Case Study: Young Guy Getting His Bearings in Finance

[shigeta]

Hey fellow Mustachians!

My name is James and I am a newly-minted Mustachian in training. Like many, I stumbled upon MMM a few months ago and have been spending my nights and weekends reading the blog and other resources such as CCC, YNAB, and Your Money or Your Life. 

I grew up with nearly 0 financial training, but luckily, I have a couple great influences in my life that got me on the right track to financial freedom.

Life Situation
I am 21 years old and single. I have been working at my current company for just about 2.5 years. I was hired straight out of high school for a Jr. Marketing position in the automotive industry (dream job). I started at a salary of $30k and have worked my ass off to my current position as Marketing Coordinator with a salary of ~$60k with 5% ownership in the company. I am pretty good at saving up for big, well planned purchases. For example, I waited and saved for 2 months to buy a pair of quality sunglasses that are made to last many times over cheap sunglasses.

I am a huge automotive and motorcycle enthusiast. I don't have many hobbies or huge expenses; I view riding as my mental break from the grind. I work 60+ hours per week, so my weekends are for relaxing and recharging. I've approached motorcycling in the best way that I know how— frugally wherever possible, yet wisely. I bought a used bike for $3,000 instead of financing a $12k bike. (whew!!) I spend good money on quality gear and insurance, but I learned that lesson early on.

I commute about 17 miles per day for work. It's a bit far, but anyone in Northern California (specifically the Silicon Valley/SF area) knows how dire the housing situation is right now. COL is insane here. $3,000 is a reasonable minimum for a 2br apartment in the area ($1,500/person). Regardless, I plan on picking up a road bike and getting in shape by cycling to work a few times per week to start.

Employer does not offer a 401k or IRA program. I feel downright embarrassed about my financial flubs so far. I realize that I'm on the younger end of the mustachian scale and have had very unique career opportunities for someone by age; I just can't help but feel overwhelmed by how much I've screwed up to this point. 

At the moment, I'm gearing up to jump career ships with my current CEO and begin a new business venture. This likely looks like me choosing to take a lower salary (probably in the realm of what I was making when I started my career). I'm trying to refine my expenses and lifestyle so that I can maintain my savings despite a lower salary. Also, I am trying to build a safety net in case sh*t hits the fan. I have probably about 1 year to make the transition. 

Gross Salary

• $60,000 / yr
• $5,000 / mo

Pre-Tax Deductions

• Medical - $44.88

AGI

• $4955.12 / mo

Taxes

• Disability Tax - $42.24
• Federal Withholding - $607.98
• FICA - $292.92
• Medical FICA - $68.04
• State - $197.84

Net Income
$3,613.40 / mo

Current Monthly Expenditures
Rent / Living

• Rent - $1,164.52 (My share of a $2,357 apartment)
• Rental Insurance - $16.83 (Paid $202/yr lump payment to avoid $5 transaction fee each month)
• Internet - $45
• Utilities (PGE) - $60

Auto / Transportation

• Auto Insurance - $93
• Motorcycle Insurance - $85
• Gas - $200
• Maintenance, other - $130

Food / Dining

• Alcohol/Bars - $102 « Face punch; damn, this gets out of hand quickly
• Restaurants - $90 « Face punch
• Fast Food - $43 « Aiming for $0 Fast Food next month
• Groceries - $80 « Aiming for higher grocery bill and lower restaurant
• Snacks & Beverages - $17

Entertainment

• Spotify Subscription - $10 « Very worth it. I listen to music damn near 16 hours/day. Cheaper than buying music constantly

Clothing / Personal Care

• Clothing - $10
• Hair Cut - $20
• SPOT GPS Subscription - $16 « Emergency GPS beacon (I am very active outdoors)

Assets
Vehicles « Erm.. I'm not sure if vehicles count as assets, but I've listed what I could liquidate them for

• 1988 Toyota Pickup with 255k mi - $5,500 Real market value
• 1996 BMW 328is - $2,000 Real market value « Currently non-op'ed sitting in my warehouse at work, no expense for me
• 2009 Triumph Daytona 675 - $4,000 real market value

Investments & Savings

• Betterment Emergency Account - $442.17; $190 recurring monthly transfer « eeeek, but I just started a month ago
• Savings - $0

Liabilities (this is where James flubbed big time)

• Wells Fargo CC - $3,311.22 @ 15.15%; Monthly payment - ~$78
• Chase CC - $2,957.13 @ 18.99%; Monthly payment - ~$88

Leftover
I usually have in the realm of $1,000 left over, but I've been making an effort to throttle back erroneous spending this month. (and moving forward) I'm poised to have ~$700 left after core expenses this month. I've had a lot of unplanned expenses this month such as a last-minute move which accounted for the consumption of "discretionary" money. Costs included truck rental, apartment damage deposit, PG&E deposit, housewares that I didn't need to buy at my last place, etc.

I definitely recognize some areas where I can cut down and other places where I deserve an epic face punch. Either way, I appreciate everyone's help and I hope that I can continue to use this incredible forum as a resources for golden information on my path to FI.

Please let me know if I can provide any mission information (or if I royally screwed up my calculations or reporting)








 

[MDM]

Employer does not offer a 401k or IRA program.

Gross Salary
$5,000 / mo

Pre-Tax Deductions
Medical - $44.88

AGI
$4955.12 / mo

Taxes
Disability Tax - $42.24
Federal Withholding - $607.98
FICA - $292.92
Medical FICA - $68.04
State - $197.84

Liabilities (this is where James flubbed big time)
Wells Fargo CC - $3,311.22 @ 15.15%; Monthly payment - ~$78
Chase CC - $2,957.13 @ 18.99%; Monthly payment - ~$88

Welcome to the forum.

