Case Study - Some questions on direction :) (New Member)

[MrRussianMan]

Hi everyone! I stumbled on a podcast that MMM was on about a month ago and became extremely intrigued with the idea of retiring early as a feasibly possibility.
Since then I've been reading as many posts in my free time as possible. However, I feel that I should get my own direction and finances on track in the meanwhile. Better start earlier than later right?
It has always been my goal to retire in my 30's but I was banking on joining a tech start-up, it going public, and cashing out for that :P

Some background about myself: I'm 23, my SO is 20. (To be married in the near future!) I was raised to be a bit more spendy - while she is very frugal by nature. Had the talk: both are onboard with some minor exceptions (like wedding costs :P )

I graduated a year ago and have been working since.

• All pay college debts have been paid off.
• Phone bill is still with parents for simplicity.
• Have 2 Medical Insurance's via parents (divorced, but each has family plan since I have a younger brother).

My SO is currently pursuing a MACC and will complete that within 3 years. Her estimated salary then will be at least 70k.
Since we are not currently married she is still being supported financially by her family + doing part time work.

My monthly financials:

Salary - $80,000

Monthly Expenses: $2,000

• Rent - $1200 (Includes most utilities. Expensive because of area. However, close to work (6miles)
• Electricity - $25
• Internet - $25
• Car Payments - $275. Bought brand new Honda Civic for following reasons:
  • Got 0% Financing for 5 years
  • Being original owner ensures that I'll get 200k+ out of my Honda
  • Haggled my way into 7 years of ultimate warranty(includes free oil changes, brake changes, tires, etc)
• Car/Motorcycle Insurance - $190 (Only downside to Financing IMO.. Need comprehensive coverage)
• Gas - $50
• Groceries - $190
• Fast Food Treat - $10
• Gym Membership - $15
• Extra: $20 Budgeted in case some category has slightly higher expenses. Any remains of this at the end of the month get thrown into ^VTSMX

Savings:
~$12,000 in a HY Savings account (1.05% APY)

Monthly Savings:

• 401k - $1,500 (No employer match)
• Roth IRA - $458
• ^VTSMX: $300 (Will convert to VTSAX once I reach $10,000)

It is also worth mentioning that I expect to get at least a $5,000 tax refund.

Phew. Now for my questions! Thanks for any help in advance :)


• Home Purchase: Live in SF Bay Area - unfeasible to purchase home here so considering moving
• Question: Is pulling out money from my ^VTSMX investment account a good move for a down-payment?(Want to buy home ASAP, but have relatively flexible time horizon for this)
• 401k and Roth Ira
• Question: If living expenses will only be 25k at most post 60, should both my SO and I contribute into 401k? Or should only 1 person do so? (Whoever has highest employer match for example)
• Question: Have not finished reading all the blog posts yet, but with MMM lifestyle it seems that Roth IRA is pointless? Want to confirm.

I just want to thank everybody for any helpful tips, suggestions, and answers they are able to provide!
I am truly excited about this way of life and want to make sure I am doing it to the best of my abilities.

PS. Frugal life and ER is a happily accepted goal between SO and myself with the exception of the wedding. How can I give her a good wedding while minimizing costs?
Issue is also that we have large families (due to parents' divorces.. so double the parents each haha) = roughly 50 people minimum or else there will be a lot of butt hurt relatives and an upset SO.

[ShoulderThingThatGoesUp]

It's really hard to come up with a case where it doesn't make sense for everybody to max out their 401k. 22% credit card debt when in the 15% bracket, or something like that, but you have it together so that's not you.

Where are you considering moving? Why is buying a home such a priority?

Are children hoped for in your future?

[MrRussianMan]

It's really hard to come up with a case where it doesn't make sense for everybody to max out their 401k. 22% credit card debt when in the 15% bracket, or something like that, but you have it together so that's not you.

Where are you considering moving? Why is buying a home such a priority?

Are children hoped for in your future?

Thank you for the quick response!
So regardless of future spending, we should both max out 401k? I guess what I havn't thought about is once we retire (early) we stop contributing to 401k? So we need to get it as high as possible for our 60+ fund?

