Author Topic: How can I do better? Advice requested!  (Read 4321 times)

ataraxia

  • 5 O'Clock Shadow
  • *
  • Posts: 6
How can I do better? Advice requested!
« on: April 20, 2015, 08:42:51 PM »
Hi all,

I am a fan of MMM and am working on accumulating my 'stache.  Please check out my current situation and let me know if you think I should do anything differently.  I think I am doing pretty well and I have a lot of information and knowledge, but am getting paralyzed with the idea of changing things from here.  I feel like I'm 85% there, but the minutiae involved to get me to 95% is overwhelming.  Sorry in advance for the wall of text.

Background: 26 years old living in the Washington, DC area.  Working at a Fortune 1000 company.  I just got a raise  to my current salary, so some numbers below might be a bit off because I have not yet gotten a paycheck fully with my new salary.  I have been getting 4-5% raises each year but hope to do better next year. I am in school part-time for a Master's Degree and will graduate next Spring (2016). Also am working on a professional certification which should make me more valuable.  I do not plan on changing jobs until I graduate.

Goal: Financial independence/early retirement by age 45, earlier if possible.  I don't have my "number" yet for how much income I'll need, so I want to just save and invest as much as possible for now.

Income: $49,000 PRETAX + $5250 in tax free tuition reimbursement while in school.

Current Monthly Expenses:

-Rent: $820, Including Utilities (Currently living in VA, will move in with SO in DC end of summer to house SO owns and agreed to pay same rent I am currently paying to SO)
-Food and Bars: $450 budgeted. (Actuals for the year are from $200-$600, but 450 is the average lately.  This is what I have paid, but reimbursements on groceries from my roommate are not recorded in Mint and we both split groceries.)  I shop mostly at Costco, Trader Joes, and CVS, and eat out a few times per month, although I'm trying to cut that down as much as possible while maintaining a social life.
-BJJ Gym:$180 (My main hobby and enjoyment, will never drop)
-Ramit Sethi's Networking Group (RBT): $50 (Worth it, don't want to drop. I consider it an investment)
-Loans: $300 (I'm still in school so there is no minimum payment yet)
-Roth IRA: $300 (I add in whatever I need to max it before filing for taxes from whatever I have available
-Fun/Shopping/Unexpected Expenses account: $300
-Metro: $100 (pretax money as a benefit)
-401(k): $182 @5% (match is up to 4%)
-Health Insurance: $103 ($700 deductible, then pay 10%), no HSA but FSA which I don't use.
-Dental Insurance:$12
-Vision Insurance: $6 (will probably drop next year)
-Employee Stock Purchasing Program (ESPP): $390 @10% of post-tax income, max possible under benefits


Other monthly costs already paid for:
-Capital Bikeshare: $6 (already paid for the year, worth keeping while I live where I am even though I have a bike)
-Rental Insurance: $6 (already paid for the year)
-Zipcar $5 (already paid for the year, up mid-summer, will probably cancel)


Assets: $36,500

Cash: $11,700
-$8,000 Emergency Fund (around 6 months of necessary expenses)
-$2,000 For Lasik (Planning on getting it next year. My vision is bad and I can't wear contacts, so it's important to me)
-$1,700 Fun/Shopping/Unexpected Expenses money

Investments: $24,800

Retirement
-$12,700 Roth IRA invested in VFFVX
-$6,600 401(k) (including matching which is not fully vested) Invested in LIVAX

Taxable
-$5,500 Company ESPP.  15% discount on price at beginning of each quarter. Must hold for 1 quarter before selling.  $20 fee for selling, no other fees.  It is a Canadian company with usually between 2%  and 3% dividends which I have set to automatically reinvest.  I am contributing the max that I can right now to this, 10% of my post-tax income so around $4,700 per year.  My understanding is that the 15% discount will be taxed as income, but the capital gains are short-term until 2 years, then long-term. Not that it means much, but the stock is rated well as a Buy and Long hold stock by analysts.

