Author Topic: Graduated with a good job and frugal instincts... what next?  (Read 3627 times)

frugalaltruist

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Hey folks,

I'm new to the MMM community, but I've been raised on it all my life. I grew up with frugal parents who set a wonderful example; they washed and re-used plastic bags, kept bees, and took me on awesome/extravagant trips to foreign countries on a shoestring budget. They also introduced me to MMM's 90s forerunner, Amy Dacyzyn ("The Frugal Zealot"); by the age of 12 or so I'd read through her books and internalized her lessons.

Thanks to my parents' wonderful support I ended up going to a well-regarded liberal arts school in the northeast. I graduated with no debt and, even better, a solid software engineering/support job in the Midwest (despite my lack of software background).

"So what's this kid got to complain about?" you ask. And you're right. Overall, my life's been really great so far, and I'm hoping to turn that greatness into something that will benefit not only me but ideally a bunch of other people too. (I'll post about effective altruism later on - something I'm strongly passionate about.)

I'm currently most of the way through the Mr. Money Mustache articles (starting from the beginning, I'm up to January 2014). Right now I'm sharing a medium cost apartment with another employee at my company; I don't own a car and my city is bike friendly. While I haven't worked up to biking to work (about 8 miles) yet, I've been riding with my roommate, and I've been biking everywhere else (groceries etc.). I've set a loose rule for myself as well - I can't buy any precooked food (or eat out), so I'm forced to learn to cook meals myself, which I'm gradually getting better at.

The main thing I'm looking for advice on is what to work on next. Right now I see a couple of areas that could use some work, and that I could use some advice on:
  • Optimizing spending. As I've said, I think my instincts are in the right place for frugality. But I don't know because I haven't done a careful check of my expenses yet. I've been a little reluctant to do this because it involves gathering up lots of receipts and so on. But I have a nagging suspicion that there are some thing I could be spending less money on.
  • Learning about/setting up investing. While I think I'm doing OK in the frugality department, I have. But I understand that a big part of FIRE is choosing and setting up a good investment (the phrase "Vanguard Index Fund" seems to pop up a lot). I've not yet gotten my first paycheck at the job (we're paid monthly) and I still plan on buying some things, such as a bed and maybe a car for the Wisconsin winter. But maybe there's something I'm missing here as well that needs to be dealt with immediately.
  • Face my faults. I actually had to go back and add this one after I posted, because I realized that in order to get good advice I needed to be honest. Right now my biggest problem is my laziness. Obviously it's hasn't screwed me up too badly so far. But I've still got a tendency to waste hours and hours in front of the computer (reddit/YouTube/silly videogames/etc.) instead of doing something that will improve my life. I'm also pretty resistant to proactive exercise. I've been getting some because I have to bike to the grocery store to get groceries, but on nights where I have nowhere to go I don't get exercise. And I've resisted working out, or pushing myself (i.e. biking the eight miles to work) pretty strongly.
  • Something else. Honestly, I don't know. I've done a lot of reading, but I'm still very new to controlling so much of my own life. For those of you who have gone through similar situations (i.e. most everyone older than me), what do you wish you had done? Alternatively, what did you do that you're really glad you did?

Thanks for reading, and I appreciate any advice and/or facepunches you all have to offer!
« Last Edit: June 26, 2017, 10:26:26 PM by frugalaltruist »

theadvicist

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #1 on: June 27, 2017, 06:03:11 AM »
Regarding the wasting time on youtube / lack of exercise etc, I have faced a similar struggle in the past.

What helped me (ironically) was embracing the lazy. Instead of wasting hours on youtube, feeling guilty about not doing anything, I consciously said, "I need a lot of rest. It's just my body / personality. Tonight is a rest night". And I would make an effort to actually relax. Not just mindlessly zone out in front of the TV and ipad, but actually 'recuperate' so to speak from day to day life.

So, I put music on. I put something really comfy on. I got all settled on the sofa with a blanket and a book. Hot water bottle if I wanted. Or, I took a bath and pampered myself. And I didn't feel guilty at all. I just embraced it, and I really did / do feel the benefit. I do not get anything like that benefit from just zoning out.

On the flip side, I designated exercise day and times. No excuses, I don't care if the weather is bad. Friday 12:30 - 1:30 I run. Rain, shine, bad days, good days. I don't say "once a week" or every day I will come up with an excuse as to why tomorrow is better. I chose Friday because it's my favourite day of the working week, so nothing can really ruin my mood. On a Monday I would be very unhappy to have to run.

If I really feel bad and can't run, I have to put my running stuff and shoes on and leave the house, that is all. I've walked part of the way occasionally (I did couch to 5k, once I got up to running I mean I have sometimes walked a bit), but actually, if I get out there, I usually do want to run. But that rule is there so that I don't skip it if I'm not feeling great - putting my shoes on and leaving the house is a low bar, it's just that I usually get into it once I do.

As the biggest couch potato ever in my 20s, I am proof you can change. I don't love running, but I definitely feel better mentally and physically for doing it. And when I need to rest, I do that -properly- too.

Don't know if that's any help, but it's what's worked for me.

