Author Topic: Unexpected Promotion - Make any changes?  (Read 2964 times)

actonyourown

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Unexpected Promotion - Make any changes?
« on: April 01, 2018, 09:19:06 AM »
I have been reading about FIRE and listening to podcasts for about 10 months now.  I'm excited to begin this journey and have already cut a lot out of my inflated lifestyle to optimize.

28 yr old / single
I accepted a promotion at work that puts my annual salary at $52,700 from $45,400, effective immediately.  I will also receive a merit raise on July 1 of $1,050, so $53,750 by the end of the year.  Currently, I have minimal consumer debt (worked to pay it off over the last six months) and it will be gone soon.

As it stands currently:

Credit cards: $1,100  - should be gone after next paycheck
Student Loans: $20,400 (with 4.5 years to go)

Savings: $1,250
401k: $38,000
Roth IRA: $3,500
Investment 'stache/passive income: $0  :'(      - I really want to begin something here once I figure some things out

With this new pay increase, will I be jumping to the next tax bracket?  Am I calculating the numbers correctly here?
52,700 - 12,000 = 40,700
I already shield $1,150/year from Federal taxes with my transit pass every year through work.
40,700 - 1,150 = 39,550
I also contribute $1,200 to an HSA per year. (I don't have the solid numbers on other deductions currently, but I do pay for a high deductible health plan as well through work.)
39,500 - 1,200 = 38,350


Just to complicate matters, I have to leave my cheap living arrangement (renting with 2 roommates for me was $230/month) and will be moving out on my own on June 1.  This is why I can't pay off the CC debt entirely with my savings right now because I will need at least 2 month's worth of rent wherever I go, at minimum.  Sometimes 3 months (first, last, security).  Most places I have found on the high end (high end, meaning the most expensive I am willing to pay) are $700/month.  I would like to get it below $600 if possible but staying near mass transit is a priority.  If I wanted to bike, I would be moving to the expensive part of town which would be minimum $700/month and probably closer to $800 for one-bedrooms.  My student loan payments will increase from $305/month to, what I am guessing will be around $400/month in December for the next 2 years.

So my questions/priorities are:

1. If I am calculating the numbers correctly, I think I should continue contributing to my Roth 401k instead of the regular 401k because my money is still only taxed at the 12% bracket, right?  Should I contribute more than 6% to my 401k (my match caps when I contribute 6%, I get 5% from the company)?

2. I would like to save to buy a house.  I'm so tired of moving every 1-2 years that I want this to be the last time I do so.

3. I would like to pay off my student loans faster.  Should this be priority over extra 401k contributions/saving for a house/investments?  (Aggregate interest from loans is 5.181% - I don't qualify to consolidate through SoFi)  I plan on putting this on the higher interest loans first.  I could consider increasing my payments by $300/month onto the highest interest loans at 6.8%.

4. I want to start investing to create a secondary source of income.  Preferably passive, but I would consider investing in a business/rentals someday too, if an opportunity arose.  Should this be on my radar at all?  What are the communities' thoughts on Fundrise? Or are index funds the way to go for this as well?

Thanks for any advice you can give!

sokoloff

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Re: Unexpected Promotion - Make any changes?
« Reply #1 on: April 01, 2018, 10:19:21 AM »
1 & 2 & 3. Start here: https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

4. Don't complicate your life at this point. Buckle down in the rest of your life, excel at your job, sort out your relationship status, don't get tied to a "passive" business or rental property yet. Put it in VTSAX and that's your passive income for now. Liquid and tracking the stock market is what you want at this stage, IMO.

meghan88

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Re: Unexpected Promotion - Make any changes?
« Reply #2 on: April 01, 2018, 02:56:32 PM »
2.  Hang in there on the renting for now unless you're in a place where it's much cheaper to buy rather than rent.  It's still early in your career and you don't know where you might need to be in a few years, geographically, for work.  Focus on minimizing your stuff so that your life is simple and you have less to move.

chasesfish

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Re: Unexpected Promotion - Make any changes?
« Reply #3 on: April 01, 2018, 06:45:37 PM »
This isn't that complicated, you got this.

I wouldn't recommend increasing your rent as much if you can avoid it.

