Hey Mustachians, Help Me Plan My Next Steps to FI!

[illah]

Hey everyone,

I was hoping for some advice on how best to move towards FI while having fun doing it. I'm sure you can deliver the goods so here goes:

I am a 20something yuppie, by most measures. I make $4000 a month in gross pay, which comes in the form of bi-weekly paychecks of about $1400, with a 5% ($100) contribution to my 401(k). $200 is automatically deducted into a savings account at the local credit union, I end up seeing about $1200 in my primary checking account every 2 weeks, so $2400 monthly.

Rent = $825/mo. I 'd consider moving but I haven't found anything better yet, plus my lovely neighborhood is incredibly walkable.
Food = $250/mo. I like to eat and I think this is pretty reasonable for a guy in his 20s. I bring lunch to work every day and eat out sparingly.
Transport = $60/mo. I carpool to work and buy gas for my carpool buddy, don't own a car yet.
Utilities = $50/mo


401(k) = $1500 w/ Fidelity invested in index funds. Thanks to QE3 I've got a 5.7% return going so I'm hoping that keeps up. I was contributing around 20% of my income when I started but now I'm down to 5% while I build up my savings.

Current Savings = $5000. Each month I have an automatic transfer of $500 to my savings from primary checking, so combined with the other one I'm saving $700 or about half of my $1400 bi-weekly pay. I think this is pretty good, and I'm trying to do better by minimizing my expenses.

I have around $7250 in student loan debt, about half at 4.5% and the other half at 3.4%. It comes due in November, so I'm thinking I'll pay off the 4.5% loan, then pay the other one down gradually over the next year while tax deducting the interest I pay on that. Is this a good plan?

I know I want to open up a Roth IRA and max that out. I'm planning on doing this with Vanguard sometime early next year after all the fiscal cliff hysteria is (hopefully) over.

I've been thinking about buying a car (used of course), and my budget is about $7.5-10k. Is there an optimal time I should buy this thing, and how do I plan for all of the insurance and assorted expenses that come with a vehicle? Is it possible to stay on my parents' insurance if I'm in my early 20s? I'm interested in a Subaru wagon for the practicality/reliability of it, but I'm a bit worried it's going to run me a huge sum of money monthly after it kills my savings. However, having a car would be amazing in terms of helping me get around town and out into the outdoors without hassling my friends. How can I get this done? I'm definitely feeling a bit hamstrung in terms of the activities I can do without transport.

In a way, I feel a bit like the fantastic MMM post http://www.mrmoneymustache.com/2012/08/16/what-it-feels-like-to-become-rich/. I'm sort of bored! And that's weird for me, because I've constantly worried about money when I didn't have any. Now that it's coming in, I'm wondering what else I should do with it besides save up a few months of living expenses in an emergency fund, max out the IRA and the 401k, pay down my loans, and look at making some bigger purchases? I feel like I'm doing everything right but I'm sure there's still room to improve. Perhaps boosting my income somehow?

Thanks, and I'm sure I'll have some more questions for you masters of frugality a bit later.

-illah

[Nudelkopf]

I end up seeing about $1200 in my primary checking account every 2 weeks, so $2400 monthly.

Rent = $825/mo...
Food = $250/mo...
Transport = $60/mo...
Utilities = $50/mo

Just a question, how are you spending the other $1200 a month? Does it get tagged in with the other $400 a month? (Assuming the $200 you mentioned automatically deducted into savings is per pay/fortnight).

[illah]

Ah, my mistake, every 2 weeks (or every paycheck/fortnight) I'm transferring $500 to my main savings account and $200 to the other savings account. There is also a nice safety margin worked into each of the paychecks now that my budget has stabilized. I'm saving $500 of each paycheck for the next rent check even though it's $825 total, for example.