Debts: $37,400 (a final $20,000 coming next year)

Federal Student Loan 1: $19,700 @ 6.2%
Federal Student Loan 2: $17,700 @ 5.41%
Federal Student Loan 3: Coming next year for my last year of grad school at ~$20,000


There are no minimum payments for the student loans until I graduate, but I have been putting $300 per month toward the principal of the higher interest loan.

Notes:
I have a SO who makes a little more than double my income and has a house.  Marriage is on the table for the future,  but I want to just deal with my own stuff for now and act as if that does not exist.  But it does mean that there are some costs for dates and occasional gifts and travel.  I have also applied for many scholarships but have not yet gotten any.  Also, I mostly act like it doesn't exist, but part of the reason I am not attacking the loans with everything I have right now is that I will receive ~$50k from my lovely grandmother when she passes away.  This is already gifted to me in a trust, but I will not spend it before she passes away in case she needs it while she is still alive for medical expenses.  She does still have significant assets for that though.  I hope it is far away, but she is already unfortunately in poor health.

Questions:
-What should I change?  Forget ESPP and put it all towards loans or 401(k)?  Keep smaller emergency fund/invest half of it?  If yes in what?  Sell current ESPP and put it towards loans and/or IRA?  Forget all investments and only attack loans?  Go back in time and tell myself not to go to school without scholarships?  I am open to suggestions.  Thank you!

*SO is Significant Other.
« Last Edit: April 20, 2015, 08:56:25 PM by ataraxia »

MDM

  • Walrus Stache
  • *******
  • Posts: 9496
Re: How can I do better? Advice requested!
« Reply #1 on: April 20, 2015, 09:37:10 PM »
ataraxia, welcome to the forum.

Taking a quick look at your numbers (see below), it appears you will have negative cash flow once you start repaying your loans.  Is that what you see (e.g., using the case study spreadsheet or your own cash flow calculations) also?

There are various things you could do, but let's understand if there is a "spend less than you earn" issue first.  Fortunately (and good for you!) much of your spending is actually investing so things aren't all that bad.

CategoryMonthlyCommentsAnnual
Summary:
Gross income$4,083$49,000
Income taxes$824$9,888
After-tax income$3,259$39,112
IRA+401k/403b/TSP/457 (Savers' credit)$504$6,050
ESPP+529/other$390$4,680
Living expenses$2,115$25,380
Non-mortgage loans$634$7,608
After-tax investable-$384-$4,606

ataraxia

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: How can I do better? Advice requested!
« Reply #2 on: April 21, 2015, 07:42:59 AM »
Hi MDM,

Thanks for that, I actually did not realize because I didn't know what the loan payments would be.  It looks like if my salary and expenses stays the same I can divert the ESPP payment to the loans and be alright.  My goal of course is to reduce expenses and increase salary a year from now, however. :)

I admit I am not sure what my true amount I pay for groceries is because my roommate usually reimburses me for half, but I don't fastidiously track this or make sure that we are always 100% even.  But it is some amount less than what I posted.

Calimandc

  • 5 O'Clock Shadow
  • *
  • Posts: 34
Re: How can I do better? Advice requested!
« Reply #3 on: April 21, 2015, 07:45:50 AM »
This is a good place to start.  You have some good investing going on, but the loans are going to bury you.

Honestly, until you pay off the loans, you should be putting the investing to the side (except for the company match requirements).  Destroy the loans, then work on building the stash.  You already have a good start, so you can pause most of it for a while to tackle the loans.

