Author Topic: Cutting Expenses vs. Raising Income, Need Help on the Latter  (Read 3011 times)

Flynlow

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Cutting Expenses vs. Raising Income, Need Help on the Latter
« on: October 03, 2012, 03:48:32 PM »
Hi Everyone,
Iíve posted a couple of times, but hadnít had a chance to make an intro post yet (I donít have internet at the apartment so Iím not on the forums too muchÖmore on this later!).  So I stumbled on the MMM blog completely by accident, just via a Google search on some specific finance stuff, and this was one of the links that came up.  Iím very happy it did!  Most of my habits were pretty Mustachian before finding the site (I thank my parents for this), but having the mutual support network of this forum definitely helps keep me focused on my goals. 

Some background:  Iím a 28 year old Mechanical Engineer.  Graduated college debt-free thanks to the extreme generosity of my folks.  Since everyone loves statistics: been working just over 5 years, and have averaged approximately $60K/year since I started.  Just ran my net worth a couple weeks ago and divided by $300K (pretax earnings of 60K/year x5 years) it works out to an approximate savings rate of 45%, which isnít bad.  Iíd like to do better, but am fairly certain that I need to work on the earnings, rather than expenses, side of the equation.  Current situation:

Debts:  None.  Everything (food, bills, insurance, cell phone) goes on the CC, which is paid in full every month, and earns 1% back with no annual fees.    No car payment, no mortgage, no student loans.

Currently, renting at a pretty reasonable $685/month rate.  Pretax income is $5000/month.  Take home pay is ~$3200/month after 20% going to a 401K (employer matches 5%).  Total expenses (including rent) are approximately $2000-2500/month.  This has been trending downward for the last year or so.  It was highest when I owned and was fixing up the house, after that sold I moved to the new job and had a pretty nice/large apartment, Iíve downsized that and pared down extras: Internet, Netflix, Xbox Live, etc. are all gone.  Mostly eat at home with simple meals (spaghetti, stir fry, etc.), and use the library thatís 2 blocks away for internet and entertainment needs (books and DVDs).  I own a number of vehicles, but thatís partially a side hustle as I buy broken cars and bikes, fix them up, enjoy for a while and sell them for a profit, then buy something else.  The vehicles are mostly for fun/hobby and not a luxury, I have a mountain bike I ride to work fairly often, and have done a 150 mile weekend charity ride on it with full suspension and knobby tires (Badassity up?). 

Iím on my second job since college.  I worked in the automotive industry right out of school, and since I graduated in 2007, I entered the industry just before it basically imploded.  That was an interesting experience.  My pay varied depending on hours/cutbacks from 50-70K, and I worked lots of overtime, sometimes unpaid.  In the 4 years I was there I went from the most junior person in my workgroup of 7 people to the 2nd most senior.  Great experience, but a lot of work for the pay offered.  I bought a house (foreclosure) and rented to 3 other engineers at work and we had a great time, and I managed to come out slightly ahead when I sold it after leaving the job and the area.  My 2nd job (no longer automotive industry) basically split the difference between my high and low years at the previous job, but with a guaranteed 40 hour workweek (more free time), better job security, and slightly less stress.  Iíve been here just over a year. 

I am EXCEEDINGLY grateful to be as fortunate in my finances as I have been so far, but occasionally I wonder about pay.  That is, I read multiple stories of people changing jobs and earning significantly more.  I am relatively safe and secure in my current job, and reasonably happy, but looking at the national averages for engineers with 5 years experience, it seems like $60K might be a little low.  In fact, many starting salaries are above this for 1st time grads.  I pushed back slightly when I interviewed for my current job, and my bossís boss, who did the hiring, told me that was as high as he could go.  Conferring with several people at my level at work I believe he was telling the truth, as they make the same or less than I do.  So Iím certainly not upset at the company, quite the opposite, but I have dreams of early retirement and great adventures, and I think earning more could help with that. 