I want to move within the next 3 years. Hopefully the move will allow me to be better off financially (higher earnings/spending).
A house is important for a couple reasons:

• I want a home for future kids (1-2 probably)
• I feel that renting is throwing money down the toilet. I'd rather be paying down a mortgage
• I believe having a paid off house will greatly help in lowering my yearly spending for the rest of my life. Therefore I want to get to it!
• Lastly, I really love the idea of creating memories in a place that is mine. Spending time fixing things, repainting it, etc.

The main issue I'm encountering is that most places with promising job opportunities (Tech companies) have relatively high cost of living in the immediate vicinity of the companies.

[ShoulderThingThatGoesUp]

It's possible to get money out of your 401k before you reach retirement age, without paying penalties. I'm far from that so I don't know the details, but somebody will come along shortly to link you to a comprehensive guide to it, I'm sure.

There really are cases where it makes more sense, financially, to rent than to buy. I own a house because I want stability for my family - never having to move - but I could probably have slightly optimized this financially by renting.

What worked for me in moving to a LCOL area was convincing my employer to let me work from home full-time. You would likely have a slightly lower income, but earning a few-years-behind SF tech income in Boise or whatever is still a pretty good deal.

That said, there are a lot of people here making it work in the Bay Area.

[Bracken_Joy]

I'll address a couple misconceptions I saw, since others are covering your direct questions.

1. 401(k) and other retirement funds are only for 60 plus. You CAN access these funds without penalty, see:
http://www.gocurrycracker.com/cash-flow-management-early-retirement/
http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

2. Rent is throwing away money, while mortgage is investing. This is controversial, but definitely not always true. Opportunity cost is a huge factor here. See:
http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
http://affordanything.com/2015/11/24/is-renting-better-than-buying-should-i-rent-or-buy/

Rent vs Buy Calculator: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
Buy Now or Save More First Calculator: http://www.mtgprofessor.com/calculators/Calculator6a.html

And just as a general primer, this is always a good read if you haven't:
http://jlcollinsnh.com/stock-series/

Hope some of these help!

[trashmanz]

It is helpful to contribute to 401k at least up to the free company matching.  After that it may make sense in some cases not to contribute every last dollar (e.g., saving to purchase a house). 

For home ownership have you run the numbers through the rent vs. own calculator?
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Also, see the other side of home ownership here: http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

[mxt0133]

I want to move within the next 3 years. Hopefully the move will allow me to be better off financially (higher earnings/spending).
A house is important for a couple reasons:

• I want a home for future kids (1-2 probably)
• I feel that renting is throwing money down the toilet. I'd rather be paying down a mortgage
• I believe having a paid off house will greatly help in lowering my yearly spending for the rest of my life. Therefore I want to get to it!
• Lastly, I really love the idea of creating memories in a place that is mine. Spending time fixing things, repainting it, etc.

The main issue I'm encountering is that most places with promising job opportunities (Tech companies) have relatively high cost of living in the immediate vicinity of the companies.

Homeowner ship is avery personal decision and dependent on how much you value somethings.  However, it is always a good idea to challange certain assumptions.  For example the whole renting is throwing money down the toilet.  The same can be said for owning a home, even if you have not mortgage you still have expenses such as taxes, maintenance, homeowners insurance, opportunity costs.  I recommend reading the follow articles to really get perspective from both side. 

http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

I myself rent in San Francisco because it fits my family's needs and allows us to work towards our long term goals.

To your last point, my wife makes the same statements but I have a hard time grasping the idea that you can only make memories in a place that you own.  I mean I have lived in apartments and my parents house when I was growing up and I still have fond memories of both.  Also the probability of staying in one house until you die is very small, so if you move does it somehow lessen the memories you experienced where you used t live?

My intent is not to dissuade you from buying a house vs renting but to make sure you don't make a decisoin oneway or another without challenging you assumptions and looking at it from different perspectives.

Either way that fact that you are on this site means that you are headed in the right direction with regard to FIRE.

[mxt0133]

HA, two people already beat me to the article links!

[notactiveanymore]

How can I give her a good wedding while minimizing costs?