As for expenses, you can save a lot if you think about how you spend what you currently put out.  Four items are on your list that could be dramatically reduced, saving you a lot of money:

-Food and Bars: $450 budgeted. (Actuals for the year are from $200-$600, but 450 is the average lately.  This is what I have paid, but reimbursements on groceries from my roommate are not recorded in Mint and we both split groceries.)  I shop mostly at Costco, Trader Joes, and CVS, and eat out a few times per month, although I'm trying to cut that down as much as possible while maintaining a social life.
-BJJ Gym:$180 (My main hobby and enjoyment, will never drop)
-Ramit Sethi's Networking Group (RBT): $50 (Worth it, don't want to drop. I consider it an investment)
-Fun/Shopping/Unexpected Expenses account: $300


You can reduce food by half.  (My family of 3 also in N.Va. lives on twice this, so you can do better!)  You can get enjoyment out of working out in many ways, so paying $180 a month for a gym is just wasteful when you have debt!  What is your goal with networking?  Can you achieve that goal without Ramit?  Why are you giving the group $50 a month for the opportunity to meet other people you can meet on your own with a little effort on your part? 
$300 fun/shopping/unexpected - that's huge!  It's as much as your student loan payments!  Put the money from the networking into this every month and kill two birds with one stone.

If you can cut your food to $300, you gym and networking to time rather than money, and your fun to $50. you can have an extra $630 a month to eliminate those loans quickly.  Then you'd have that money to throw at investments in the future. 

You've got your mind in the right place.  Taking those last few steps will allow you to achieve the goals you've set for yourself.

Good luck!

Jeremy

ohana

  • Stubble
  • **
  • Posts: 172
    • An Ocean Lover in Maine
Re: How can I do better? Advice requested!
« Reply #4 on: April 21, 2015, 08:15:55 AM »
Pay down your debt.

Pay down your debt.

Pay down your debt.

And yes, $180 is a huge amount for a gym.  Is there a cheaper alternative?  This amount is more than my husband and I pay combined, and he is an elite athlete in his chosen field of competition.  If he can do it on half the cost, you can.

Bracken_Joy

  • Walrus Stache
  • *******
  • Posts: 8859
  • Location: Oregon
Re: How can I do better? Advice requested!
« Reply #5 on: April 21, 2015, 08:34:58 AM »
For the Jiu Jitsu (I'm assuming that's what your BJJ gym is), is there an option to barter for membership fees? Ie, teach classes to kids, or volunteer for events on weekends, or make a website for them? I've literally traded salmon for tae kwon do before, you'd be surprised what people will take if you ask. Since it's already a huge part of your life, this extra work would just further integrate you into the activity, so it shouldn't feel arduous, and it's another 1/2 of your food budget.

Were your utilities, cell phone, etc listed anywhere? I don't recall seeing those. And how does insurance work with zipcar- is there a payment there that's missing?

thd7t

  • Handlebar Stache
  • *****
  • Posts: 1308
Re: How can I do better? Advice requested!
« Reply #6 on: April 21, 2015, 08:42:04 AM »
This is a pretty small one, but good news: You can get tons of discounts on Lasik.  My wife got here eyes done a year and a half ago.  She got 20% off because her health insurance has deals with most major providers.  It's not an insurance benefit, per se.  Just ask about it.  She got another 10% off for paying cash.  It saved us about $1300, if I remember correctly.

ataraxia

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: How can I do better? Advice requested!
« Reply #7 on: April 21, 2015, 08:46:48 AM »
This is a good place to start.  You have some good investing going on, but the loans are going to bury you.

Honestly, until you pay off the loans, you should be putting the investing to the side (except for the company match requirements).  Destroy the loans, then work on building the stash.  You already have a good start, so you can pause most of it for a while to tackle the loans.

As for expenses, you can save a lot if you think about how you spend what you currently put out.  Four items are on your list that could be dramatically reduced, saving you a lot of money:

-Food and Bars: $450 budgeted. (Actuals for the year are from $200-$600, but 450 is the average lately.  This is what I have paid, but reimbursements on groceries from my roommate are not recorded in Mint and we both split groceries.)  I shop mostly at Costco, Trader Joes, and CVS, and eat out a few times per month, although I'm trying to cut that down as much as possible while maintaining a social life.
-BJJ Gym:$180 (My main hobby and enjoyment, will never drop)
-Ramit Sethi's Networking Group (RBT): $50 (Worth it, don't want to drop. I consider it an investment)
-Fun/Shopping/Unexpected Expenses account: $300


You can reduce food by half.  (My family of 3 also in N.Va. lives on twice this, so you can do better!)  You can get enjoyment out of working out in many ways, so paying $180 a month for a gym is just wasteful when you have debt!  What is your goal with networking?  Can you achieve that goal without Ramit?  Why are you giving the group $50 a month for the opportunity to meet other people you can meet on your own with a little effort on your part? 
$300 fun/shopping/unexpected - that's huge!  It's as much as your student loan payments!  Put the money from the networking into this every month and kill two birds with one stone.