Laura33

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #2 on: June 27, 2017, 06:42:37 AM »
Hey, great start!  So my $0.02:

1.  Tracking expenses doesn't need to require collecting receipts.  Get YNAB or Mint -- it takes a while to set it up, but it's on your phone and accessible whenever you need it.  And for lazy people like us, it is much easier to just get into the habit of entering things right away than thinking, "[dramatic sigh], guess I need to devote Sunday to going through my Mount Kilimanjaro of receipts to do my budget. . . ."

2.  Laziness can totally work to your advantage.  Many people get in trouble because they are tracking stocks and trying to time the market and everything.  Lazy people, eh, set up a high savings rate, have it automatically withdrawn, and forget it.

3.  So despite the laziness, here are a few things you need to do right now:

a.  Do you have an emergency fund?  If not, set one up -- you are in a good position now, but jobs go away, managers change, etc.  You can probably have your employer direct deposit part of each check to a savings account or money market fund, but if they won't, you can set up with your bank to automatically transfer money every month.

b.  Does your employer offer a 401(k)?  If so, sign up *now*.  If they offer a match, contribute at least as much as you need to to get the full match -- otherwise, you are throwing away free money.  Once you do your budget, you will probably be able to increase that some more. 

c.  How are you planning on paying for those "some things" you are considering buying?  The way many people get in trouble is they get a job and feel like they have all this money, and so now they want All The Things to go with their new lifestyle -- car, new furniture, house, vacations, etc.  But the desire for the lifestyle gets ahead of their savings, and so they end up taking out a car loan, financing a house full of furniture on store credit, taking a vacation on the credit cards, etc. -- and before you know it, a big chunk of your salary for the next 5-10 years is pre-spent paying for things you have already bought.  The way to avoid this is to save for those specific things in advance.  I have always kept what I called a "car + vacation" fund, but I've heard other people refer to it as a "sinking" fund -- the idea is that you set aside money every month, just like for your EF, but for the future things that you want to buy, along with unexpected expenses (major car repairs, medical bills, etc.).

4.  In terms of investments, this is easy-peasy:  call Vanguard, or go online.  They make it ridiculously easy to open an account, and you can set up automatic withdrawals from your checking account, and then increase or decrease them online.  Your EF should be in cash (savings or money market), along with any savings for anything you plan to buy within the next year or two, but just throw everything else in the Vanguard Total Stock Market Index for now -- you can change things around later as you get more sophisticated, but that is a great, low-cost place to start.

5.  Non-monetarily:  figure out how to work around your laziness.  And I say this out of love and because I have exactly the same issue.  If there is one fundamental truth in this world, it is that you get out what you put in.  If you tend towards laziness at home, that will likely bleed over into work, into relationships, and other facets of your life, and you may end up dissatisfied after 10 or 20 years at the various opportunities you missed.  Note that this doesn't mean that you can't ever be lazy!!  I love theadvicist's advice to "embrace the lazy" -- if you are like me, you probably need more downtime than others, and if you don't give it to yourself, your brain and body will find ways to take it.  So go whole-hog on the relaxation.  But then find work-arounds when you discover that your laziness is keeping you from stuff you really should do. 

E.g., workouts.  I will give you my own example, because I have struggled for years to find a workout routine that sticks.  What has finally (so far) worked for me is:  I signed up for a Crossfit gym.  I signed up for the unlimited monthly membership, because I know if I had to choose to pay $10-20 per class, I would find excuses to avoid paying the money; OTOH, paying $120/mo. up front makes me feel like I *have* to go to get value for my money.  It is literally two blocks from my house, so there's no "ugh, traffic is so bad" or whatever.  My gym also makes you sign up for classes ahead of time, so every Sunday I go through my schedule and sign up -- because I know I don't like to cancel, so if I am pre-committed, I'm much more likely to go.  I also sign up for the 6 AM class, even though I am NOT a morning person, because when I try to go after work something always gets in the way, and evenings are right out (once I get home, my butt is going on the couch, and it is not leaving again), but there are no such excuses at 6 AM.  And here's the kicker:  I cannot have any caffeine before my workout.  And, boy, I need my caffeine, so this is the best incentive of all. :-)

Obviously you may find something completely different that works for you -- those are just the tricks I have found that work for me.  But the key is that they are intentional -- I looked at all of my excuses, and I specifically planned workarounds that would get me out of bed and to the gym.  You can do the same thing.

Sorry this is so long!  Best of luck -- you're off to a great start.

apricity22

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #3 on: June 27, 2017, 11:35:47 AM »
It sounds like you are off to a great start. Part of life is making mistakes and learning from them. Even if we give you all of the good advice in the world and you take it, you will still look back at yourself in five years from now and wish you had done something differently. That is the benefit of hindsight and continually improving as a human, so one piece of advice I would give as you move forward in life is don't judge your past self too harshly from the perspective of your present self. Keep an eye on the future.

c.  How are you planning on paying for those "some things" you are considering buying?  The way many people get in trouble is they get a job and feel like they have all this money, and so now they want All The Things to go with their new lifestyle -- car, new furniture, house, vacations, etc.  But the desire for the lifestyle gets ahead of their savings, and so they end up taking out a car loan, financing a house full of furniture on store credit, taking a vacation on the credit cards, etc. -- and before you know it, a big chunk of your salary for the next 5-10 years is pre-spent paying for things you have already bought.  The way to avoid this is to save for those specific things in advance.  I have always kept what I called a "car + vacation" fund, but I've heard other people refer to it as a "sinking" fund -- the idea is that you set aside money every month, just like for your EF, but for the future things that you want to buy, along with unexpected expenses (major car repairs, medical bills, etc.).

