Author Topic: First time supporting myself...any advice?  (Read 3722 times)

katjarr

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First time supporting myself...any advice?
« on: May 28, 2012, 03:02:06 PM »
I'm pretty young and newly divorced. This is my first time really supporting myself and I'm a little apprehensive about it. Luckily, I donít have any dependents.

-To start out with, I have a 6.5 month emergency fund in a CD. And an ďirregular expensesĒ account of $1500. My only debt is a car loan, which I owe $12,000 on for four more years (interest is at 1.99%)

-At my current job, I make $33,000/year. Iím getting a raise soon that will bump me up to $37,000. After taxes, thatís about $2,000 per month.

-I contribute to the employer match in my roth 401(k) (total I invest 9%) and get health/dental insurance through my employer, too. After this, I am left with $1,800

-I budget $1500 for living expenses:
550 rent
250 car loan payment (this is my only debt)
100 utilities (usually less than this)
125 car and renters insurance
60 gas
41 gym membership
10 hulu subscription
200 food
165 free spending (clothes, going out etc)

-I am left with around $300 a month, which is a cushion if I have additional expenses. I am thinking when I donít use it; I will put it into a money market account as I would like to save up for a down payment on a house in about 5 years.

-When I get my raise, it will be around $200 extra per month. I was thinking about contributing $100 into the money market account (for a house) mentioned about. Then, $50 into starting a Roth IRA. Then the final $50 to save up for a medium term goal like going a vacation.

I have never supported myself before and am unsure about how well I am budgeting. I come from a very financially conservative family so I still donít feel like Iím saving enough.

Anyone have any opinions?

gooki

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Re: First time supporting myself...any advice?
« Reply #1 on: May 28, 2012, 03:13:59 PM »
Essentially I think you'll be fine. If you wanted to save more I'd investigate a few options

Sorting out the car situation is the major one I'd be tackling. Owing $12,000 on a depreciating asset at your income level is overspending. If you sold your car tomorrow how much $ would you get for it? Enough to clear the loan? Enough to clear the loan and buy a cheap $3k to $4k fuel efficient car? Can you drop a car altogether and cycle, or at least cycle most of the time?

Are you making use of your gym membership?

Would the free version of hulu be sufficient for your needs?

Free spending seems a tad high, maybe consider reducing that and putting what you save towards a vacation fund.

katjarr

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Re: First time supporting myself...any advice?
« Reply #2 on: May 28, 2012, 03:30:44 PM »
The car: I bought a new Mazda 3 last year when I moved back to the states. It's currently worth between 13,000-14,000 if I sold it today. But, it is very efficient (around 40 mpg on the highway), I like the security of knowing there is a 3 year warranty with road side assistance and I really really like it. It also has a lot of safety features which makes me feel safe.
Since it's only at 1.99% interest, paying it back faster doesn't really make sense...though it would give me peace of mind if I did it in around 2 years.

Did I mention, I really like the car?

Free spending: I can't seem to not spend less than that. I'm a girl so... that includes clothing and make up. I also drink a lot when I go out with girlfriends...should probably stop that.

Like other people have expressed on here, I feel like I'm living on a razors edge. Obviously, it's not that bad but because I'm used to have a lot more monetary security, I now feel super insecure.

Do you think it would be worth accelerating my car repayment or starting to invest in a roth ira?
« Last Edit: May 28, 2012, 03:32:57 PM by katjarr »

gooki

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Re: First time supporting myself...any advice?
« Reply #3 on: May 28, 2012, 05:00:14 PM »
I wouldn't accelerate the car repayment. Either pay it off in full (through selling the car), or stick to the minimum.

As you really really like it, I'd personally make the mental connection that the car you have is a luxury, and therefore one should prioritise not spending to much more on other luxuries as long as you are still driving it.

What's your financial goals other than not living on razors edge?

katjarr

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Re: First time supporting myself...any advice?
« Reply #4 on: May 29, 2012, 06:28:25 AM »
Thanks for the response.

I would eventually like to buy a home, in like 5 or more years. I'm going to look at putting aside around $50-100 a month for a down payment.

I just feel like I'm never saving enough...

AmbystomaOpacum

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Re: First time supporting myself...any advice?
« Reply #5 on: May 29, 2012, 07:23:16 AM »
What are the additional expenses that tend to use up that extra $300/month?

Also, what interested are you earning on the CD? The idea of not paying extra on loans with low interest is that the money will be earning better interest somewhere else. If it isn't, then you'd actually be better off putting the extra money toward the loan (or moving to an investment that yields better returns).

grantmeaname

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Re: First time supporting myself...any advice?
« Reply #6 on: May 29, 2012, 08:43:57 AM »
The car: I bought a new Mazda 3 last year when I moved back to the states. It's currently worth between 13,000-14,000 if I sold it today. But, it is very efficient (around 40 mpg on the highway), I like the security of knowing there is a 3 year warranty with road side assistance and I really really like it. 
Did I mention, I really like the car?
Do you like the car that much more than you'd like a 2008 Mazda3? A 2004? You could buy AAA, and you'd have roadside assistance. If you saved even half of the difference in the cost each month, I'm sure that would more than cover the cost of any major repairs. The point isn't that you should go out and sell your car tomorrow, it's that you could be getting 90% of the peace of mind you have now for 40% of the price. Since you're worried that you're not saving enough, you should decide if it's worth it to you to keep spending almost $400 on your car each month or if you can reduce that somehow. If you like the car enough, maybe it is.