If you can cut your food to $300, you gym and networking to time rather than money, and your fun to $50. you can have an extra $630 a month to eliminate those loans quickly.  Then you'd have that money to throw at investments in the future. 

You've got your mind in the right place.  Taking those last few steps will allow you to achieve the goals you've set for yourself.

Good luck!

Jeremy

Hi Jeremy and ohana,

Thanks for your advice.  The food I definitely agree with you on, I can do better, and have been making some strides in that recently.  Other than forgetting to bring a lunch/not having leftovers in the morning to bring my biggest expenses in that regard are meeting up with friends in the city (so damn expensive....) and eating out with the girlfriend when she doesn't have groceries at her house.  I plan on entertaining people at my house more, but the price I pay for my awesome rent is very little space!

I know you guys think I'm crazy with the gym (I wish it cost less), but honestly it is worth it to me and I'm willing to pay the price for it, including delaying other goals.  It's for a Brazilian Jiu Jitsu (BJJ) gym with one of the best instructors in the world, let alone the country.  The cost is high because you are paying for coaching/classes (my membership is for unlimited), not just a place to work out.  If I did BJJ at another gym, the cost would be about the same or MAYBE a little less, but with less good instruction and teammates.  I'm definitely not going to change this, even though it's a pain in the ass to get to it is worth it.  You have to do BJJ to understand :)

The networking group I am definitely considering for the chopping block, but it's a tough decision.  It is basically a group of top performers with similar interests and goals, kind of like the MMM forums, and we regularly have meetings in DC where we can actually network with people who speak the same language and don't judge each other for weird things like salary negotiation tactics and our struggles and successes in our small businesses.  Ramit's rationale for the cost is that it weeds out the people who are not serious about self-improvement and people who talk but don't act, and I have actually found that to be largely true.  I think I will make a list of pros and cons to see if I can justify this.  Thank you for making me think more critically about it.

The unexpected bank account I definitely do need to look at and work on.  The main reason I have it is because I did not want to budget specific line items for irregular expenses like clothes, medical expenses, occasional treats like going to the movies or train tickets to see my parents.  Sometimes the account gets large, and I will throw some of it at my IRA or an extra loan payment.  I will think about this, and if you have advice on how to deal with these things in a budget please let me know!

It looks like there is a consensus to tackle the loans over investing, so I think I will start by diverting all of the ESPP money to that, and possibly others.  My main anxiety is over losing that retirement account "space" which you only get so much of per year...  Given that investment gains though are not guaranteed and paying off loans is a guaranteed return on the interest for that though, I guess it is better to tackle the loans.

Thanks so much for your advice!

ataraxia

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: How can I do better? Advice requested!
« Reply #8 on: April 21, 2015, 09:01:57 AM »
For the Jiu Jitsu (I'm assuming that's what your BJJ gym is), is there an option to barter for membership fees? Ie, teach classes to kids, or volunteer for events on weekends, or make a website for them? I've literally traded salmon for tae kwon do before, you'd be surprised what people will take if you ask. Since it's already a huge part of your life, this extra work would just further integrate you into the activity, so it shouldn't feel arduous, and it's another 1/2 of your food budget.

Were your utilities, cell phone, etc listed anywhere? I don't recall seeing those. And how does insurance work with zipcar- is there a payment there that's missing?

Yes that's correct.  I looked into that option but unfortunately I don't actually have the time to be able to do any of those things.  I do brew beer and mead, so I can figure out if they would want to barter for that, but I doubt it!  I work full-time, go to school part-time, and I don't have a car so when I don't catch a ride with friends it takes me 45 minutes each way to and from the gym on the metro.  I can't get there in time for kid's classes either...  I will think on it though, if there are other things I can do.