This is not the popular wisdom, but I would be okay with you lowering your 401k allocation down some until you get $10,000 or so saved up in after-tax money.  Just invest it with Vanguard or something.  Life is too short to have to stress about managing liquidity for security deposits, credit card debt, ect.  My stress went way down at 32 when I hit $100,000 outside of retirement accounts.

actonyourown

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Re: Unexpected Promotion - Make any changes?
« Reply #4 on: April 01, 2018, 07:46:37 PM »
Thanks sokoloff

I think I am at a level of income where this is a possibility to utilize this list!


2.  Hang in there on the renting for now unless you're in a place where it's much cheaper to buy rather than rent.  It's still early in your career and you don't know where you might need to be in a few years, geographically, for work.  Focus on minimizing your stuff so that your life is simple and you have less to move.

Well in my area this is definitely possible.  It's not a HCOL area, but 1-bedroom apartments seem to go for $600+ but there are 2 bedroom houses where your mortgage payment would be only $800 for a starter house.  All depends what you want and neighborhood (due to some very good schools) push these prices in strange ways.


This isn't that complicated, you got this.

I wouldn't recommend increasing your rent as much if you can avoid it.

This is not the popular wisdom, but I would be okay with you lowering your 401k allocation down some until you get $10,000 or so saved up in after-tax money.  Just invest it with Vanguard or something.  Life is too short to have to stress about managing liquidity for security deposits, credit card debt, ect.  My stress went way down at 32 when I hit $100,000 outside of retirement accounts.

I will consider this.  I'm going to follow the investing list as I can but I still want to travel and have experiences.  Honestly, I have lived with a low safety net so long, I have not considered saving a large one as an option.  Maybe this is the time!

COEE

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Re: Unexpected Promotion - Make any changes?
« Reply #5 on: April 01, 2018, 09:08:34 PM »
Congrats on getting a $9k/yr raise!

This is what I'd do if I woke up in your shoes:
  • I'd try to keep my current living arrangement - or at least keep a couple of roommates to lessen the burden of rent.  I'd use the additional $9k/yr to pay off your student loans.  I'd also roll the $1k/mo from the credit cards to the student loan payments to get those suckers paid off in ~1yr.
  • I wouldn't worry about taxes - you barely pay any.
  • I'd work the Dave Ramsey steps. 
    Step 1 - 1k emergency fund - as a young renter - you really don't need more... maybe up this to $2k if that helps you sleep at night. 
    Step 2 - Get hair-on-fire serious about getting rid of my debt ASAP. 
    Step 3 - 6 months of emergency fund. 
    One exception to his rules: I'd contribute to my 401k up to the company match, but not a penny more.

At this point in your life, I'm not crazy at all about having $100k in taxable accounts.  Wait to do that until after you have maxed out all of your yearly retirement contributions (Currently is $23.5k) and paid back your loans.

Have you asked your company to pay for your transit pass?  Many companies like to do this because they can deduct it, and it makes the company more attractive when hiring.  That leaves you with a bit more tax burden (but again, not worth worrying about).

actonyourown

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Re: Unexpected Promotion - Make any changes?
« Reply #6 on: April 14, 2018, 01:17:36 PM »
So here is an update to my original post.

1) I can't keep either roommate (both moving in with girlfriends now) and I don't have adequate prospects for new ones

2) I have had a motorcycle I bought 5 years ago and has been sitting for 4 years.  I sold it today for well under what I paid originally but now it is no longer a burden I need to worry about, and I got a little cash for it.  I plan on ridding myself of as much junk as possible and simplify where I can (this process happens every time I move and is honestly the best part of moving)

3) I am taking an apartment near friends for $740/month.  It is on the high side, but there are a lot of benefits.  Friends close by, public transit at my doorstep, trails and parks within walking/biking distances.  I am also allowed a pet for another $40/month extra.  I'm considering this since dating isn't going so well over the last 7 years, and though I like to think I am considerate and well rounded, it would be a huge learning process from caring only for myeslf to this point (I'm blunt with myself but I can take it haha).  I think it would bring a lot of joy for me, so I'm considering this but I want to make sure I'm in well established routines financially, mentally, and physically before I take on this responsibility.  I will be moving during the month of May, so I will be in a transition phase soon.