I find it easier to budget by paycheck so here's how that looks:

$1400 bi-weekly pay

-$200 automatically deducted to credit union savings
-$500 automatically deducted to main savings account
-$450 saved in checking for rent
-$100 food
-$100 travel
-$50 misc credit card expenses

I use whatever's left either for savings or to travel (I work for an airline). Ideally I'd like to spend every weekend traveling while I can/want to, and I figure if the Frugal Traveler from the New York Times can do $100 weekends then I can too. That's an extra $100/paycheck than I have budgeted for, but I'm trying to figure out how to make that work, since that extra $100 spent traveling is well worth it to me in terms of experiences, and if a trip doesn't happen then it's back into savings, baby. Maybe you guys could help me figure out a bit of extra savings?

So far I'm pretty proud of my 50% savings rate, and it's certainly a nice feeling to see my account balances rising by so much each month. I figure that if I can invest a good portion of these savings and pay down my debt while making some good purchases, then I'll be in a really good spot in a year or two. I'm worried that my expenses will begin to rise a bit (especially with the car purchase I'm looking at), and that will limit either my savings (i.e. my freedom) or my travel (i.e. my freedom).

I've become really interested in the Ford Fiesta hatch after some thought, and it seems like it would fit my needs perfectly. I'd like to buy a pre-owned model, and perhaps if I save up enough to buy it with cash that would be a good deal for me, as I think I could knock a few grand off the purchase price. Even with interest rates so low I don't really like the idea of financing anything, but I think there is definitely an advantage in buying a (relatively) cheap car from a dealer where you at least have some recourse (warranty) if anything goes wrong. Should keep the operational expenses to a minimum.

I guess my question here is, how can I do all of this at once? It certainly seems within reach to have a car and travel every weekend, while saving 50%, provided I make some smart choices, but I'm also feeling like it's time to chase some new income.

-illah

[fidgiegirl]

Why the rush to buy a car?  You said you have the transportation for work worked out and live in a walkable neighborhood.

I don't see you doing everything you want on your current income.  But if you start to trade up for more, then will you have time to do it, anyway?

[AJ]

but I think there is definitely an advantage in buying a (relatively) cheap car from a dealer where you at least have some recourse (warranty) if anything goes wrong.

I would rethink this. Dealerships make money on warranties, not the other way around. Buying from a dealership will save you hassle, but in the long run you will pay for that convenience. Plus if you're paying all cash, you may be able to get an even better deal from a private seller. Dealerships makes a TON of money on the financing, so you paying all cash is not going to be a negotiating tool for you.

If I were you, I would look at the price difference between buying the car you want from a dealership vs. a private party and just bank that amount as self-insurance. I understand if you've never had a car then the idea of repairs can sound really scary, but *most* repairs are not that bad, especially since you are looking at buying a new-ish vehicle.

That said, yes, cars in general are expensive to buy and expensive to operate. Our monthly expenses are very similar to yours, and we budget $450 a month for gas, maintenance, repairs, and replacement savings for our 10 year old Prius. I totally understand not wanting to bum rides from your friends anymore, though.

[Lars]

I've become really interested in the Ford Fiesta hatch after some thought, and it seems like it would fit my needs perfectly. I'd like to buy a pre-owned model, and perhaps if I save up enough to buy it with cash that would be a good deal for me, as I think I could knock a few grand off the purchase price. Even with interest rates so low I don't really like the idea of financing anything, but I think there is definitely an advantage in buying a (relatively) cheap car from a dealer where you at least have some recourse (warranty) if anything goes wrong. Should keep the operational expenses to a minimum.

I guess my question here is, how can I do all of this at once? It certainly seems within reach to have a car and travel every weekend, while saving 50%, provided I make some smart choices, but I'm also feeling like it's time to chase some new income.

-illah

I've found cars to be so reliable that the cost premium of a pre-owned car is unlikely to get you any benefit. I would recommend just purchasing a similar non pre-owned car. If you go through a dealer I would also recommend shopping around a lot and being flexible on your vehicle choice (compact car with above average reliability instead of specific model). YMMV but the above and some patient negotiation has got me prices a few hundred above private party value (but private party would still have been cheaper. I've just been a bit of a chicken there).

I think you'll have a hard time holding 50% with a car and your current income. My last two small cars bought 2-5 years old and kept around 5 years ending up costing me around $150/month (insurance, depreciation, maintenance, and repair) + gas costs.