Author Topic: CASE STUDY: Starting Out - what's the game plan for a 23 years old???  (Read 5339 times)

GreenHorn101

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HI fellow Mustachian,

I recently discovered this website and I am intrigued by the way of Mustachian! I have been going through lots of old post and articles and i am a little overwhelmed by the amount of information. So here I am, asking everyone for advice and tips to newbie like me.

I am 23, single and live with 3 roommates in New York City. As you can imagine, the cost of living is quite high here. Below is my budget:

Income---------------------------------
Salary: $55,000
Monthly Income after tax : $3,000 (4 weeks)

Monthly Expenses-------------------around $1500~$2000 per month
Rent: $850
Utilities: $150
Transportation: $114
Food: $200~$400
Entertainment & Luxury Item: $100~500
Cellphone: $20
Gym membership:$25

Debts----------------------------------
I have zero debts.

Savings--------------------------------
I have an Vanguard account from my company with a balance of $463.23. The account started in Oct last year. I contribute 3% (max matching) and my employer contribute 1.5% of my salary.

Right now I have around $10,000 savings and looking to invest. What are my options? Going forward, How much should I invest/save?

Your advice is greatly appreciated!!!!




 







« Last Edit: February 20, 2014, 10:04:56 PM by GreenHorn101 »

Travis

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #1 on: February 20, 2014, 10:54:14 PM »
"How much should I invest/save?"

Around here you'll find the most common answer is "As much as possible."  Looking at your bottom line you're set up to save 30-50% of your income which is a great place to start.

1.  Keep a few months of expenses in a liquid account like a Money Market.  If the Vanguard account you listed is your 401(k), continue to max the company match each month.  If you haven't started a ROTH IRA yet, do that next and do what you can to max that out ($5500 a year).  After that, fund a taxable investment account and every time you find yourself with some extra cash throw it in there.  There are threads here on the forum which discuss plenty of investment options, but index funds is probably the best way to go for your portfolio.  You're young so the power of compound interest is your biggest ally.

2.  As I said the basic numbers you posted look great, but I can see a few areas to explore.  First, break your budget down as far as you can so you know what each category actually represents.  You're spending a fortune on food for one person.  Is that all groceries? Restaurants? Bars?  I can't speak for NYC food, but you shouldn't need to pay more than $200 in groceries for a healthy diet.  $150 for your share of utilities seems like quite a bit when you're splitting between 4 people. What does that include?  Entertainment is also quite a large share of your expenses and can easily be a black hole if you don't keep an eye on it.  You have a transportation budget. Do you own a car? If so does that $114 cover fuel, insurance, maintenance? If you don't have a car, are you planning on one in the future?

3.  Do you have any specific financial goals for the next 5-10 years?  Where do you see your career going?  Keeping an eye out for a few years down the road will help you make sure you don't come up short.

Emg03063

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #2 on: February 20, 2014, 10:58:46 PM »
Your options in terms of investment account types are 401k, traditional or Roth IRA, or regular, all of which can hold vanguard funds, or other mutual funds or stocks.  There are pros and cons of each depending on your post retirement expected standard of living.

As far as how much to save goes, how soon do you want to retire?  (See the post titled "shockingly simple math".  Do you want to live in the city for the rest of your life, or do the get married, have kids, live in the 'burbs thing?  Your budget looks good, but $150/mo for utilities seems high to me for a 4 way split on an apartment.  Can you break it down?

Beridian

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #3 on: February 21, 2014, 04:49:13 AM »
I would suggest as a goal to max out your 401K at $17,500 and open a Roth IRA and max it out at $5500 (every year).   If you cannot max out both I would max out the Roth first.   I know that $23K sounds like a big chunk of your income (it is), BUT it should be a goal to strive for.  The 401K contribution will also drastically lower your income tax obligation.  If you learn to do this now and stick with it you will be rolling in dough in a decade or two.  It seems far away but it will sneak up on you faster than you realize.

I am envious of you.  If you start doing the right financial things at your age you are set up very well for early financial independence, and that is a priceless thing.
« Last Edit: February 21, 2014, 06:23:06 AM by Beridian »

jhartt3

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #4 on: February 21, 2014, 06:12:11 AM »
I wish i had found this site 4 years ago when i graduated.  you can and should be maxing out your 401k and roth IRA   I'd drop the gym membership and pick up a p90x or T25 etc type workout you can do in your house.  Your utilites seem quite high i pay 200 a month in an 1800 sq foot house.  and i'm working on lowering that.  Your food is also very high.  my wife and i live on about 300 bucks a month.  max at 400 with 100 for eating out some months.  Your entertainment and luxury has room in it too.  the difference in maxing out your 401k and not is about 1000 dollars a month out of your pocket b/c of the federal and state tax breaks.  and you'd actually be saving over 1400 a month towards retirement.