I have modest opinions of engineering, I think itís a great field, and am glad my degree can land me a decent paying job almost anywhere, but I think that salaries have relatively limited growth potential in the current economy, for some reason many are stagnating, and several of my friends from college have left the engineering field and branched out into finance, business, or sales, in many cases increasing their salaries significantly.  I am considering doing the same.

So I guess I need some advice, and I value this boardís collective opinion:


-Stick it out and try to rise through the ranks at the current gig?
-Go back to school for an MBA or other degree and go for the big $$$ job, with an assumed increase in hours and stress, but shorter timeframe to FI?
-Skip school and try and make the jump to another field on the strength of my current experience? (my resume is pretty strong)
-Something else I havenít even considered?  For instance, I have a decent wad of cash saved, and a very reliable motorcycle that is comfortable to ride all day and gets 50+mpgÖI have seriously considered quitting the job, jumping on the bike, and riding across the country for awhile, visiting friends and family and touring through the National Park System.  Not quite early retirement, but certainly a sabbatical with a fun adventure.  My dad recently retired, and he would possibly join me for part or all of such a trip on his bike.  I feel these sorts of life adventures are the sort of thing that we live for, and work is just a means to support them.  I have a couple of other adventure ideas, such as buying a large-ish boat ~50í and starting a charter business, or trying to start a repair shop (cars, motorcycles, electronics), for the opportunity to be my own boss and work for myself, rather than someone elseís business. 


Any particular words of wisdom for a 20-something engineer?  Thanks in advance!!!


RoseRelish

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Re: Cutting Expenses vs. Raising Income, Need Help on the Latter
« Reply #1 on: October 03, 2012, 04:27:33 PM »
Congrats on the solid savings rate. I'm with you on the starting out making less than what I "should" make or less than what you hear. Switching companies/locations is sometimes the only way to increase income. I'd advice against and MBA if you're not inspired by the work. The business world is super competitive these days and banks are cutting back on bonuses/salaries for most everybody.

The great thing about having a good sized stash is to be able to take that trip across the country with your dad...or start a business and see what happens. I'm a huge proponent of doing stuff like that if it will improve you life. Heck, I'm moving back to my hometown to get my life back to the basics of enjoying time with family and my wife without the stress of the city-life/commute/work 24/7 mentality.

All of that said, you may need to think about investing or sharing how you invest your stash these days!

Best of luck!

bo_knows

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Re: Cutting Expenses vs. Raising Income, Need Help on the Latter
« Reply #2 on: October 03, 2012, 06:04:46 PM »
Instead of going back to school full-time, you should consider seeking out an employer that is willing to offer tuition assistance.  I got my Masters in Systems Engineering at night class over the course of 3 years, and the company footed the bill. 

Oddly enough, they didn't find my newfound credentials to be worthy of a raise of any sort, so I moved on for a 35% pay raise...


Anyways, congrats on your savings rate. It took me a few years out of college to figure out the whole savings gig... it sure can be tough in an expensive city.  If my math serves me right, you're essentially half way to FI with that nest egg at your expense level. Congrats.

MooreBonds

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Re: Cutting Expenses vs. Raising Income, Need Help on the Latter
« Reply #3 on: October 03, 2012, 07:27:13 PM »
Iím on my second job since college.  I worked in the automotive industry right out of school, and since I graduated in 2007, I entered the industry just before it basically imploded.  That was an interesting experience.  My pay varied depending on hours/cutbacks from 50-70K, and I worked lots of overtime, sometimes unpaid.  In the 4 years I was there I went from the most junior person in my workgroup of 7 people to the 2nd most senior.  Great experience, but a lot of work for the pay offered.  I bought a house (foreclosure) and rented to 3 other engineers at work and we had a great time, and I managed to come out slightly ahead when I sold it after leaving the job and the area.  My 2nd job (no longer automotive industry) basically split the difference between my high and low years at the previous job, but with a guaranteed 40 hour workweek (more free time), better job security, and slightly less stress.  Iíve been here just over a year. 