50 people is actually on the small side for weddings. Keeping the number of invitees down is definitely the number one way to keep expenses down.

Other things that help with costs:

• pick a non-Saturday wedding date
• get married at a time of day when you don't have to serve dinner - brunch or lunch or heavy hors d'oevres are cheaper and still good hosting at the right time of day
• don't serve alcohol or limit options - we did kegs and wine; if you do a brunch reception you could just keep it to mimosas
• get creative with venues - if you are religious and/or have a free place for ceremony and reception then you can really cut costs, especially if they let you bring in your own caterer and drinks
• hire an amateur friend/acquaintance for pictures instead of an expensive professional
• make a budget and track your expenses

I think it's helpful to have a conversation about what each of you values most about the wedding and then be okay with not choosing the absolute cheapest option available for those couple things. I spent $1000 on my dress and I wouldn't change that decision by a long shot. But I wish we had felt more comfortable not inviting people who we felt obligated to invite.

[neo von retorch]

How can I give her a good wedding while minimizing costs?

My wife and I had conversations around her engagement ring, as well as our wedding. The big question you have to ask yourself is "how do you define a good wedding?" What is really important to you about this day? What aspects of it are going to matter to you down the road?

For us, getting our people together and letting them be relaxed was pretty much everything. So we rented a pavilion in a very nice park overlooking a lake... for $125. We hired an officiant. We got lucky, as my in-laws and their friends actually volunteered food and photography arrangements. Was is the most exceptional five-star chef / world-reknowned photographer combo? Nope - they are good at what they do, and the value was exceptional. What we remember from our wedding - beautiful weather and scenery, happy playful guests, knowing we spent less than $1000 to kick off our lives together. After the wedding/reception, we then went to my in-laws place for drinks and hot dogs/hamburgers well into the night. Is our "ideal wedding" going to be "your ideal wedding?" Nope - not at all (I'm guessing) but just be careful how you assign values to things. Is a venue worth $5,000 instead of $500 (or $125?) Are more charming photos going to help you remember how smashing you both looked by a value of $1000? $5000? Will the food people will spend 32 minutes eating be worth $50 / person? $125 / person? $200 / person?! Is a more formal setting where everyone dresses up but feels stuffy worth it? (Again, this is a question specific to you and your families - our families appreciate being able to dress comfortably and be themselves, but others value getting to dress to the nines for a day.)

[MrRussianMan]

I'll address a couple misconceptions I saw, since others are covering your direct questions.

1. 401(k) and other retirement funds are only for 60 plus. You CAN access these funds without penalty, see:
http://www.gocurrycracker.com/cash-flow-management-early-retirement/
http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

2. Rent is throwing away money, while mortgage is investing. This is controversial, but definitely not always true. Opportunity cost is a huge factor here. See:
http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
http://affordanything.com/2015/11/24/is-renting-better-than-buying-should-i-rent-or-buy/

Rent vs Buy Calculator: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
Buy Now or Save More First Calculator: http://www.mtgprofessor.com/calculators/Calculator6a.html

And just as a general primer, this is always a good read if you haven't:
http://jlcollinsnh.com/stock-series/

Hope some of these help!

Wow that's great news! Thanks for the links for 401k withdrawals.

Took some time during my lunch break to read the posts of renting vs buying and -woah. Kind of blew my mind about how caught up I was in the "normal" mumbo jumbo that everybody talks about. I greatly appreciate you exposing me to the possibility that buying is not always the best option! I will definitely consider this greatly once I move and will also expose my SO to these resources!

The only nagging thought that I have is renovations and risk as a renter. There's some value in being able to change your home to fit your needs/desires. Isn't that a huge set back when you rent? Either your landlord doesn't allow for these changes, landlord can kick you out before you planned on leaving (decides to sell house for example), or you have to do renovations yourself at no personal benefit.

[Bracken_Joy]

I'll address a couple misconceptions I saw, since others are covering your direct questions.