A few things:
  - Might be worthwhile to ask your employer about establishing a 401k or similar
  - You can (and should) do an IRA all on your own.  E.g., see https://investor.vanguard.com/ira/how-to-open-an-ira.  Traditional is probably best for you as you are in the 25% + state bracket.
  - Eyeballing your expenses (so my mental math may be off), they add up to much less than $3600/mo.  Where is the rest going?  Paying off those CC debts ASAP would be a good place.
  - Most people overwithhold.  Not because it is a good idea, but that's what most people do.  At a quick glance the federal taxes on $4955/mo are ~$674/mo.  You are ok if so - just checking to see if you see it the same way.

[MrMathMustache]

Hello and welcome to the forums!  I'm going to echo the previous poster: it seems like your monthly expenses add up to around $2200, while your monthly net income is around $3600.  Are those CC monthly payments what you're actually paying, or are those the required minimums?  Assuming that all of your expenses are accounted for here, it seems like the best course of action is to aggressively pay those balances down, particularly at those interest rates.

[ShoulderThingThatGoesUp]

Challenge yourself to pay off those cards in the next four months. You can do it. Then open a traditional IRA account for yourself.

[shigeta]

Hey guys,

Great responses— Thanks! I've updated the first post with some more information which I've pasted below.

Leftover
I usually have in the realm of $1,000 left over, but I've been making an effort to throttle back erroneous spending this month. (and moving forward) I'm poised to have ~$700 left after core expenses this month. I've had a lot of unplanned expenses this month such as a last-minute move which accounted for the consumption of "discretionary" money. Costs included truck rental, apartment damage deposit, PG&E deposit, housewares that I didn't need to buy at my last place, etc.

Moving forward, I should have about $1,300 "leftover" every month.

My Betterment account is set up for "Emergency Net" mode right now. I know debt payoff needs to be a priority; would you guys cease all Betterment transfers and dedicate that ~$200 extra towards debt payoff?

@Shoulder—4 months is too tight considering how "liquid" my life is right now. I would accept a challenge of 5 months, however. 

Note on career & financial goals
At the moment, I'm gearing up to jump career ships with my current CEO and begin a new business venture as partners. We've begun working on the business and it's already proved to be sustainable in the short term, but we're looking to focus our efforts full time. This likely looks like me choosing to take a lower salary (probably in the realm of what I was making when I started my career) for 6 months to a year. After that, assuming the best, I'd be making more that what I'm making now with a significant ownership in the business. I'm trying to refine my expenses and lifestyle so that I can maintain my savings despite a lower salary. Also, I am trying to build a safety net in case sh*t hits the fan. I have probably about 1 year to make the transition. 

[minority_finance_mo]

The biggest expense for you is that housing expense. You're spending 1/3 of your take-home on rent. The whole living in a HCOL area is a lazy excuse. I've lived in NYC my whole life, and have found you can find apartments in Jersey or the outer boroughs that are an 30 mins - hour away (public transport) from work for extremely cheap: $500-700/mon for a BR in a 2-3 bedroom appartment. It's also usually cheaper to rent a room in a 3-4 room appt. than a 2br.

Look for alternatives in housing and don't take the lazy way out by saying you're living in SF - that will make the biggest difference in your savings.

[MDM]

would you guys cease all Betterment transfers and dedicate that ~$200 extra towards debt payoff?

Yes.  You are unlikely to earn 15-19% on money going into Betterment, while that is a guaranteed return on money used to pay the CC balances.

You can download a nice tool from http://www.vertex42.com/Calculators/debt-reduction-calculator.html that will show the amount of interest it will cost you (or that you can save) by paying the CCs faster or slower.

[shigeta]

The biggest expense for you is that housing expense. You're spending 1/3 of your take-home on rent. The whole living in a HCOL area is a lazy excuse. I've lived in NYC my whole life, and have found you can find apartments in Jersey or the outer boroughs that are an 30 mins - hour away (public transport) from work for extremely cheap: $500-700/mon for a BR in a 2-3 bedroom appartment. It's also usually cheaper to rent a room in a 3-4 room appt. than a 2br.

Look for alternatives in housing and don't take the lazy way out by saying you're living in SF - that will make the biggest difference in your savings.

To avoid confusion, I am not living in the city. In fact, I live in bumf*ck nowhere in a city called San Ramon. Housing prices throughout the entire Bay Area have ballooned incredibly.   

[NoraLenderbee]

The biggest expense for you is that housing expense. You're spending 1/3 of your take-home on rent. The whole living in a HCOL area is a lazy excuse. I've lived in NYC my whole life, and have found you can find apartments in Jersey or the outer boroughs that are an 30 mins - hour away (public transport) from work for extremely cheap: $500-700/mon for a BR in a 2-3 bedroom appartment. It's also usually cheaper to rent a room in a 3-4 room appt. than a 2br.

Look for alternatives in housing and don't take the lazy way out by saying you're living in SF - that will make the biggest difference in your savings.

To avoid confusion, I am not living in the city. In fact, I live in bumf*ck nowhere in a city called San Ramon. Housing prices throughout the entire Bay Area have ballooned incredibly.

The Bay Area is  different from the NY metro area. ( I grew up in NY and live in Silicon Valley.) $1164 for a shared apartment is not unreasonable at all, although it's possible to find cheaper shares. San Ramon is quite far from San Francisco.  The OP probably doesn't even work in SF.

[Easye418]

Pay off the CC's.

Guys, lets not forget, he is only 21.  Enjoy your youth while LYBM.   21-24 were amazing times.