Utilities are included in my rent, cell phone I don't pay for because I am on a family plan with my parents and siblings and they insist on paying for it.  I will likely switch to ting or t-mobile though when the contract is up because they use Verizon.

Insurance on zipcar is included in their pricing.  There was a one time startup fee the first year, and then you pay per half hour when you get the car.  I have not used it much recently, I usually use it to get things from people on Craigslist or to get to the homebrew store when I can't get a ride from a friend.

This is a pretty small one, but good news: You can get tons of discounts on Lasik.  My wife got here eyes done a year and a half ago.  She got 20% off because her health insurance has deals with most major providers.  It's not an insurance benefit, per se.  Just ask about it.  She got another 10% off for paying cash.  It saved us about $1300, if I remember correctly.

Awesome, thanks for letting me know!  I have plenty of time to look into this so I will definitely do so.  I just want to make sure I go to a very good doctor though because they are my only eyeballs!

JLee

  • Walrus Stache
  • *******
  • Posts: 5575
Re: How can I do better? Advice requested!
« Reply #9 on: April 21, 2015, 09:23:50 AM »
I just looked up Ramit Sethi- apparently he has done $12k/person networking workshops.

I need to figure out a side hustle like that!

Calimandc

  • 5 O'Clock Shadow
  • *
  • Posts: 34
Re: How can I do better? Advice requested!
« Reply #10 on: April 21, 2015, 09:29:07 AM »
Seriously, what a gig! 

frugalnacho

  • Magnum Stache
  • ******
  • Posts: 3340
  • Age: 36
  • Location: Madison Heights, Michigan
Re: How can I do better? Advice requested!
« Reply #11 on: April 21, 2015, 09:37:50 AM »
Don't stop your ESPP purchases.  Ramp that up to the max your company will allow, it's free money.  If you don't have the cash flow to do it, then sell some of the stock to help your cash flow position so that you can continue to participate at the max contribution.  Do not set your dividends to reinvest - they will probably be reinvested at market price, which you don't want (and might even incur a transaction fee).  I assume you are purchasing through the ESPP program for the 15%+ discount, and not because you actually want to own a ton of stock in the company you work for, so just have them cut you a check for dividends and then invest them in your IRA or taxable accounts in a more efficient and diversified manner. 

You should probably sell your ESPP stocks asap too.  Read through your program to make sure it's beneficial, but if it works like I think it works you will probably gain more benefit from selling and putting that money into a low cost index fund even if you have to realize short term capital gains to do it.  The short term gains you will realize will probably be small potatoes since you held that portion of the stock for not very long.  Since you will incur a $20 fee for selling you should probably try to sell it all in as few transactions as possible.

ataraxia

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: How can I do better? Advice requested!
« Reply #12 on: April 21, 2015, 10:40:57 AM »
I just looked up Ramit Sethi- apparently he has done $12k/person networking workshops.

I need to figure out a side hustle like that!

I know, right?  I do highly recommend reading his stuff.  The free material on his blog is a goldmine for actionable things you can do to improve your salary, career, networking, or business.  He has a different philosophy on life from MMM so you may not agree with some of his points (especially re: frugality), but I find it valuable to hear different viewpoints.

Don't stop your ESPP purchases.  Ramp that up to the max your company will allow, it's free money.  If you don't have the cash flow to do it, then sell some of the stock to help your cash flow position so that you can continue to participate at the max contribution.  Do not set your dividends to reinvest - they will probably be reinvested at market price, which you don't want (and might even incur a transaction fee).  I assume you are purchasing through the ESPP program for the 15%+ discount, and not because you actually want to own a ton of stock in the company you work for, so just have them cut you a check for dividends and then invest them in your IRA or taxable accounts in a more efficient and diversified manner. 