1. 401(k) and other retirement funds are only for 60 plus. You CAN access these funds without penalty, see:
http://www.gocurrycracker.com/cash-flow-management-early-retirement/
http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

2. Rent is throwing away money, while mortgage is investing. This is controversial, but definitely not always true. Opportunity cost is a huge factor here. See:
http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
http://affordanything.com/2015/11/24/is-renting-better-than-buying-should-i-rent-or-buy/

Rent vs Buy Calculator: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
Buy Now or Save More First Calculator: http://www.mtgprofessor.com/calculators/Calculator6a.html

And just as a general primer, this is always a good read if you haven't:
http://jlcollinsnh.com/stock-series/

Hope some of these help!

Wow that's great news! Thanks for the links for 401k withdrawals.

Took some time during my lunch break to read the posts of renting vs buying and -woah. Kind of blew my mind about how caught up I was in the "normal" mumbo jumbo that everybody talks about. I greatly appreciate you exposing me to the possibility that buying is not always the best option! I will definitely consider this greatly once I move and will also expose my SO to these resources!

The only nagging thought that I have is renovations and risk as a renter. There's some value in being able to change your home to fit your needs/desires. Isn't that a huge set back when you rent? Either your landlord doesn't allow for these changes, landlord can kick you out before you planned on leaving (decides to sell house for example), or you have to do renovations yourself at no personal benefit.

I'm glad I could help! And I by no means am anti-home buying: in fact, I'm closing on a house in less than two weeks!

That being said, we rented for many years, and are buying because the math works better where we are moving. Partially emotional, I will admit, as we're starting a family soon.

I will leave this here though: http://www.frugalwoods.com/2015/07/13/perfection-is-the-enemy-of-frugality/

[lifejoy]

I had a 50 person wedding for $7k. There are lots of good threads on here :)

I'd also say that within reason, if it's really important to your fiancé it might make sense to just go with it.

[Migrator Soul]

Добро пожаловать!

I highly recommend maxing your 401k, especially in your situation. You should have no reason as to why you are not.

As to the wedding, I personally don't care for large, extravagant weddings. I married very young, at 18, was divorced at 21. While I am not by any means saying yours will not last, I will say it is wise to not go full bore on a wedding. What I would suggest is have family bring food and alcohol to the wedding, and have it in a beautiful nature reserve. It means more to have food cooked by your family, kind of like a gigantic get together and celebration, than some faceless caterer serving food that you have no idea as to who cooked it. Weddings are supposed to be a familial celebration, not a lavish display of extravagance.

[Bracken_Joy]

Oh yes, and as for the wedding: I had a 32 person wedding for $8.5k outlay, but after selling things back, it came to less than $5k. And that includes my $1500 with alterations dress and paying over $1k to help relatives get to the wedding.

We had a thread on it a while back that some great ideas were given on: http://forum.mrmoneymustache.com/welcome-to-the-forum/how-much-should-a-wedding-cost/

[SwordGuy]

How can I give her a good wedding while minimizing costs?

50 people is actually on the small side for weddings. Keeping the number of invitees down is definitely the number one way to keep expenses down.

Other things that help with costs:

• pick a non-Saturday wedding date
• get married at a time of day when you don't have to serve dinner - brunch or lunch or heavy hors d'oevres are cheaper and still good hosting at the right time of day
• don't serve alcohol or limit options - we did kegs and wine; if you do a brunch reception you could just keep it to mimosas
• get creative with venues - if you are religious and/or have a free place for ceremony and reception then you can really cut costs, especially if they let you bring in your own caterer and drinks
• hire an amateur friend/acquaintance for pictures instead of an expensive professional
• make a budget and track your expenses*

Or:

• Rent a pavilion in a city park.  Runs $50 to $75 in my town.
• Use the apartment complex facility.
• Get married in your apartment.*
• Schedule a room at the local city community center or library.
• Don't serve a fancy catered meal.  Serve simple snacks and tea.
• Make the reception a pot-luck meal.*
• Ask a talented friend to take the wedding pictures for you.*
• Use hand-made (by you!) wedding invitations.*

The only things that are essential for a truly awesome, love-filled wedding are the people getting married, lots of love between them, and someone to perform the ceremony.  EVERYTHING ELSE is just gilding the lily at that point.  The most important gilding is people who love you being there to share in the joy.  If you get the above right it will turn out wonderfully.