I am EXCEEDINGLY grateful to be as fortunate in my finances as I have been so far, but occasionally I wonder about pay.  That is, I read multiple stories of people changing jobs and earning significantly more.  I am relatively safe and secure in my current job, and reasonably happy, but looking at the national averages for engineers with 5 years experience, it seems like $60K might be a little low.  In fact, many starting salaries are above this for 1st time grads. 

Congrats on a solid start!

Are you looking at just any-old engineer starting salary, or people in your specific industry? Petroleum engineers can start at $70k+....but you're background isn't petroleum.

A great site where actual people post their actual salaries (listed by company!) is glassdoor.com. Search around there for some of your competitors or your own company to see what actual equal jobs are paying. And speaking as a B.S. in Mech E, not all Mech Es are the same, so don't just search for "Mech E". (I'm in the Architecture/Engineering industry, which can be very different from automotive, manufacturing, etc. industries).


-Stick it out and try to rise through the ranks at the current gig?
-Go back to school for an MBA or other degree and go for the big $$$ job, with an assumed increase in hours and stress, but shorter timeframe to FI?
-Skip school and try and make the jump to another field on the strength of my current experience? (my resume is pretty strong)
-Something else I havenít even considered?  For instance, I have a decent wad of cash saved, and a very reliable motorcycle that is comfortable to ride all day and gets 50+mpgÖI have seriously considered quitting the job, jumping on the bike, and riding across the country for awhile, visiting friends and family and touring through the National Park System.  Not quite early retirement, but certainly a sabbatical with a fun adventure.  My dad recently retired, and he would possibly join me for part or all of such a trip on his bike.  I feel these sorts of life adventures are the sort of thing that we live for, and work is just a means to support them. 

As others have suggested, look for companies that offer salary reimbursement for MBAs. Also, think long and hard about what opportunities that door could open - perhaps many, or perhaps it's not worth it.

Personally, I worked for my father's construction company as an estimator/project manager for 8 years after school, made a good chunk of change, but needed to save my life from the stress that was literally killing me. I took the GMAT, obtained letters of recommendation, and was going to start filling out some MBA applications...when it hit home that the starting salaries I would get would probably be just about the same as I would have if I stayed in the construction industry, not to mention that the types of jobs may not truly be as appealing as my general notion of finance jobs (even though I love numbers and investments), and getting an MBA would require a big financial and time commitment.

So, I decided to try the design side (using my vast construction experience as a huge benefit and insight, since most designers only know the design side, and are clueless as to what really happens on a jobsite). I figured if it didn't work out, I could always fall back and enter the MBA program. It turned out to be the greatest possible move, because not only do I truly enjoy my job, but I would have graduated w/ my new MBA in 2009/early 2010, and basically would have been screwed finding a job.

To sum it up - try looking at your knowledge and experience, and think of ways to leverage that to give yourself an advantage or insight that others in your 'ideal' career path may not relate to, or bring to the table, whether apart from an MBA, or in conjunction with one. It makes you more valuable as an employee. Also, look at other benefits too - salary is one thing, but so are matching 401k contributions, employers that pay you part of the savings if you buy your own health insurance plan, and some that still offer a defined benefit plan (many universities and non-profit healthcare institutions still offer them, and they do have some openings for engineers/managers).


I have a couple of other adventure ideas, such as buying a large-ish boat ~50í and starting a charter business, or trying to start a repair shop (cars, motorcycles, electronics), for the opportunity to be my own boss and work for myself, rather than someone elseís business. 

Self employment can be a great thing....but ask yourself what your goals are. Is it mainly to achieve FI as soon as possible so you can do what you want w/ your time? Given your current and future salary, unless you come up with a kickass idea(s), I doubt you'd have an overall better average going out on your own now versus just saving away for the next 12-15 years and then being able to do anything.