I completely agree with this point as I fell into this trap myself. When I graduated and got a job, I did sign up for the 401k immediately and therefore was saving more than I had ever before saved in my life but I also was spending a lot more than I had ever before spent in my life. In hindsight, I would have maintained the college lifestyle for a few more years since I was already accustomed to it and built up the emergency fund/down payment fund a bit more before I started buying stuff. I would have been a lot more selective in the stuff I acquired also as I started buying stuff merely because I could afford it and not because I really needed it. Read up on minimalism, I've discovered the happiness my stuff has brought me has been minimal while my relationships with other human beings and my experiences have brought me the most joy. The only thing I truly look back on and am glad I wasted money on is travel.

If you decide to buy that car, save up the money so you can pay cash then buy something used and inexpensive. Since you bike/carpool already, make sure you maintain those habits after you buy the car, therefore buy something cheap enough that you don't feel guilty if it sits in your driveway or parking lot for a week.

I think it is vitally important to track expenses. It is the only thing that keeps me honest with myself. It's a habit I've had to develop but I enter receipts in almost daily because it only takes a few minutes. Sure there are times when I get a week or even two weeks behind but that is a perfect time for me to be "lazy" so I'll put a ball game on in the background and sit there to get caught up on receipts. Two birds with one stone. Don't feel too bad about being lazy as we all need those times to recharge, just don't let it get out of control. Laziness is fine in moderation.

Gondolin

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #4 on: June 27, 2017, 01:58:36 PM »
Laura33 covered 99% of everything but, I will add the following:

The easiest way to track expenses I've found is to get a single no-fee rewards credit card and use it pay for EVERYTHING. Download the relevant company's app and then, at the end of the month in one 20 minute session, load all your expenses into the software or spreadsheet of your choice. Using this method I've tracked 95% of expenses from one place and racked up thousands in credit card rewards.

Also +100 to the value of being lazy. Many people on this forum are very lazy by the definition of modern society and they are optimizing their lives so they can stay lazy. Don't fall into trap of feeling that you're a failure if aren't engaged in a endless crusade of value added, business oriented self-improvement. The freedom to self-improve (or do anything else) precisely to the degree YOU want you is one of the core goals we strive all for.

Bicycle_B

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #5 on: June 27, 2017, 02:41:12 PM »
@frugalaltruist, I think you're in great shape, your own list is excellent, and the other posters' suggestions are super.


One thing not yet mentioned in this thread is tax planning.  Learn about your employer's retirement plans.  If they have a 401k plan where the company provides matching funds, make sure to get that match.  More generally, research 401k and IRA plans.  A website that details these things in well-written detail is http://www.madfientist.com/.

Re investing, pick an asset allocation (aka, define your investment plan, aka establish an asset allocation policy).  When you set up your Vanguard account, implement your chosen allocation ASAP.  Rebalance each year to maintain your plan.  Below I link to MMM's article on these topics.  You can post an advice thread re specific accounts if the account names in the article have changed; the principles are totally up to date.

http://www.mrmoneymustache.com/?s=asset+allocation

Re weaknesses and living: 

-As a lazy dude myself, I suggest to pick your spots.  Include some activity in your life, and if necessary push yourself to do so, but don't try to be constantly active.  As long as you have some of each, your soul mind, emotions, body and character will be fine. 

-High value activities are to include some exercise, some socializing, some learning of something new, and some doubling down on things that you like/love.  Also consider a conscious habit of also finding a way every so often to do something for another person - smile, give a gift, invite them to an activity, send a friendly message, donate to a homeless person.  Could be weekly, monthly, or "I'll do it when I notice the opportunity, and keep a journal."  If you have some of each of these things, your life will naturally grow; any need for activity beyond that and job/finances is unclear.

-Exercise tip.  TL;DR - the first few workouts are always harder, it's easier after that.  There is a reliable pattern in the human body where increasing an exercise level feels difficult and the body, including its brilliant slave the mind, will use numerous methods to avoid the increase.  Once you do the increase, the body adjusts and maintaining is much easier.  Once you exercise consistently, a layer of inherent joy in exercise and, separately, in general living will grow.  There is huge benefit in making the initial effort to build and maintain an exercise habit. 



Gondolin

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #6 on: June 27, 2017, 03:57:19 PM »
Oh, and welcome to the community! Enjoy the ride - once you have the basics automated you're 90% there. The other 10% is not panicking during the next recession.

letired

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #7 on: June 27, 2017, 07:26:36 PM »
Sign up for an IRA!!!