4) I have prioritized following the optimal investing principles, and I am waiting to see my new living arrangements before I make any large amendments.  No large taxable account holdings for now but I'm going to work for the 1k emergency fund asap.

Congrats on getting a $9k/yr raise!

This is what I'd do if I woke up in your shoes:
  • I'd try to keep my current living arrangement - or at least keep a couple of roommates to lessen the burden of rent.  I'd use the additional $9k/yr to pay off your student loans.  I'd also roll the $1k/mo from the credit cards to the student loan payments to get those suckers paid off in ~1yr.
  • I wouldn't worry about taxes - you barely pay any.
  • I'd work the Dave Ramsey steps. 
    Step 1 - 1k emergency fund - as a young renter - you really don't need more... maybe up this to $2k if that helps you sleep at night. 
    Step 2 - Get hair-on-fire serious about getting rid of my debt ASAP. 
    Step 3 - 6 months of emergency fund. 
    One exception to his rules: I'd contribute to my 401k up to the company match, but not a penny more.

At this point in your life, I'm not crazy at all about having $100k in taxable accounts.  Wait to do that until after you have maxed out all of your yearly retirement contributions (Currently is $23.5k) and paid back your loans.

Have you asked your company to pay for your transit pass?  Many companies like to do this because they can deduct it, and it makes the company more attractive when hiring.  That leaves you with a bit more tax burden (but again, not worth worrying about).

My company is part of the S&P 500 and is not known for its generosity at the operational level.  We are the largest campus globally for our company, so this would cost them more per person per month than I am getting in my merit raise from last year.

Thanks everyone for the advice!

actonyourown

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Re: Unexpected Promotion - Make any changes?
« Reply #7 on: March 07, 2019, 09:04:01 PM »
So I have some further updates:

I received a bonus for my work last year (woohoo!).  Nothing huge but I paid off a student loan with that plus a little savings.  I also paid of a couple other student loans throughout the year.  I will also get a very good merit raise in July.  I also seem to be taking on a heavier responsibility at work, so I see a possible promotion soon again this year.  I am in control of my finances and it feels good to be able to discuss them without anxiety or feeling defeated.

In June 2017, I created a net worth calculation sheet.  It was based off of the Mad Fientist's site and modified it for my own and added some fun excel features to get more analysis out of it.  I update it at the end of every month to check how I'm progressing.  It is one of the longest things I have ever tracked and it continues to motivate me and tell me I'm heading in the right direction.  I wasn't sure if this is something that other people use?  I attached it for any advice or thoughts.

Big milestones since June 2017
1. Paid over $8,000 in principle on SL's on highest interest loans (shrunk DTI to below 30%)
2. Paid off credit card balances and use rewards credit cards now, paid off each month
3. Have traveled to Italy, Hawaii, Las Vegas, and several other smaller vacations with minimal effect to savings and net worth growth
4. Have a dog now - not really that expensive to own
5. Increased income by more than 25%

Please provide any feedback you have on the file or thoughts above :)

COEE

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Re: Unexpected Promotion - Make any changes?
« Reply #8 on: March 08, 2019, 10:34:06 PM »
Sounds like you've made good progress!  Keep up the good work!

Kayad

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Re: Unexpected Promotion - Make any changes?
« Reply #9 on: March 09, 2019, 01:08:09 AM »
Nice work!  That is a lot of progress in a few short months! 

Re: the student loans, there are a lot of refi options beyond sofi.  A little energy in that area might save you a few hundred a year.  Try https://www.studentloanplanner.com/refinance-student-loans/ (I have no affiliation, just the best referral bonuses I discovered through some fi podcast when I refinanced recently)

MrThatsDifferent

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Re: Unexpected Promotion - Make any changes?
« Reply #10 on: March 09, 2019, 03:42:53 AM »
Youíre doing well. Maybe do a case study to break down your expenses and get some advice on how to trim?

SunnyDays

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Re: Unexpected Promotion - Make any changes?
« Reply #11 on: March 09, 2019, 01:02:15 PM »
Just wanted to comment that you might want to rethink getting a pet.  Not because of the expense (I have 3) but because they tie you down and probably will limit the rentals available to you.  If you really love animals, do some volunteer work at shelters and help out the down-on-their-luck animals.

actonyourown

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Re: Unexpected Promotion - Make any changes?
« Reply #12 on: March 10, 2019, 10:18:40 PM »
Thanks for commenting everyone!

