Author Topic: Financial Advice: Goals, ways to cut back, and investments  (Read 3641 times)

jandr

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Financial Advice: Goals, ways to cut back, and investments
« on: December 02, 2015, 03:40:57 PM »
Hello!

Life Situation: Fiance (husband in three weeks!) and I are 20. I am working full time as a web application developer, he is going to college full time for engineering. We are both fairly cautious with our spending, but I don't know if I would say we are exceptionally frugal or money wise. We live in a very low cost of living area. I believe it's at something like 85 where the US national average is 100.

Both of us came from incredibly large families. I came from a family of 10, while he came from a family of 12. I think it makes a big difference in what we perceive as splurges and whatnot. Neither of us went out to eat much as kids or went on extravagant family vacations so we never really developed an expectation of them or a big desire to do those sorts of things. Neither of us came from what I would consider poor families (my dad makes 100k+, his dad around 80k), but it did probably result in a different financial upbringing for us compared to most kids.

Our main goal is to have saved 40,000 dollars at the very least by the time he graduates in May of 2018. I am very into the idea of early retirement, but I don't really have a projected retirement age for us. My hope would be that we could be taking a back seat in regards to working time maybe around age 35 or even 30? I don't know that either of us have the desire to totally stop working by then, but we would like to have a laid back work life past that age so that we can spend that more of that time together and with our kids if we have them. I would like to devote my minimal working time to hobby programming or the occasional website design, or even giving music lessons. He would like to just have a lesser working schedule.

I am drastically underpaid right now, mostly because I was taken on in a sort of learn while you work situation. I decided to drop out of college right after we had talked about getting married because we didn't think it was very financially responsible for us to both be accumulating debt while trying to start our married lives together. I have been told I will be getting a large raise at the end of the year (knock on wood) that I would expect to at least put me above 50,000 in yearly pay.

My fiance and I went to highschool together and both really enjoyed programming. We did lots of programming competitions together and spent lots of time developing our skills. If I do not get a large enough raise, my fiance and I have plans to really work on getting more freelance website design or programming work and potentially have me become self employed full time.

Gross Salary/Wages: I am projected to make 37,300 for the year of 2015

Pre-tax deductions: I just became eligible to enroll in my company's 401k program; however, changes only activate once every quarter so I have to wait until January to actually start putting money in. I will for sure be putting in 4% as that is what my employer matches to, but would like to put more in.

Other Ordinary Income: I just started doing freelance web design or small programming tasks a few months ago for people who ask me to - mainly family and church members, as well as a few local businesses. I have added an extra 2,000 dollars of income through this. I also give violin lessons to a girl in my church who cannot afford to go to a professional music studio and made maybe like 350 dollars from that this year.

Adjusted Gross Income: 39,650.

Taxes: I am on schedule to pay 9,200 in taxes this year for my full time job. I have no clue if that's excessive or normal to be honest. I have never done my taxes before, I always let my parents take care of them for me. This is probably something I should go and educate myself on a little more. I have not done any taxes for the freelance work, however I will be paying taxes on that at the end of the year for sure so my tax amount will be higher than the 9,200 figure.

So, we are looking at a net income of 30,000.

Current expenses: (by month. Totals 1,800 )

Church offerings: 300

Rent: 600

Utilities: 150

Food and toiletries: 300; This is a figure I really don't have a clue on. Maybe you have tips on ways to save money on food. Our food cost is expected to go down now (not sure how much) as my fiance is a hunter and is friends with many other hunters who don't like to butcher/keep their meat. We have maybe 50 pounds of deer meat in our freezer right now and several pheasants. So our groceries consist of a lot of non-meat goods.

Internet: 35

Phone: 60

Gas: 150; We can't really cut down here. My fiance's school is 15 miles away by highway so biking there isn't really an option. I carpool 45 miles to work so biking isn't an option for me either, but that is irrelevant because the company pays for the gas and supplies the car.

Insurance: 100 (auto and renters) No clue if that's a good deal or not, maybe that can get chopped down.

Clothing: Don't budget for it. I love shopping at the local second hand stores (they run deals every season where you can fill a brown paper grocery bag with as much as you can fit for 25 cents; hard to beat that!) and really don't need any more clothing; neither does my fiance. If we do, it hardly costs us anything if we're willing to wait till the end of the season to get it.

Vacation: again, we don't really budget for it. My employer offers awesome vacation benefits. They own a condo on a nearby lake, and have season tickets to the Kansas City Royals and Chiefs. They allow employees to use both and will cover the costs of lodging if you go to one of the sports games. Makes for a fairly cheap vacation. They also have gifted vacation packages to tropical areas to employees. I don't think I can hope for one until I have been working here for longer, but it is definitely a possibility down the road.