Once you're set up with any remaining things you need for living, and you've got your emergency fund squared away, open an IRA (via Vanguard). Until you are contributing the max to both an IRA and a 401k, you don't really need to worry about opening a regular aka brokerage investment account. The IRA account works basically the same as the brokerage account, but you get the tax benefits.

And on the budgeting front, I find tracking expenses very helpful, but I've also found it as or more helpful to do a little 'back of the envelope' math, working from the top down. So I start with my 'expected' annual income, then take off ~30% for taxes (very rough estimate, there are ways to better estimate this, but it's good enough for now), then lop off the amount I expect to contribute to various retirement accounts (401K, IRA) on an annual basis, and then any additional savings I want to be doing. Now I can divide by 12 and I have the amount of money I have to work with now that I'm meeting all my savings goals each month. From that monthly number, I start with the Big/fixed/most important expenses: rent, utilities, phone, transportation, insurance, etc. Then I have a good idea of how much I have for the variable expenses, and can ask questions about how realistic are those numbers and where do I need to adjust things.

frugalaltruist

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #8 on: June 27, 2017, 10:03:16 PM »
Wow. Thank you everyone for your replies! I really appreciated your insights on the philosophy of laziness especially. All the advice also generated a bunch of follow-up questions. So prepare for a really big post...

Regarding the wasting time on youtube / lack of exercise etc, I have faced a similar struggle in the past.

What helped me (ironically) was embracing the lazy. Instead of wasting hours on youtube, feeling guilty about not doing anything, I consciously said, "I need a lot of rest. It's just my body / personality. Tonight is a rest night". And I would make an effort to actually relax. Not just mindlessly zone out in front of the TV and ipad, but actually 'recuperate' so to speak from day to day life.

So, I put music on. I put something really comfy on. I got all settled on the sofa with a blanket and a book. Hot water bottle if I wanted. Or, I took a bath and pampered myself. And I didn't feel guilty at all. I just embraced it, and I really did / do feel the benefit. I do not get anything like that benefit from just zoning out.

On the flip side, I designated exercise day and times. No excuses, I don't care if the weather is bad. Friday 12:30 - 1:30 I run. Rain, shine, bad days, good days. I don't say "once a week" or every day I will come up with an excuse as to why tomorrow is better. I chose Friday because it's my favourite day of the working week, so nothing can really ruin my mood. On a Monday I would be very unhappy to have to run.

If I really feel bad and can't run, I have to put my running stuff and shoes on and leave the house, that is all. I've walked part of the way occasionally (I did couch to 5k, once I got up to running I mean I have sometimes walked a bit), but actually, if I get out there, I usually do want to run. But that rule is there so that I don't skip it if I'm not feeling great - putting my shoes on and leaving the house is a low bar, it's just that I usually get into it once I do.

As the biggest couch potato ever in my 20s, I am proof you can change. I don't love running, but I definitely feel better mentally and physically for doing it. And when I need to rest, I do that -properly- too.

Don't know if that's any help, but it's what's worked for me.

Actually, that really does help! Being purposeful about zoning out sounds like a great idea. And making a habit of things like exercise is good too. I think once I can start biking to work that will cover a lot of my needs, since it is about an 8 mile ride. Maybe I can start with just Fridays, so if I'm exhausted at first I'll have the weekend to recuperate.

Hey, great start!  So my $0.02:

1.  Tracking expenses doesn't need to require collecting receipts.  Get YNAB or Mint -- it takes a while to set it up, but it's on your phone and accessible whenever you need it.  And for lazy people like us, it is much easier to just get into the habit of entering things right away than thinking, "[dramatic sigh], guess I need to devote Sunday to going through my Mount Kilimanjaro of receipts to do my budget. . . ."

I've got Mint, and it has been helpful... but oftentimes I find myself buying with cash, which the app doesn't automatically track, rather than my debit card, which it does. Maybe it's just a matter of making a habit to record every single purchase with the app right when I make it. Do you think it would make sense to "start fresh" with the new month? I have a lot of receipts from moving-related expenses (buying cooking utensils, staying in hotels, etc.) last month which won't represent my typical monthly spending. Or would it be better to bite the bullet and input that stuff too?

Quote
a.  Do you have an emergency fund?  If not, set one up -- you are in a good position now, but jobs go away, managers change, etc.  You can probably have your employer direct deposit part of each check to a savings account or money market fund, but if they won't, you can set up with your bank to automatically transfer money every month.

I have about $2100 in my checking account right now along with $600 in savings and about $250 cash on hand (and expecting my first, monthly paycheck in a few days) - but honestly I'm not sure whether that's not enough or too much in terms of emergency funding. What's the benchmark I should be looking at to determine that?

Quote
b.  Does your employer offer a 401(k)?  If so, sign up *now*.  If they offer a match, contribute at least as much as you need to to get the full match -- otherwise, you are throwing away free money.  Once you do your budget, you will probably be able to increase that some more.

I'm signed up, although I probably need to go in and increase my contribution. Does it make sense to contribute beyond the maximum employer match, or would that money be better put into investment?