Rent also seems crazy high to me.  I pay less in tax/insurance/hoa/interest on my current home each month.  and its 1800 sq ft. 

it looks like from your expenses list if you can live on the lower end of each of your estimates you can fund both of these accounts without changing much of your life.  anything else would be gravy if you could cut it back. 

What i would do if i were you is take your income each month take out your payment to your 401k and your roth and see what you're left with.  you should be able to live on whatever youre left with quite comfortably. 

jhartt3

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #5 on: February 21, 2014, 06:16:17 AM »
didnt see NYC.  so your rent maybe good to go.  but those utilities split 4 ways.  you must be keeping your apt. screaming hot and leave lights on everywhere.  If TV is included in this you could just say you're not interested in it.  and you'll pay your share for the internet bill but dont need TV. 

Seeing that you live with people and 4 is actually the perfect number in my mind.  i would setup a cooking plan each one of you cooks dinner for everyone else one night a week and leftovers are fare game.  1 person does the grocery shopping for these dinners and splits the money 4 ways.  We did this in college and it worked great.  And you pick up some cooking skills in the process.  I would suggest you do the shopping since you're the one trying to be frugal and shop correctly.  this way you will get dinner mon-thursday.  and maybe some lunches.  I think its a great system if you can get buy in on it.  Its hard to cook for 1. 

« Last Edit: February 21, 2014, 06:19:42 AM by jhartt3 »

aj_yooper

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #6 on: February 21, 2014, 06:55:55 AM »
I would maximize your 401k and do a Roth IRA; putting $23 k every year while you are young will rocket you towards financial independence.  Start putting your investments in a total market index and keep chucking it in.  When you have about $25,000 invested, you could start adding other indexes to increase your diversification.  I would keep your $10,000 as an emergency fund and park it in a CD.   Fine tune your budget so you can reduce your monthly expenses.

Start doing some reading like William Bernstein's Four Pillars of Investing and Rick Ferri's All About Asset Allocation

Find ways to enjoy all the wonderful free or inexpensive things to do in NYC and you will be rolling in it.  Learn to cook!

Best wishes.
« Last Edit: February 21, 2014, 07:43:22 AM by aj_yooper »

dude

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #7 on: February 21, 2014, 07:32:58 AM »
Consider getting the hell out of NYC!  $55K for NYC is not a lot of money.  I lived in NYC for 8 years, and was making twice that and still felt poor.  11+% of my money went to state and local taxes alone!  Not to mention gas prices (I had to get out of the city on weekends for my sanity; fortunately, I lived in Brooklyn where I could keep a car parked on the street and not in a $300/month lot), bridge and tunnel tolls, and the other ridiculous costs associated with living there -- though don't get me wrong, I love NYC! (it's just not the place for moderate-waged people to get ahead).

b4u2

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #8 on: February 21, 2014, 07:50:51 AM »
Way to go starting out young and asking these questions! Follow the advice posted in the posts above mine and you will have a nice future.

Shameless plug here....I am a Beachbody coach and would love to help with your home fitness. No you do not have to buy anything from me or Beachbody. Look me up on Facebook if interested www.fb.com/brown1william

windawake

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #9 on: February 21, 2014, 10:20:49 AM »
I really appreciate this thread. I'm 25 living in Minneapolis, no debts and making $53k/year. I spend about $1.5-1.6k per month, so we're very similarly matched. I've been reading MMM for a couple years and find that my spending level is what it takes for me to be happy/comfortable as a single person living in a city. So I would honestly evaluate whether the things you're spending money on are making you happy, and if they are, keep them. Saving 30-50% in such a high COL area is a great start already.

-I recommend this book a lot to 20 somethings, but "The Defining Decade" is a good read. Helps you think through some strategic life steps to take in your 20's.

+1 to this book, if only for the fact that it gives you some good perspective. I did get annoyed with her at a couple points because while she gives good career advice, she doesn't really tell you what to about your love life besides don't waste time on jerks/dead-end relationships (which is good advice, but then how do you find the good ones?).


GreenHorn101

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #10 on: February 21, 2014, 10:50:46 AM »
First of all, Thanks for all the feedback! It really is helpful.

My food expenses include going out to bar/dinner/lunches with friends. I am a terrible cook so i spend lots of night eating outside. I am trying to lower my food expenses by:
1) Cooking my own lunch/dinner.
2) Invite friends to come over instead of eating outside.
3) Shop at Costco (I got a membership card from my family) 

My utilities include Electricity, Gas, Wifi, Cable, Netflix and some occasional expenses that are split between roommates (Ex: Tooth paste, garbage bag, New door knob, etc) 
I am trying to convince my roommates to drop cable since we already have Netflix (bye bye HBO).

My $112 transportation cost is an monthly unlimited Metrocard (for subway and bus). Since Its quite convenient to travel via public transportation in NYC, I don't owe a car atm, but I am looking forward to buy one when I can afford it (used car of course!).