Entertainment: Maybe 100 per month maximum? We like to go out to eat by ourselves maybe twice a month, with our friends once a month, and have our friends over quite often and make all the food for that. We split a Netflix subscription with a group of friends. A large chunk of our entertainment cost is in the gas to drive there. The nearest city is 100 miles away.

Assets: We don't really have much for assets, but here's a short list of everything that I can think of that holds value.
25,000 dollars in savings.
2 cars worth about 7,000 dollars total.
I enjoy playing musical instruments, I have maybe 1,700 dollars resale value between my piano, guitar, and violin
My fiance enjoys guns. He has maybe 3,500 dollars worth of guns.
Various household items totaling maybe 4,000 in value? We have pretty cheap furniture; we got a lot of it free / on neighborhood garage sales. Our only furniture of value is our mattress and bedroom set.

Liabilities:
School loans: at the end of this school year we will have 8,000 dollars in school loans. I have absolutely no clue on the interest rate, but I do know that about 6,000 of the loans are subsidized so that doesn't matter until he graduates.

Specific Question(s): Providing a detailed breakdown is important, so is asking for specific information so we know what kind of help/advice you are looking for.

Now, if our budgeting stays put we can make our goal of 40,000 dollars by summer 2018. I don't like that. I want to push that goal up. I don't think our goal should be that easily attainable. :) What do you realistically think could be a savings goal for us to shoot for by summer 2018 if we continue the way we're going?
How about if I get a 10,000 dollar raise? Or more?

Secondly, we want to invest, and we are willing to take on a lot of risk with a smaller amount of money, maybe 5,000 dollars. It makes me antsy having all our money sitting in a savings account losing value due to inflation. Do you have any recommendations for us? It would be nice to have a largeish chunk able to be pulled out in 3-5 years for if we would want to purchase a house. So maybe risky isn't the way to go. I would be very interested in owning a rental property. However, we would want to own one in the city 100 miles away so I don't really know how wise of a choice that would be right now. Any one with rental properties have any advice? Do we need more money before we jump into owning an investment property anyways?

Thirdly, do you have any advice for us in general? We're really starting from scratch here and this could be the start of us developing either good or bad spending habits. Finances are somewhat overwhelming to me even though I am very interested in them.
 
Forgive my word barf and general oversharing.

DaveR

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #1 on: December 02, 2015, 05:26:38 PM »
Welcome! And congrats on the upcoming wedding. A few thoughts:

Getting married is good for taxes...the IRS will consider you married for all of 2015, so you can file jointly. If your fiance has minimal income, then it reduces your tax bill considerably. Expect a majority of that $9200 in taxes back.

You should open up an IRA and put $5500 into it. And an IRA for your fiance with another $5500. You can tax shelter $11k right away. That is where you should invest. Next year, you'll be able to put in another $11k, plus you'll be able to contribute to the 401k.

I'm not sure why you would take out loans (and pay interest) when cash is available. Maybe the idea is to pay it off in full when they come due (investing in the meantime)?

As far as your savings goal, starting at $25k and shooting for $40k in 2.5yr? Sorry, you should hit $40k this summer. Summer 2016 should see you close to $100k. With annual expenses of around $22k + 5k in taxes, on a $50k salary you should be able to save close to $25k per year.

jandr

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #2 on: December 02, 2015, 08:13:42 PM »
Thank you for your advice.

The reason we have loans is because I will in essence be inheriting them when we get married. He's been using all of his savings to pay for school then taking out loans for the rest. However, once we are married I could pay off the loans. I felt that it financially didn't make sense to though at least for the subsidized loans since they have zero interest until he graduates.

Would you recommend going through Vanguard for the IRA?

If we shoot for 100k by summer 2018, I'd guess we'd have to do some investing. I'll have to either do some research on Vanguard or talk to a financial advisor.

Bracken_Joy

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #3 on: December 02, 2015, 09:38:15 PM »
Food and toiletries: 300; This is a figure I really don't have a clue on. Maybe you have tips on ways to save money on food. Our food cost is expected to go down now (not sure how much) as my fiance is a hunter and is friends with many other hunters who don't like to butcher/keep their meat. We have maybe 50 pounds of deer meat in our freezer right now and several pheasants. So our groceries consist of a lot of non-meat goods.

Not having a clue on those is common, but problematic! You should know where every dollar is going- it's an important first step! This is easiest for those who use credit cards, because you can sync with a service like Mint and see where the money is going.

Reducing grocery budget: there have been some great threads on this!
First, a MMM blog classic: http://www.mrmoneymustache.com/2012/03/29/killing-your-1000-grocery-bill/
Budget Bytes is a great website!
Forum convo: http://forum.mrmoneymustache.com/post-fire/how-can-i-spend-less-on-groceries/

jandr

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #4 on: December 03, 2015, 08:16:01 AM »
Thanks for the advice.!