Nice work!  That is a lot of progress in a few short months! 

Re: the student loans, there are a lot of refi options beyond sofi.  A little energy in that area might save you a few hundred a year.  Try https://www.studentloanplanner.com/refinance-student-loans/ (I have no affiliation, just the best referral bonuses I discovered through some fi podcast when I refinanced recently)
I looked at the rates and it might cut my highest loan rates by 1%-2%.  My effective rate is 4.928% across all of them, so I'm not sure how much it will save me.  I plan to pay off the loans above 5% and ride out the others to term.

You’re doing well. Maybe do a case study to break down your expenses and get some advice on how to trim?
I might do one eventually.  I am very aware of my weakness (eating out) and how it is probably the easiest and largest change I can make.  I am using the investment order, and I will be maxing my HSA next year and then working on funding my Roth IRA.

Just wanted to comment that you might want to rethink getting a pet.  Not because of the expense (I have 3) but because they tie you down and probably will limit the rentals available to you.  If you really love animals, do some volunteer work at shelters and help out the down-on-their-luck animals.
I have had my dog since August. You bring up a good point, however, I really like my current apartment and plan to stay for at least one more year.  I have had very few issues, and though it is more expensive than I like, it is very convenient to my ride to work, parks, and my friends.  My original idea was to stay here for 2 years before I bought a house.  I might still do that, but I'm open to staying here longer as well.

actonyourown

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Re: Unexpected Promotion - Make any changes?
« Reply #13 on: July 15, 2019, 09:48:19 PM »
Some new updates:

Merit raise of $1,800 increased base pay to $55,550 effective July 1
Changed contributions to regular 401k from the Roth 401k
Debt-to-income dropped to ~12%

My dad recently retired after working 38 years for the state.  Him and my mom had a bit of leftover inheritance from my grandma and said they didn't need the money so they gave it to me to pay some of my student loans.  This was not expected at all but a welcome donation to get rid of them.  Two of siblings have lived with them nearly rent free for years while they worked (so neither have student loan debts anymore), so they said this would be a bit of help since I never lived with them while working as an adult.  On top of this, I contributed $1,000 to pay off the remainder of one of the loans, taking me from 6 loans to 2 (4.5% and 3.4% interest, 3.7% effective rate) and frees up roughly $200/month.  I think I will ride these both to term in about 2.5 years.

My plan for the next 6 months is to save like crazy (I estimate I can save about $1000/month into savings accounts) for trips next year (I have 2 planned that can be pretty cheap) plus I want to get to 3 months expenses as an emergency fund.  These are lofty goals but with the raise and decreased expenses, I should be close (on top of possible bonus and tax refund next year).

Starting next year, I will be maxing my HSA ($2,400 from me plus employer contributions should be close).  Then I will begin funding my Roth IRA which I have not put money in for a few years.

So I spent the better part of today figuring out how to calculate my savings percentage.  This was a bit of a task, however, I calculate it at 41.6%.  My goal is to get to 50% in the next year and continue to increase it.

civil4life

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Re: Unexpected Promotion - Make any changes?
« Reply #14 on: July 17, 2019, 03:39:22 PM »
Just read your most recent update.  Congrats on all your forward progress.

One thing it does not sound like you are maximizing your tax advantage accounts.

With a little planning you could benefit from the Retirement Savings Contributions Credit (Saverís Credit).

This credit provides low income earners to get an income tax credit for saving for retirement.  Below is a link to the IRS website with details.

Saverís Credit

You can get anywhere from a 10% to 50% credit based on your AGI and savings.

 $55,550  Base Salary
-$12,000   standard deduction
-$3,333    6% 401k contribution for company match
$40,217

For credit you need to save an additional 50% - $20,967, 20% - $19,467, and 10% - $8,217 in tax advantage accounts.

You would get the following credits - 50% - $12,150, 20% - $4,560, and 10% - $1,155

You never breakdown your actual expenses vs savings so I am not sure how much you are actually saving.

I did not include the HSA, but that should lower your AGI even more.  Also, I did not include the SL interest from the deduction.  So the savings required is even lower.