In terms of career, I am an accountant and I am in the process of getting certified (CPA). I don't see myself making double of what I am making now in the near future, but (hopefully) I don't have to worry about job and should be able to maintain a steady flow of income.

I will check out the Roth IRA account and 401K and crunch some numbers and put together a more detailed game plan. My goal is to reach FI around my mid-late 30s, with enough asset to generate $50,000 per year and an apartment/house in NYC area with no mortgage.

Thank you for all suggestions! I will check out those recommended books.



 

« Last Edit: February 21, 2014, 10:52:34 AM by GreenHorn101 »

jhartt3

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #11 on: February 21, 2014, 01:11:26 PM »
i dont understand why you plan to get a car.  Do you need it to go somewhere.  you only pay 114 a month for your subway fare all over town.  I wouldnt own a car in your situation. 

frugally

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #12 on: February 21, 2014, 02:21:11 PM »
In terms of career, I am an accountant and I am in the process of getting certified (CPA). I don't see myself making double of what I am making now in the near future, but (hopefully) I don't have to worry about job and should be able to maintain a steady flow of income.

Once you get your CPA, you should be able to make $45-55k in a much lower COLA. 

You could consider (don't cringe) living with your parents to build up a massive 'stache the first few years.  I have a buddy who did this the first three years out of college and is already extremely close to FI at 27.

GreenHorn101

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #13 on: February 21, 2014, 02:24:45 PM »
i dont understand why you plan to get a car.  Do you need it to go somewhere.  you only pay 114 a month for your subway fare all over town.  I wouldnt own a car in your situation.

A car is more of a luxury item than a necessity. There are many area of NYC that are not easily accessible by subway/bus. I also do a lot of photography in my spare time, a car will makes my life easier when i want to travel upstate or to another state.


Mister Fancypants

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Re: CASE STUDY: Starting Out - what's the game plan for a 23 years old???
« Reply #14 on: February 21, 2014, 02:51:03 PM »
First of all, Thanks for all the feedback! It really is helpful.

My food expenses include going out to bar/dinner/lunches with friends. I am a terrible cook so i spend lots of night eating outside. I am trying to lower my food expenses by:
1) Cooking my own lunch/dinner.
2) Invite friends to come over instead of eating outside.
3) Shop at Costco (I got a membership card from my family) 

My utilities include Electricity, Gas, Wifi, Cable, Netflix and some occasional expenses that are split between roommates (Ex: Tooth paste, garbage bag, New door knob, etc) 
I am trying to convince my roommates to drop cable since we already have Netflix (bye bye HBO).

My $112 transportation cost is an monthly unlimited Metrocard (for subway and bus). Since Its quite convenient to travel via public transportation in NYC, I don't owe a car atm, but I am looking forward to buy one when I can afford it (used car of course!).

In terms of career, I am an accountant and I am in the process of getting certified (CPA). I don't see myself making double of what I am making now in the near future, but (hopefully) I don't have to worry about job and should be able to maintain a steady flow of income.

I will check out the Roth IRA account and 401K and crunch some numbers and put together a more detailed game plan. My goal is to reach FI around my mid-late 30s, with enough asset to generate $50,000 per year and an apartment/house in NYC area with no mortgage.

Thank you for all suggestions! I will check out those recommended books.

As a NY based CPA either working for a financial firm or opening up your own business you can easily double to triple your annual salary if not more throughout your career, good luck. Just donít inflate your lifestyle with it.

If you live in Manhattan a car is completely unneeded don't waste your money, just use ZipCar when needed, even in the outer boro's Zip it is. If you plan to live outside of the city in the burbs like I do then a car is essential.

You can reach FI by your mid to late 30's working in NYC if plan to leave the NYC area with your assets, you will not be staying in NYC based on your numbers and be FI that quickly, it is just too expensive, that is price you pay for the lifestyle choice of the Big Apple.

Also an apartment/house mortgage free is possible but highly unlikely, NYC real estate is astronomical, you can pay upwards of $1000 sq ft for a crappy neighborhood, in the burbs you can get down to under $200 sq ft, but your down payment in the NYC metro area buys a house outright in the much of the rest of the country. A decent Manhattan 1 bedroom can easily cost $700k; a crappy one maybe can be had for $300k if youíre really lucky.

Based on a SWF of 4% you need investable assets of $1.25m to get a $50k annual income, based on you current savings of $10,000 + $463 and maxing out a Roth at $5,500 and a $17,500 annually for 17 years which puts all the way out to 40 years old with a 7% annual return your investments will be worth just shy of $750k, $500k short of what is needed. So you would need to save more for retirement then you are now and that would be at the expense of the house down payment, so you are either still renting or not mortgage free, either way NYC is a tough place for FIRE unless you make a lot of money or are very diligent.

-Mister FancyPants