Hopefully we'll have a very accurate picture of what our grocery/toiletry totals will be once we are living together. I'm somewhat torn on using credit cards right now. I got pretty used to paying for things in cash when I was a waitress since that's how I received almost all of my pay, and I am now finding with my credit card that it bothers me not having a physical representation of how much I have spent. Those links should be helpful with reducing costs though, thanks!

Bracken_Joy

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #5 on: December 03, 2015, 10:29:55 AM »
Thanks for the advice.!

Hopefully we'll have a very accurate picture of what our grocery/toiletry totals will be once we are living together. I'm somewhat torn on using credit cards right now. I got pretty used to paying for things in cash when I was a waitress since that's how I received almost all of my pay, and I am now finding with my credit card that it bothers me not having a physical representation of how much I have spent. Those links should be helpful with reducing costs though, thanks!

CCs can be great for a few things.
-Rewards are key. DH and I get 6% cash back on groceries and 3% on gas. You can find rewards cards for cash, miles, hotel stays, etc.
-Easy to track with things like Mint
-Building a payment and credit record, important when you want to get a mortgage
-Fraud protection. Debit cards are much harder to get money back on a fraudulent transaction.

But CCs are not a good idea if you don't pay the balance in full each month. And you're right, not seeing the cash can make it hard to really "visualize" expenses. Only you know what will be right for you and your fiance.

mozar

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #6 on: December 03, 2015, 10:49:36 AM »
I think you should finish your college degree. As you get older, employers will be less excited about hiring you. A finished degree will give you a boost over other candidates.

jandr

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #7 on: December 03, 2015, 02:51:16 PM »
I'll have to try out mint. Maybe I'll find that helpful.

-------------------------------

I appreciate the concern over my degree (or lack of it) but I have no desire to spend 4 years in college when I can be racking up years of work experience. I don't think it makes sense financially either. I have never felt that there were a lack of jobs for me (got three different offers), despite being 19 when I applied for them (and some of them actually having degree "requirements" that ended up not being so strict). I think my years of work experience will be more valuable than someone with a degree. I enjoy the way I'm learning right now, and feel I am keeping up just fine.  Actually, my senior year of highschool I had classes with mainly that teacher one on one doing robotics, android apps, and various programming, statistics, and math classes. I went to a very small private high school that tried really hard to offer classes that you were interested in if there was a teacher capable of overseeing you, even if you were the only one in that particular class. Due to that, I was able to bypass the degree and get a job where I was willing to be underpaid at first while I learned. I'm sure there are things that I could learn from getting a college degree, but I personally feel that I learn more quickly and effectively by actually doing things in my job than listening to a lecture. It just isn't my learning style.

Plus, after I dropped out second semester the college I went to tried to hire me full time to develop their internal website and help manage the database, so they clearly didn't have any reservations about me not having a degree, and I would think that they would push having a degree more than most institutions.

MDM

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #8 on: December 03, 2015, 09:36:29 PM »
Gross Salary/Wages: I am projected to make 37,300 for the year of 2015
Other Ordinary Income: I just started doing freelance web design or small programming tasks a few months ago for people who ask me to - mainly family and church members, as well as a few local businesses. I have added an extra 2,000 dollars of income through this. I also give violin lessons to a girl in my church who cannot afford to go to a professional music studio and made maybe like 350 dollars from that this year.
Adjusted Gross Income: 39,650.
jandr, welcome to the forum.

One note: you will likely need to file Schedule C and play Self-Employment tax on your side income.  But good for you to be doing so!

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Taxes: I am on schedule to pay 9,200 in taxes this year for my full time job. I have no clue if that's excessive or normal to be honest. I have never done my taxes before, I always let my parents take care of them for me. This is probably something I should go and educate myself on a little more. I have not done any taxes for the freelance work, however I will be paying taxes on that at the end of the year for sure so my tax amount will be higher than the 9,200 figure.
Tax amount will be significantly lower if you file married. 

Try entering your combined numbers in the case study spreadsheet (or see link in the same post you used as a template for your OP) and see what you get for an estimate.

Then take https://www.irs.gov/pub/irs-dft/f1040--dft.pdf and whatever your state uses, print them and fill out by hand, using your best guesses for 2015 numbers.  Hand calculator allowed, but otherwise do it "by hand".  Do it together. :)

If you then find yourself thinking "a spreadsheet would make this easier," see http://forum.mrmoneymustache.com/ask-a-mustachian/turbo-tax-vs-cpa/msg539186/#msg539186 (actually that whole thread is probably worth reading).  Whether you use that template or start from scratch, having your own spreadsheet for tax estimation will likely be helpful in coming years.