Look again at some of those ideas you have. Some of them are very creative and thinking outside of the box (a great quality for prospective employers, by the way), but be wary when your self-employment plan depends on hiring good quality employees. They are out there to be found, but it can be damn hard to find them. In which case you're left dealing with various levels of tardiness/don't-give-a-shit-so-i'll-do-it-half-assed/don't-give-a-shit-about-your-profitability-so-i'll-take-my-time/no-shows/minor theft/attitudes that rub customers the wrong way/etc..

Starting a charter business is great....until your captain no-shows 3 days in a row because they went out partying the night before and are too hung over to show up for work. And you have a sizable loan note on that boat that is costing you money whether you have customers or not. (think that's excessively pessimistic? talk to my father and brother, the contractor, and ask them how many times they've had calls from union construction workers making $65k/year plus gold-plated benefits not show up for work because of alcohol/drugs/jail time - IF they are nice enough to call and say they aren't coming to work).
More importantly, many captains are also the owners of smaller charters, so they have the advantage of not having to pay someone else for their return-on-investment, so your ROI will be substantially smaller.

Perhaps your boat charter idea was for you to be a captain - in which case it could work out, although I would only recommend something like that when you're already FI, and you become "self-employed" in an activity you truly enjoy that would be a hobby (like boat fishing because you'd want to go out on a boat anyway, etc.), due to the comment earlier about your current salary/savings plan and how much more likely that is to get you to FI much sooner given some of the riskier suggestions you had.


I currently do some design work on the side at night. See if you can offer your skills and offer your services at night/weekends to other companies. Depending on your arrangement, you could be considered an independent contractor (certain litmus tests apply, so tread carefully). If you can qualify as an IC, that allows you to declare self-employment income - which the IRS allows you to expense some of the following:
your 'home office' (an area or room in your apartment dedicated to your self employment work)
Travel from your home office (apartment) to the employer's location
contribute to a SEP IRA (stash away up to 20% of your self-employment income, tax-deferred)
among others write-offs

You might even talk to some head hunters if they know of any part-time openings that their clients might be willing and able to use, instead of a full-time person.

Flynlow

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Re: Cutting Expenses vs. Raising Income, Need Help on the Latter
« Reply #4 on: October 04, 2012, 09:07:34 AM »
Thanks for all the advice so far!  I'll try to respond to these in order, sorry for cutting the quotes down, I'm trying to keep the post size reasonable :)  :

I'd advice against and MBA if you're not inspired by the work. The business world is super competitive these days and banks are cutting back on bonuses/salaries for most everybody.

All of that said, you may need to think about investing or sharing how you invest your stash these days!

Tough to say on the bank world, though I definitely appreciate the advice on the MBA.  Most of my engineering friends that have made the switch got in on the strength of their engineering degree (turns out we're good at math), and went for a financial analyst job.  They say they're not as passionate about the work, but they do a good job and get paid well for it.  Tough to say.

Most of my money is in stocks, either via the employer 401k (with match), or an after tax account I pay into myself.  Nothing terribly exciting or complicated.  I also keep 6 months expenses in a local savings account that earns like 0.0000000000000001% interest, and have considered moving that online somewhere like ING, but somehow never get around to it.  I like keeping some amount of cash available. 

Instead of going back to school full-time, you should consider seeking out an employer that is willing to offer tuition assistance. 

  If my math serves me right, you're essentially half way to FI with that nest egg at your expense level. Congrats.

Going back to school is actually lowest on options list.  I would definitely enjoy it, but I really don't want to have the expense and time commitment (even partially subsidized by an employer) if I can improve my situation on my current credentials.  If I DO need extra training to get the dream job, I'm definitely open to that. 

Thanks for the congrats, the numbers to FI are a little misleading, because I actually expect my expense level post-retirement to go UP, not down.  I have a couple of big dreams (get my pilots license, the boat charter, several others) that are very expensive unfortunately.  I am saving as much as I can knowing that deferring a big $10,000+ expense like flight training and putting that money into assets now will pay off threefold or more if I wait to spend it.