Quote
c.  How are you planning on paying for those "some things" you are considering buying?  The way many people get in trouble is they get a job and feel like they have all this money, and so now they want All The Things to go with their new lifestyle -- car, new furniture, house, vacations, etc.  But the desire for the lifestyle gets ahead of their savings, and so they end up taking out a car loan, financing a house full of furniture on store credit, taking a vacation on the credit cards, etc. -- and before you know it, a big chunk of your salary for the next 5-10 years is pre-spent paying for things you have already bought.  The way to avoid this is to save for those specific things in advance.  I have always kept what I called a "car + vacation" fund, but I've heard other people refer to it as a "sinking" fund -- the idea is that you set aside money every month, just like for your EF, but for the future things that you want to buy, along with unexpected expenses (major car repairs, medical bills, etc.).

Great point. I don't plan on buying anything on credit if I can possibly avoid it, except for maybe a house at some point - so I'll just wait until . The "sinking" fund is a good idea, and a good way to think about saving - I'll probably buy a bed/mattress next month, a car in September or so, and other furniture as good deals (Craigslist, etc.) become available.

Quote
4.  In terms of investments, this is easy-peasy:  call Vanguard, or go online.  They make it ridiculously easy to open an account, and you can set up automatic withdrawals from your checking account, and then increase or decrease them online.  Your EF should be in cash (savings or money market), along with any savings for anything you plan to buy within the next year or two, but just throw everything else in the Vanguard Total Stock Market Index for now -- you can change things around later as you get more sophisticated, but that is a great, low-cost place to start.

Thanks. That's exactly the advice I was looking for investment-wise.

Quote
E.g., workouts.  I will give you my own example, because I have struggled for years to find a workout routine that sticks.  What has finally (so far) worked for me is:  I signed up for a Crossfit gym.  I signed up for the unlimited monthly membership, because I know if I had to choose to pay $10-20 per class, I would find excuses to avoid paying the money; OTOH, paying $120/mo. up front makes me feel like I *have* to go to get value for my money.  It is literally two blocks from my house, so there's no "ugh, traffic is so bad" or whatever.  My gym also makes you sign up for classes ahead of time, so every Sunday I go through my schedule and sign up -- because I know I don't like to cancel, so if I am pre-committed, I'm much more likely to go.  I also sign up for the 6 AM class, even though I am NOT a morning person, because when I try to go after work something always gets in the way, and evenings are right out (once I get home, my butt is going on the couch, and it is not leaving again), but there are no such excuses at 6 AM.  And here's the kicker:  I cannot have any caffeine before my workout.  And, boy, I need my caffeine, so this is the best incentive of all. :-)

Obviously you may find something completely different that works for you -- those are just the tricks I have found that work for me.  But the key is that they are intentional -- I looked at all of my excuses, and I specifically planned workarounds that would get me out of bed and to the gym.  You can do the same thing.

Hmm. Crossfit, or some other kind of membership, could be a good idea - but I'm really wary of exercise that costs money, since my apartment has a free gym attached. Maybe finding a workout partner for accountability could give a similar, low-cost effect. Or maybe just biking to work could suffice for exercise for now, and I'll look at other kinds of exercise once the Wisconsin winter hits and that becomes a little less attractive.

Quote
Sorry this is so long! Best of luck -- you're off to a great start.

Thank you for writing such a long post and addressing everything. I really appreciate the advice!

If you decide to buy that car, save up the money so you can pay cash then buy something used and inexpensive. Since you bike/carpool already, make sure you maintain those habits after you buy the car, therefore buy something cheap enough that you don't feel guilty if it sits in your driveway or parking lot for a week.

Not a bad idea. I'd of course prefer a reliable car, but not spending too much money is a good way to keep myself biking.

Laura33 covered 99% of everything but, I will add the following:

The easiest way to track expenses I've found is to get a single no-fee rewards credit card and use it pay for EVERYTHING. Download the relevant company's app and then, at the end of the month in one 20 minute session, load all your expenses into the software or spreadsheet of your choice. Using this method I've tracked 95% of expenses from one place and racked up thousands in credit card rewards.

This is a great point. I haven't gotten a credit card yet but it sounds like something I should be thinking about in the next few months. It'd probably help with my (nonexistant so far) credit rating, too!

@frugalaltruist, I think you're in great shape, your own list is excellent, and the other posters' suggestions are super.


One thing not yet mentioned in this thread is tax planning.  Learn about your employer's retirement plans.  If they have a 401k plan where the company provides matching funds, make sure to get that match.  More generally, research 401k and IRA plans.  A website that details these things in well-written detail is http://www.madfientist.com/.

Re investing, pick an asset allocation (aka, define your investment plan, aka establish an asset allocation policy).  When you set up your Vanguard account, implement your chosen allocation ASAP.  Rebalance each year to maintain your plan.  Below I link to MMM's article on these topics.  You can post an advice thread re specific accounts if the account names in the article have changed; the principles are totally up to date.

http://www.mrmoneymustache.com/?s=asset+allocation

Thanks for the link!

When you talk about an investment plan, is that something I need to worry about right when I set up the account? Laura33's post above seemed to imply I could just pick the Vanguard Total Stock Market Index for now, and if that's a reasonable choice that doesn't demand further research, then I'm inclined to pick it as it seems simple. However, if I definitely need to figure out the asset allocation plan now, then I'll certainly get on that.