You should probably sell your ESPP stocks asap too.  Read through your program to make sure it's beneficial, but if it works like I think it works you will probably gain more benefit from selling and putting that money into a low cost index fund even if you have to realize short term capital gains to do it.  The short term gains you will realize will probably be small potatoes since you held that portion of the stock for not very long.  Since you will incur a $20 fee for selling you should probably try to sell it all in as few transactions as possible.

You are correct with why I am purchasing it, and I am currently doing the maximum that I can.  I think that dividend reinvestment does not have a fee, but it is buying stocks at market rate and of course dividends are taxed as income but I don't think those taxes are due until I sell.  The $20 fee is what gets me... I'm not sure how often I should sell it so that I don't wipe out my gains with the stupid fee.  But it is probably better to sell as often as it makes sense as I am overexposed to my company and don't need to have taxable investments when I have unfilled space in retirement accounts.

frugalnacho

  • Magnum Stache
  • ******
  • Posts: 3340
  • Age: 36
  • Location: Madison Heights, Michigan
Re: How can I do better? Advice requested!
« Reply #13 on: April 21, 2015, 10:50:58 AM »
I just looked up Ramit Sethi- apparently he has done $12k/person networking workshops.

I need to figure out a side hustle like that!

I know, right?  I do highly recommend reading his stuff.  The free material on his blog is a goldmine for actionable things you can do to improve your salary, career, networking, or business.  He has a different philosophy on life from MMM so you may not agree with some of his points (especially re: frugality), but I find it valuable to hear different viewpoints.

Don't stop your ESPP purchases.  Ramp that up to the max your company will allow, it's free money.  If you don't have the cash flow to do it, then sell some of the stock to help your cash flow position so that you can continue to participate at the max contribution.  Do not set your dividends to reinvest - they will probably be reinvested at market price, which you don't want (and might even incur a transaction fee).  I assume you are purchasing through the ESPP program for the 15%+ discount, and not because you actually want to own a ton of stock in the company you work for, so just have them cut you a check for dividends and then invest them in your IRA or taxable accounts in a more efficient and diversified manner. 

You should probably sell your ESPP stocks asap too.  Read through your program to make sure it's beneficial, but if it works like I think it works you will probably gain more benefit from selling and putting that money into a low cost index fund even if you have to realize short term capital gains to do it.  The short term gains you will realize will probably be small potatoes since you held that portion of the stock for not very long.  Since you will incur a $20 fee for selling you should probably try to sell it all in as few transactions as possible.

You are correct with why I am purchasing it, and I am currently doing the maximum that I can.  I think that dividend reinvestment does not have a fee, but it is buying stocks at market rate and of course dividends are taxed as income but I don't think those taxes are due until I sell.  The $20 fee is what gets me... I'm not sure how often I should sell it so that I don't wipe out my gains with the stupid fee.  But it is probably better to sell as often as it makes sense as I am overexposed to my company and don't need to have taxable investments when I have unfilled space in retirement accounts.

The dividends should be taxed in the year they are distributed, whether you purchase more stock with them or just put it in your bank account.  The 15% discount you receive will count as income, but usually not until the year you sell it. 

ataraxia

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: How can I do better? Advice requested!
« Reply #14 on: April 21, 2015, 11:05:49 AM »

The dividends should be taxed in the year they are distributed, whether you purchase more stock with them or just put it in your bank account.  The 15% discount you receive will count as income, but usually not until the year you sell it.

Oh darn... might need to amend my 2014 taxes then :(

Thanks for the info!

MDM

  • Walrus Stache
  • *******
  • Posts: 9496
Re: How can I do better? Advice requested!
« Reply #15 on: April 21, 2015, 12:09:25 PM »

The dividends should be taxed in the year they are distributed, whether you purchase more stock with them or just put it in your bank account.  The 15% discount you receive will count as income, but usually not until the year you sell it.

Oh darn... might need to amend my 2014 taxes then :(

Thanks for the info!
"ESPP" is not descriptive enough.  The one frugalnacho is familiar with behaves that way, but for others (e.g. the one from Megacorp) that I had the discount is income the year you buy.  Check your program details.