Are you looking at just any-old engineer starting salary, or people in your specific industry? Petroleum engineers can start at $70k+....but you're background isn't petroleum.


Self employment can be a great thing....but ask yourself what your goals are. Is it mainly to achieve FI as soon as possible so you can do what you want w/ your time? Given your current and future salary, unless you come up with a kickass idea(s), I doubt you'd have an overall better average going out on your own now versus just saving away for the next 12-15 years and then being able to do anything.

Look again at some of those ideas you have. Some of them are very creative and thinking outside of the box (a great quality for prospective employers, by the way), but be wary when your self-employment plan depends on hiring good quality employees. They are out there to be found, but it can be damn hard to find them. In which case you're left dealing with various levels of tardiness/don't-give-a-shit-so-i'll-do-it-half-assed/don't-give-a-shit-about-your-profitability-so-i'll-take-my-time/no-shows/minor theft/attitudes that rub customers the wrong way/etc..

Starting a charter business is great....until your captain no-shows 3 days in a row because they went out partying the night before and are too hung over to show up for work. And you have a sizable loan note on that boat that is costing you money whether you have customers or not. More importantly, many captains are also the owners of smaller charters, so they have the advantage of not having to pay someone else for their return-on-investment, so your ROI will be substantially smaller.

Perhaps your boat charter idea was for you to be a captain - in which case it could work out, although I would only recommend something like that when you're already FI, and you become "self-employed" in an activity you truly enjoy that would be a hobby (like boat fishing because you'd want to go out on a boat anyway, etc.), due to the comment earlier about your current salary/savings plan and how much more likely that is to get you to FI much sooner given some of the riskier suggestions you had.


You might even talk to some head hunters if they know of any part-time openings that their clients might be willing and able to use, instead of a full-time person.

 

Moorebonds, thanks for all the advice!  That was quite a long post!  Taking the items in order:
-I've looked at both region/field specific and general salary data.  Also based it on friends that have called to offer me jobs at their companies.  Even if the offer's in a different field, I use it as a data point since it's available and I've been targeted for it. 
-The MBA was kind of discussed above, and I think we're on the same page of debt/time vs. reward
-The charter was for myself as the owner/operator/captain of a 50-70' vessel, with 1-2 additional crew.  I've been on boats since I was born (well, almost...my parents waited until the day AFTER I was born), and first had my own boat at 12.  I'd have to go back to school and refresh my navigation and certifications, but could probably have my captains license relatively quickly, even while continuing to work full time.  I think chartering to pay the bills, and living aboard/owning something like that would be a fantastic experience.  If it becomes less fun after a few years, I would either try to hire a captain/crew and turn it into an absentee business, or sell the boat and move on to the next thing.  But waiting until FI so the chartering is fun and bonus $$, rather than necessary operating income, is definitely something I've considered.
-The part time gig is not something I'm considering right now.  I might in the future, but I'd like to keep to a single full time job as much as possible.  It's certainly an option, but I'd like to try some other options first before dealing with all the paperwork/tax headaches/non-compete clauses/confidentiality agreements/etc./etc.


Another option I really like would be trying to get into personal finance counseling, really almost the same thing as what we all do here for each other, but trying to help folks that want to get their feet under them financially.  I've helped several friends plan for their own retirement and draw up monthly budgets to help them save money (usually for fun stuff, like vacations or cars, but they're always surprised how much money they can generate themselves if they stick to the plan), and I've always gotten a lot of personal satisfaction doing so.  This was another reason I was considering the jump to finance, if I could get into that side of it, I think I would be well placed to try and help folks out that need it.  With the economy going the way it is, I think there would be a demand for it. 

Cheers!

« Last Edit: October 04, 2012, 09:10:45 AM by Flynlow »