If you don't, you probably should not be getting married.

* signifies what we did to keep costs to less than $50 when we got married back in 1983.   Still the best wedding I've ever been to...

[MrRussianMan]

How can I give her a good wedding while minimizing costs?

50 people is actually on the small side for weddings. Keeping the number of invitees down is definitely the number one way to keep expenses down.

Other things that help with costs:

• pick a non-Saturday wedding date
• get married at a time of day when you don't have to serve dinner - brunch or lunch or heavy hors d'oevres are cheaper and still good hosting at the right time of day
• don't serve alcohol or limit options - we did kegs and wine; if you do a brunch reception you could just keep it to mimosas
• get creative with venues - if you are religious and/or have a free place for ceremony and reception then you can really cut costs, especially if they let you bring in your own caterer and drinks
• hire an amateur friend/acquaintance for pictures instead of an expensive professional
• make a budget and track your expenses

I think it's helpful to have a conversation about what each of you values most about the wedding and then be okay with not choosing the absolute cheapest option available for those couple things. I spent $1000 on my dress and I wouldn't change that decision by a long shot. But I wish we had felt more comfortable not inviting people who we felt obligated to invite.

Thank you for the helpful suggestions! We have not started looking into any wedding preparations but I know you saved us a good amount of time!
Neither of us drink so we were already going to make it a relatively dry wedding, maybe a handful of wine/champagne for the guests.

We'll definitely shop around for some cheaper venues :) I think that last part is really key too. My SO is kind of torn because she would rather have a cheaper wedding and save for a down-payment or whatever, but at the same time she wants it to be like her childhood fantasies haha! I think isolating a few key things and going all out on them might be the solution we needed.

I'm glad I could help! And I by no means am anti-home buying: in fact, I'm closing on a house in less than two weeks!

That being said, we rented for many years, and are buying because the math works better where we are moving. Partially emotional, I will admit, as we're starting a family soon.

I will leave this here though: http://www.frugalwoods.com/2015/07/13/perfection-is-the-enemy-of-frugality/

Congratulations!!
I'm glad that everybody has been so helpful and linked me to key examples of each case. It's definitely something to consider wherever I'm living :)
I enjoyed the part about the 80/20 rule in the article you linked. The following part (Satisfaction of Doing it Yourself) really makes rent vs buying a difficult decision though.
My SO and I are very hands on people that take pride in our work and things we accomplish. There is definitely some serious intrinsic value for us that a Rent vs Buy calculator will not be able to tell us.. More to ponder about I guess :D

[Bracken_Joy]

How can I give her a good wedding while minimizing costs?

50 people is actually on the small side for weddings. Keeping the number of invitees down is definitely the number one way to keep expenses down.

Other things that help with costs:

• pick a non-Saturday wedding date
• get married at a time of day when you don't have to serve dinner - brunch or lunch or heavy hors d'oevres are cheaper and still good hosting at the right time of day
• don't serve alcohol or limit options - we did kegs and wine; if you do a brunch reception you could just keep it to mimosas
• get creative with venues - if you are religious and/or have a free place for ceremony and reception then you can really cut costs, especially if they let you bring in your own caterer and drinks
• hire an amateur friend/acquaintance for pictures instead of an expensive professional
• make a budget and track your expenses

I think it's helpful to have a conversation about what each of you values most about the wedding and then be okay with not choosing the absolute cheapest option available for those couple things. I spent $1000 on my dress and I wouldn't change that decision by a long shot. But I wish we had felt more comfortable not inviting people who we felt obligated to invite.

Thank you for the helpful suggestions! We have not started looking into any wedding preparations but I know you saved us a good amount of time!
Neither of us drink so we were already going to make it a relatively dry wedding, maybe a handful of wine/champagne for the guests.

We'll definitely shop around for some cheaper venues :) I think that last part is really key too. My SO is kind of torn because she would rather have a cheaper wedding and save for a down-payment or whatever, but at the same time she wants it to be like her childhood fantasies haha! I think isolating a few key things and going all out on them might be the solution we needed.

The most useful website for weddings, hands down: http://apracticalwedding.com/get-started-wedding-planning/  I also recommend their book.