Finally, get yourselves a copy of TaxAct (or whatever software you prefer) for the "for real" tax returns.  When you do the real 2015 return, go back and update your own spreadsheet calculations to match.

Take a very close look at the "saver's credit" calculations (Form 1040 line 51, from Form 8880).  Roughly speaking, if your combined income (Form 1040 line 22) is less than $36,500 and you have contributed $2,000 to a 401k or IRA you get a $1,000 credit.  Although the rules of thumb for the 15% tax bracket (where you are) suggest Roth savings, the deduction for traditional 401k and/or tIRA can be very valuable in reducing income to qualify you for the large saver's credit.

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Secondly, we want to invest, and we are willing to take on a lot of risk with a smaller amount of money, maybe 5,000 dollars. It makes me antsy having all our money sitting in a savings account losing value due to inflation. Do you have any recommendations for us?
Vanguard's VTTSX fund, in either a traditional or Roth account, is a good "one stop shopping" choice.  Do see https://www.bogleheads.org/wiki/Category:Getting_started.

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It would be nice to have a largeish chunk able to be pulled out in 3-5 years for if we would want to purchase a house. So maybe risky isn't the way to go.
Your choice.  Wanting to be able to withdraw it would support going Roth, but as noted above traditional could save you significant money.  Polish that crystal ball and take your best guess....

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Thirdly, do you have any advice for us in general? We're really starting from scratch here and this could be the start of us developing either good or bad spending habits. Finances are somewhat overwhelming to me even though I am very interested in them.
Your case study post is well done - good for you and I think it bodes well for your financial future.  Sure, you have a lot to learn but you have time on your side.

Tomorrow, update your W-4 to withhold at the married rate with at least three allowances.  You want the money staying in your paycheck deposit, not going the IRS as an interest-free loan.  Take a look at things in mid-2016 and adjust the W-4 as needed.

Any questions on any of the above, just ask.  Good luck!

jandr

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #9 on: December 04, 2015, 07:11:06 AM »
Hey thank you so much MDM. That's a lot of great advice. I'll get right on that. I have a meeting with a financial advisor at my local bank today to set up an IRA.

I agree with the updating of the W-4, but do I have to be careful to not withhold too much? If I have to pay at the end of the year a small amount that's not a big deal, but can't you be fined if you have a really large amount to pay?


MDM

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #10 on: December 04, 2015, 11:51:00 AM »
Hey thank you so much MDM. That's a lot of great advice. I'll get right on that. I have a meeting with a financial advisor at my local bank today to set up an IRA.
Before you commit any money, it could be worthwhile for you to compare the recommendations you get at the bank to something like https://www.bogleheads.org/wiki/Three-fund_portfolio describes. 

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I agree with the updating of the W-4, but do I have to be careful to not withhold too much? If I have to pay at the end of the year a small amount that's not a big deal, but can't you be fined if you have a really large amount to pay?
In short, "yes" to both questions. 

To elaborate, that is the reason for the suggestion to revisit things in mid-2016: just in case your withholding is wildly incorrect.  And, although in theory a large fine is possible, in practice if you are at all close you won't have a problem.  From http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/2014/01/avoiding-estimated-tax-penalties.html (with some verbiage about estimated payments deleted to simplify):
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There are, however, several ways to avoid these possible penalties.
You can meet one of two safe-harbor payment thresholds. Here, the IRS says you won't owe any underpayment penalty if the total of your withholding...was at least the smaller of:

    90 percent of your current year's eventual tax bill or
    100 percent of your prior tax year's tax liability.

For most of us, using the 100 percent safe harbor is easier because we know what we owed last year. So we make sure we ... withheld taxes -- say, from a spouse with whom you file a joint return -- that are at least as much as what we owed last year.

And there is a third way: owe less than $1000 in April and there is no penalty.

Long story short: with minimal care on your part things will be fine.  Educate yourself so you don't let fear of the unknown cause you to make unwise choices.

« Last Edit: December 05, 2015, 05:55:03 PM by MDM »

mozar

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Re: Financial Advice: Goals, ways to cut back, and investments
« Reply #11 on: December 05, 2015, 03:54:28 PM »
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I'm sure there are things that I could learn from getting a college degree, but I personally feel that I learn more quickly and effectively by actually doing things in my job than listening to a lecture.

I'm sure that some people learned things in college (I'm not one if them), but the point of the degree is the piece of paper that proves you can stick with something long term and finish it, and when you start competing for jobs with people younger than you, you will have the credential.
As smart as you are I'm sure you can find a job that will pay for you to go to college part time.