As Gooki suggested, what about going carless? Could you do it if you moved closer to work? $400 is almost a quarter of what you take home every month, after all... that would go a long way towards making you feel like you're not just scraping by.

Quote
Free spending: I can't seem to not spend less than that. I'm a girl so... that includes clothing and make up. I also drink a lot when I go out with girlfriends...should probably stop that.
You can get quality clothing for cheap at rich-neighborhood Goodwill stores. You can spend less or wear less makeup, if you want to save there (a bunch of forum mustachians gave it a try in February). You could have friends over and save by drinking in the house, bring a flask, or pregame before you go out and then only have a couple of drinks when you get there.

Quote
Like other people have expressed on here, I feel like I'm living on a razors edge.
The two things you can do about this are make more money, and spend less money. You've seen my suggestions for saving money. There are also plenty of painless ways to save money, like switching providers or getting VOIP. Lastly, you could try and pick up a side hustle by making something and selling it, doing odd jobs on craigslist, or getting a part-time job related to one of your hobbies.

Oh, and welcome to the MMM Forums!

onehappypanda

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Re: First time supporting myself...any advice?
« Reply #7 on: May 29, 2012, 09:55:06 AM »
-To start out with, I have a 6.5 month emergency fund in a CD. And an ďirregular expensesĒ account of $1500. My only debt is a car loan, which I owe $12,000 on for four more years (interest is at 1.99%)

-At my current job, I make $33,000/year. Iím getting a raise soon that will bump me up to $37,000. After taxes, thatís about $2,000 per month.

-I contribute to the employer match in my roth 401(k) (total I invest 9%) and get health/dental insurance through my employer, too. After this, I am left with $1,800

-I budget $1500 for living expenses:
550 rent
250 car loan payment (this is my only debt)
100 utilities (usually less than this)
125 car and renters insurance
60 gas
41 gym membership
10 hulu subscription
200 food
165 free spending (clothes, going out etc)

-I am left with around $300 a month, which is a cushion if I have additional expenses. I am thinking when I donít use it; I will put it into a money market account as I would like to save up for a down payment on a house in about 5 years.

-When I get my raise, it will be around $200 extra per month. I was thinking about contributing $100 into the money market account (for a house) mentioned about. Then, $50 into starting a Roth IRA. Then the final $50 to save up for a medium term goal like going a vacation.

I think sometimes it helps to see the proportion of your money that's going to various expenses so you can look at which things are taking priority. I broke down your spending into percentages to illustrate that.
So if your monthly income is roughly $2,000 a month you're spending:
27.5% on rent
5% utilities
12.5% on car payments
6% insurance
3% gas
2% gym membership
0.5% hulu
10% food
8.25% "free" money

So that's almost 75% of your money going towards monthly spending, right? If you put all of the rest towards savings for house and retirement, that's a 25% savings rate for those long-term goals.

A few things stand out to me here. 25% savings rate isn't terrible, but it isn't great. That's why you feel like you're living on the edge. Also, you have about 21% of your post-tax income going towards your really nice car and "free" money. That's a ton, to sink into A) a quickly depreciating asset, and B) money you don't need to be spending. I'm a girl too, there's a thread here specifically for women and the primary point is that women don't NEED to spend money on makeup, hair, clothes, etc. every month. Many choose to, but that's not a need. You could easily reduce that spending money by half and still have money to go out with your friends, bringing your savings rate closer to 30%.

You've defended the choice of a really nice car, and that's up to you. But hear us out- you're spending more on that car than you need to be. If you could sell it and get rid of the loan, buy an older but still reliable car in cash, and that'd free up 12.5% of your money, which would increase your savings rate to over 42%. Keep in mind that every dollar you spend on that car could be making interest for you in an investment. PLUS your insurance rate looks pretty high, and I'll bet it's because you have to have full insurance on a new car with a loan hanging over it. You could save another $50-60 a month on the insurance if you didn't have a car loan, by getting liability only.

That brings your saving rate up to roughly 45%, just by changing your car, your insurance, and your random spending. That's money that could be making interest for you, instead of going into assets that won't be worth anything in a few years. Part of the cost of a nice car is not only the interest and insurance, it's the "opportunity cost" that you lose by not putting your money somewhere where it could grow.

The roadside assistance and the warranty are a non-issue. Most factory warranties and roadside assistance packages are crap anyway. AAA offers better and cheaper roadside assistance, and your emergency savings is your warranty. If you can pay for any car issues in cash, then paying extra for a warranty is a waste of money. You don't have to purchase peace of mind, that whole idea is just something car dealers exploit to make more money.

The way I generally think about it, and the reason I look at percentages of income, is that your spending says something about your priorities. Right now your priorities say you care about your car and your spending money as much as you care about savings and investments (for your home, retirement, and midrange goals combined). You have the right to make your money do whatever you want, but I would really consider whether those are your actual priorities. Adjust accordingly.

(For all you math nerds out there, I know my numbers might not be perfect. Feel free to correct, but I was trying to get at large trends rather than specific numbers.)
« Last Edit: May 29, 2012, 09:57:58 AM by onehappypanda »

Saving mom

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Re: First time supporting myself...any advice?
« Reply #8 on: May 29, 2012, 09:05:10 PM »
Good analysis. I am going to apply that same analysis and logic to my budget and see where my priorities really lie.