I'll admit that my eyes glaze over a little bit when reading about investing, even MMM's articles. So I may be a bit irrationally biased toward suggestions that don't require me to learn anything new. However, if it's truly necessary information, I want to know that so I can get over it and start cramming the information into my brain even if it doesn't want to be there.

Oh, and welcome to the community! Enjoy the ride - once you have the basics automated you're 90% there. The other 10% is not panicking during the next recession.

Thank you! The numerous, thoughtful responses so far have certainly made me feel welcome.

Sign up for an IRA!!!

Once you're set up with any remaining things you need for living, and you've got your emergency fund squared away, open an IRA (via Vanguard). Until you are contributing the max to both an IRA and a 401k, you don't really need to worry about opening a regular aka brokerage investment account. The IRA account works basically the same as the brokerage account, but you get the tax benefits.

My wise and forward thinking parents already have me signed up for an "18 Mo Var Rate Roth IRA" with about $900 saved in it already. Am I right in taking your suggestion to mean that I should contribute the first chunk of my savings to that account, before investing in the suggested Vanguard account?

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And on the budgeting front, I find tracking expenses very helpful, but I've also found it as or more helpful to do a little 'back of the envelope' math, working from the top down. So I start with my 'expected' annual income, then take off ~30% for taxes (very rough estimate, there are ways to better estimate this, but it's good enough for now), then lop off the amount I expect to contribute to various retirement accounts (401K, IRA) on an annual basis, and then any additional savings I want to be doing. Now I can divide by 12 and I have the amount of money I have to work with now that I'm meeting all my savings goals each month. From that monthly number, I start with the Big/fixed/most important expenses: rent, utilities, phone, transportation, insurance, etc. Then I have a good idea of how much I have for the variable expenses, and can ask questions about how realistic are those numbers and where do I need to adjust things.

Noted. Seems like a good thing to do after I've figured out how much I am actually spending in a month, so I can get those figures roughly accurate.

Thanks again to everyone for your suggestions! I definitely feel welcomed to the MMM community and look forward to learning more from all of you.

Bicycle_B

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #9 on: June 28, 2017, 06:33:45 AM »

@frugalaltruist, I think you're in great shape, your own list is excellent, and the other posters' suggestions are super.


One thing not yet mentioned in this thread is tax planning.  Learn about your employer's retirement plans.  If they have a 401k plan where the company provides matching funds, make sure to get that match.  More generally, research 401k and IRA plans.  A website that details these things in well-written detail is http://www.madfientist.com/.

Re investing, pick an asset allocation (aka, define your investment plan, aka establish an asset allocation policy).  When you set up your Vanguard account, implement your chosen allocation ASAP.  Rebalance each year to maintain your plan.  Below I link to MMM's article on these topics.  You can post an advice thread re specific accounts if the account names in the article have changed; the principles are totally up to date.

http://www.mrmoneymustache.com/?s=asset+allocation

Thanks for the link!

When you talk about an investment plan, is that something I need to worry about right when I set up the account? Laura33's post above seemed to imply I could just pick the Vanguard Total Stock Market Index for now, and if that's a reasonable choice that doesn't demand further research, then I'm inclined to pick it as it seems simple. However, if I definitely need to figure out the asset allocation plan now, then I'll certainly get on that.

I'll admit that my eyes glaze over a little bit when reading about investing, even MMM's articles. So I may be a bit irrationally biased toward suggestions that don't require me to learn anything new. However, if it's truly necessary information, I want to know that so I can get over it and start cramming the information into my brain even if it doesn't want to be there.

No, don't worry about your investment plan when you first open the account.  Laura33's suggestion is fine.

I mean, technically, your initial asset allocation would be 100% Vanguard Total Stock Market Index.  This is a great first step, and you can change the details later whenever you want.  Any choice you make has consequences, and this one does too - it's all stock and all US, so if the US stock market goes down, your investment's current value will go down too.  As a young person who is saving money, presumably you will not be selling it, we expect you'll just ignore it for a long time and that it will eventually go up again.  Compared to other investments in its category (US stock funds) it has low costs, long track record, reliable reputation, commonly known vendor, therefore seems safe compared to its peers.  We're not investment advisors and don't want to be in legal trouble, so in the end you decide (keep researching, we must tell you; or pay cash for licensed professional advice). From my perspective, it sounds like a perfectly reasonable start. 

PS. Just make sure you have enough short term cash (emergency fund, sinking fund) before making your long term investments.  Usually, the highest value for long term investments is to capture your 401k match.  After that, additional 401k contributions give a tax advantage, but cannot be directly sold in the short term, whereas a Vanguard purchase that is not in a 401k can be sold in case you underestimated short term cash needs.  One rule of thumb is 3 months cash as EF, then sinking fund for the upcoming 1 year, then start with the long term investments.  I personally would capture 401k match after 1 month cash in EF.
« Last Edit: June 28, 2017, 06:43:54 AM by Bicycle_B »

Gondolin

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #10 on: June 28, 2017, 06:50:52 AM »
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

Above is a link to the suggested order of savings/investment. The post is long but the important sections to read are called "what" and "why".

