at an employer. A lot of the jobs I'm seeing also require qualifications I don't have, so I might have to go back for a master's degree or certificate, which I really don't want to do.

I also really value the flexibility of my current job--it's nice to be able to work from home whenever I want. I guess it comes down to the fact that I don't actually want to leave my job for a new one, even though it's stressful at times--I don't think another job would be less stressful or pay more. I will keep an eye out on various sites for job opportunities, though--I'll stay open to the possibility of a better job coming along.

[Catbert]

A couple of random thoughts on your taxable brokerage account:

If you want to slowly get out of these stocks/mutual funds ensure that dividends (and capital gains internal to mutual funds) are paid out in cash rather than reinvested into the same stock/mutual fund.  Then buy into an index fund you like.

If you have any room left in the 15% tax bracket then "fill it up" with capital gains at 0% by selling appreciated stock.

If you have any capital losses then sell that asset and balance it with capital gains.  Invest the proceeds in the mutual fund of your choice.

It might not work with charitable contributions of $600 a year, but look to see if you can donate appreciated stock to charity.  Fidelity has a charitable gift trust where you donate stock to the trust and then disburse money to charities of your choice.   I assume Vanguard and other brokerages have something similar.  Not sure if the minimums are more than what you have budgeted/