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Do you think it would make sense to "start fresh" with the new month?
I would. Start tracking July 1.

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What's the benchmark I should be looking at to determine that?

6 months worth of expenses is the basic benchmark. Once you have a good idea of a typical monthly spend it'll be easy to calculate. In the end, it's whatever amount will allow you to feel comfortable living without a job for X months where X is how long you'd reasonably need to find new employment.

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Does it make sense to contribute beyond the maximum employer match, or would that money be better put into investment?
Short answer: Probably, as tax advantaged accounts are some of the best investment vehicles. Still, see the above link and judge for your own situation.

Long answer: This may just be hasty wording on your part but, your post seems to differentiate between putting money into a 401k versus "into investment". So, just to be clear, putting money into a 401k IS putting money into investment. The 401k is just a financial structure which allows you to invest with pre-tax dollars. I say this because you will need to log in to your 401k benefits site and decide which funds you want your 401k dollars to be invested in. If you don't, your investments will go into some default configuration set up by the plan administrator and often that's not the investments you want.
« Last Edit: June 28, 2017, 07:08:41 AM by Gondolin »

Laura33

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #11 on: June 28, 2017, 07:03:27 AM »
OK, I'm not going to re-quote that whole thing, so hope I don't miss anything.  :-)

1.  If it were me, I would start fresh on the receipts and tracking and such (again: lazy!).  The important thing is to get a baseline of your "normal" spend so you can plan going forward.  One thing DH did to deal with cash was he just allocated it when we took it out of the ATM, based on what we usually spent cash on -- e.g., $200 withdrawal would maybe go $125 to food (he eats lunch out) and $75 to entertainment.  It's not $100% accurate, but he wasn't willing to track every $1.98 receipt, so it was better than the alternative.  Also, I've heard some people like YNAB more, because it allows you to allocate money for different future needs (so you have different mental "pots" of money, even if all of that money is sitting in the same account).  The trick will be to find whatever works for the way you operate -- there's no objective "perfect" here.

2.  The main issue you have is that you are asking a lot of questions that depend on how much money you have and what your expenses are -- and so no one can really answer that until you get the expense thing under control!  So, for example, your EF:  having $3K on-hand is awesome for before your first paycheck, so you are probably good for the immediate future.  But long-term, many people advocate for anywhere from 3 to 9 months of living expenses in an EF (you are young and single so can probably get away with 3 mos.).  So once you figure out your expenses, I would suggest contributing some money each month to the EF to build that up -- but how much is going to depend on how much you have to save, what your expenses are that make up that 3 months, and what your other savings priorities are (401(k), IRA/Roth, sinking/future purchases fund). 

3.  In terms of IRAs:  I am a fan of IRAs and Roth IRAs, but I think your first priorities are your 401(k), your EF, and your "sinking/future needs" fund.  The reason is, quite simply, that there are various rules for IRAs and Roth IRAs that can make it complicated for someone just getting going -- if you are covered by a 401(k) and make above a certain income, you can't deduct an IRA contribution, for example; if you make more than a different amount, you can't contribute to a Roth (but you can open a non-deductible traditional IRA and roll it over to a Roth); if you are eligible for a traditional or Roth IRA, you need to do math to figure out which is the best choice; etc.  The #1 principle here:  don't let the perfect be the enemy of the good.  Yes, put "figure out IRA options" on your list of things to learn!  But meanwhile, start socking money away in your 401(k) and your EF/sinking fund.  You can put up to $18K/yr into your 401(k) -- that's a lot of money!  It is most important to get going on that now, while you take time to figure out all the other stuff that is more complicated.

4.  Investment choices:  "Asset allocation" is how much of your money you put in stocks, bonds, and other asset classes I'm going to ignore for simplicity's sake.  Many people will do something like 80% stocks, 20% bonds, for example.  Since you are young, personally, I don't think you need to worry about bonds if you don't want to (although they do minimize your downside risk, so if you are scared you would sell off in a slump, you should have some bonds).  Once you figure out how much you want to put into stocks and bonds, you want to invest that money into low-cost, broad index funds or ETFs.  The Vanguard Total Stock Market Index fund is an index fund that, basically, covers the total stock market.  So what I was proposing was a 100% stock asset allocation, because of your youth.  OTOH, if you want some bonds, Vanguard also has a total bond market index.  Make your life easy, and just choose those two Vanguard options, in whatever proportion feels reasonable to you.  Remember, you can always change it later when you learn more!

However, most of your investments at first will be in your 401(k), which means that you will be limited to what your company offers.  If they offer a Vanguard or Fidelity broad stock market index, choose that.  Otherwise, look for the lowest-cost broad market index funds they offer.

You asked about whether it would be better to put money into your 401(k) beyond the match or put it into "investment" -- the thing to realize is that those are both "investments."  Think of your 401(k) or your IRA or your regular taxable investment accounts as "buckets" that you can hold money in.  Within each of those buckets, you can choose a wide variety of investments -- stock funds, bond funds, money market funds, individual stocks, precious metals, you name it.  So in your 401(k), for example, you can "invest" the money in a stock or bond market index, or you can "save" it in a money market or cash-equivalent.  Because this is long-term money, you should be investing it for long-term growth. 

This also means that with your own investment accounts, you are not tied to any particular company.  So for ex., your parents opened a Roth IRA for you with someone, and they put that money into an "18 month" variable whatever.  I have no clue where that money is or what that is -- and it doesn't matter!  If you open your own traditional or Roth IRA, you can choose your own investment company (Vanguard, Fidelity, Schwab, etc.), and you can have them open your own IRA/Roth, and you can put up to $5500/yr into whatever funds they offer that you choose.  The only key is that you and your parents combined cannot put more than $5500 each year into an IRA/Roth.  So if the Roth they set up for you comes from past years, you are good to go and can call up Vanguard and set up your own IRA/Roth for up to $5500 this year; OTOH, if they are still contributing say $2K/yr to that Roth, you would be limited to putting in another $3500/yr -- but you could still invest your $3500 with any company you choose (hint:  Vanguard). 

So, tl;dr:  Vanguard, Fidelity, Schwab, etc., are all investment companies who sell products.  Those products can be stock funds, bond funds, money market accounts, individual stocks, etc. etc. etc.  They will also hold those products in whatever kind of "bucket" you want -- a regular taxable account, a traditional IRA, a Roth IRA, etc.  For your 401(k), you must use the investment company your firm has chosen, and so you will need to limit yourself to the funds they offer.  But for the money you are saving/investing outside of your 401(k), you can choose whomever you want (Vanguard). 

Start with your 401(k) and cash-type savings.  Put your 401(k) money in the lowest-cost broad market index funds your company offers; put your EF/sinking fund into a savings account or money market fund at Vanguard.  Once you learn about IRAs/Roths, open one with Vanguard (assuming you are eligible) and put that money into low-cost broad market index funds too.  If you still have money to invest, go back to Vanguard and buy the same broad-market index funds in a regular taxable account.  That's it.  The "investing" part doesn't have to be any more complex than that; the hard part is figuring out how much to invest -- and then maximizing that amount.  :-)

ShoulderThingThatGoesUp

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #12 on: June 28, 2017, 07:16:27 AM »
Start maxing your 401(k) now and you'll never miss the cash flow.

lizzzi

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #13 on: June 28, 2017, 07:20:00 AM »
Even if for some reason over the years you find it difficult to keep contributing to your IRA, 401k, Vanguard account...whatever...do it anyway. If you have to dial down your contributions to something that seems ridiculous, like $25 or $50 per month...do it anyway, and never stop. You will sooooooo thank yourself later in life.

lizzzi

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #14 on: June 28, 2017, 07:40:42 AM »
Forgot to add: Don't go into debt for anything. Save the money first, and even if you are buying things using your credit card, pay it in full every month. Credit card debt is such a slippery slope...so easy to get into...so hard to get out of...and so many people just carry debt as a matter of course. Don't be one of those people.

It's not a bad idea to rack up a net worth every couple of weeks or maybe once a month. Keep a dedicated notebook or some kind of computer file...maybe make yourself a graph to chart how it is rising...it is a good thing to keep track of. You know exactly where you're at financially, with no magical thinking or guesswork.

I'd suggest keeping your finances close to the vest. If friends, people you're dating, co-workers, even family (sadly) know what you have, it can lead to all kinds of angst and bad feelings...envy, jealousy...awkward requests for loans...I could go on and on. Be pleasantly vague and don't reveal any numbers. Just know that most people are not going to be on the sound financial footing that you are. So many people are dingbats with their finances that it just isn't worth it to discuss the subject or to let on that you are doing just fine. Create in advance some pleasant, non-committal, maybe humorous things to say when financial discussions come up. "Oh, I'm doing OK I guess--wish I had more flexibility." or  "Oh, I'm so conservative my numbers are probably going backward." or "Glad we got the raise--too bad it's all going for taxes." Whatever--you can sound friendly and chummy,  but don't reveal.

Aminul

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Re: Graduated with a good job and frugal instincts... what next?
« Reply #15 on: June 28, 2017, 09:16:01 AM »
Lots of good financial advice in this thread, so I won't chime in there.  But I will throw my $0.02 in on the exercise. 

I feel lazy most times and I absolutely hate lifting things up and putting them down.  I've done a couple of things that have helped keep me in reasonable shape/health:

1.  Try to find something active you enjoy doing.  For me it's hockey.  I play multiple times per week and it never feels like exercise.  It's just fun.  For you that might be hiking, biking, basketball, flag football, paintball, skiing, whatever.  Hockey seems works well because there is a specific time (Sundays, 7pm), and I have some accountability with the other guys I play with.

2.  Gamify the exercise.  I used to hate the idea of running.  There didn't seem to be a purpose or a goal to it...it was just running around.  And then I realized I could measure my results.  All of a sudden I could 'hack' my runs by monitoring my pace and setting objectives for myself (time or distance).  Getting feedback from my device (phone, watch, whatever) motivated me to continue the exercise. 

YMMV, but I would say that exercise has improved my life.  I not only physically feel better after a run or skate, but my mood improves, too.  I just feel more satisfied with my surroundings.