I need some Mustachian Wisdom!

[jakenoack]

Dear Mr. Money Mustache and all fellow Mustachians,

I need your help, wisdom, and expertise, whatever you want to call it. I have been recently introduced to Mr. Mustache and I must say I am a huge fan. I have always felt that the idea of working until 65 is truly depressing. I find it sad that people believe they are required to work until they are old simply because they are uneducated in achieving financial freedom. I have always told myself that I won’t allow this to happen to me. Because of this I have set a goal to retire by 40. However, this still sounds far too old to me. I know there are ways to retire sooner and to help my mustache to grow significantly, so I am hoping I can be pointed in the right direction.

A little bit about me….I am a 25 year old male who is a Washington native. I graduated college in 2010 and achieved my Bachelor’s in Business. I attended college in Hawaii and that pretty much reinforced my belief that I am a beach bum at heart. Living in Hawaii has helped me to realize what truly makes me happy. For me, happiness is somewhere in the tropics with sunny skies, great surf, and phenomenal diving. I have backpacked through 13 countries and consider myself a bit of a travel junky. In my free time I enjoy diving, fly fishing, spear fishing, body surfing, watching the NFL, lifting weights, camping, movies, pretty much anything under the sun.

Before I was introduced to Mr. Mustache, I read all sorts of blogs, books, and anything else I could get my hands on. I spent a good deal of time reading all of the books in the rich dad poor dad series. After several books, I found that they tended to repeat the same topics and never actually showed you how to do anything. Don’t worry fellow Mustachians; I didn’t pay for any of these. I borrowed them from a coworker. I started reading the very first Mr. Money Mustache blogs a week or so ago, but I can’t stop reading them. I know that early retirement is very plausible, but my head is reeling with questions. I feel that any time I wait to grow my mustache; it forces me to be a slave to my employer longer. Now that I have read several months worth of blogs, I feel I have some burning questions that I need to have answered so I can help this mustache to get huge.

Here is an explanation of my financials and some questions that I have.

Age: 25

Retirement goal: 40 (although anything sooner sounds much nicer, I would secretly be hoping for 35)

Employer: Boeing

Credit Score: 800

Income: $45,000 – sky is the limit (My income can fluctuate quite a bit because I am hourly. I am still on the bottom of the totem pole and currently make $18.42 an hour. In another 4 years I will be maxed out and earning over $36. My income is hard to measure because overtime is almost unlimited). This year I am on pace to make $70,000 because of all the overtime. Imagine how much I can make in a few more years when my hourly rate is double.

Bank Account Balance: $8,000

401k: $37,000

Roth IRA (Betterment): $8,000

Stocks: NLY $5,000 (roughly 500 shares), pays 10% dividend annually

Mortgage: $90,000 (30 year fixed at 4.25), my loan is a Home Path and doesn’t have payment mortgage insurance (PMI)
1 bedroom condo (972 sq. ft), Auburn Washington

Expenses:

Mortgage: $664
Home Owner’s Dues: $245
Gas: $140
Insurance: $90
Phone: $56
Internet: $30
Groceries: $250
Gym: $35
Garbage Utility: $17
Electricity: $40

Total Monthly Expenses: $1567

Hopefully this helps to give a pretty good idea of my financial situation. I currently contribute 25% to my 401k (which is the max allowed by employer, however employer match stops after 8%), I also contribute $500 monthly to my Roth. Any remainder of cash goes straight to my savings account.

So my major burning question is…what is going to give me the most bang to my buck and help to accelerate to early retirement? After reading MMM’s post about 30 year fixed mortgages, ARM’s, etc., I got to thinking. I feel I have two different scenarios that I can think of, but please feel free to add any and all suggestions

Scenario 1:
Continue 401k at 25% contribution
Continue Roth contribution at $500 a month
Pay Mortgage as usual on 30 year fixed
Keep adding to saving account and redirect a bunch of money into Vanguard’s VTSMX

Scenario 2:
Reduce 401k contribution to 8% (enough to get employer’s maximum match benefits)
Stop contributing to Roth
Refinance mortgage and change loan structure to ARM 5/1
I have crunched some numbers and my mortgage would be paid off in 5 years
P.S. I haven't called around on ARM loan %'s yet because I wanted to know what kind of input I would get. From a quick google search, I imagine I could get between 2.66% and 3.5%

If you have any other scenarios or suggestions, please feel free to throw them my way. I just want to know what will help my mustache to grow big and strong so I can achieve financial freedom and enjoy life. Ideally, I am thinking whenever retirement age comes, that I will either relocate to somewhere in Mexico or Central America. If I get bored or feel the need to work I can always pick up a job as a Dive Master or Scuba Instructor. I completed scuba school while I was backpacking around Australia. I would love to be able to continue to travel (I know how to travel very cheaply). I find it very hard to know how much money I would need to be able to retire comfortably and be able to travel around for extended periods of time. I figured I would at least put a retirement goal annual income at $40,000. Realistically I imagine I could probably do it for $30,000 or less.

Once again, I am completely open to suggestions, comments, etc. Thank you for taking the time to read. I appreciate any and all help and can’t wait to watch my mustache grow!

Cheers,
Jake Noack (fellow mustachian)

[shuffler]

Scenario 1:
Continue 401k at 25% contribution
Continue Roth contribution at $500 a month
Pay Mortgage as usual on 30 year fixed (at 4.25)
Keep adding to saving account and redirect a bunch of money into Vanguard’s VTSMX

Scenario 2:
Reduce 401k contribution to 8% (enough to get employer’s maximum match benefits)
Stop contributing to Roth
Refinance mortgage and change loan structure to ARM 5/1
I have crunched some numbers and my mortgage would be paid off in 5 years

Have you met the Mad Fientist?
http://www.madfientist.com/retire-even-earlier/

4.25% is a low rate (historically speaking, if not perhaps for the last couple of years).
I would happily not pay ahead on a mortgage of that rate, and instead max out my tax-advantaged accounts.

[Thegoblinchief]

Definitely scenario one. The tax savings far, far, far outweighs refinancing the mortgage. Like the previous reply, I wouldn't even bother prepaying your current mortgage.

Also, in your expenses, the phone and groceries could both be lower.

For the phone, see:

http://forum.mrmoneymustache.com/share-your-badassity/communications-tech-son-of-the-superguide!/

[Thegoblinchief]

I'd also delete the name of your employer from your thread. Yes it's a big company but it looks like you've used your real name as your username, so....

[zhelud]

If you are experienced enough to be a dive master or scuba instructor, why not do that now, and live near a beach where you can do all the fun things you really love?  If you love traveling, why not try to get a job leading tours, or even set up your own tour business?

[orbix]

Agreed on the mortgage- you're better off focusing elsewhere first.

Republic Wireless or Ting are great places to knock $20-30 (or more, depending on usage) off your phone bill without giving up much of anything.

I'd also look heavily into what you can do to reduce fuel costs. If you're spending $140/month on gas, I'm guessing you're either living farther away from work than would be ideal, driving a less-efficient car, or both.

[BaldingStoic]

Congrats on already being in a great financial position.  Definitely fund the tax advantaged accounts to their fullest, but if you have money left over it's worth considering refinancing to a 5/1 ARM if you can make extra principal payments.  I'm in the process of doing this and it looks like an achievable rate is 3% for a no-cost loan.  I would shift funds out of your bank account and pay down mortgage or start a taxable mutual fund (assuming roth and  401K are maxed out).  With my Vanguard MF it only takes 2 days to sells MF shares and have them credited to my bank account so this works fine as a "rainy-day" fund as long as you're okay with a bit of volatility.  Best of luck achieving your goal. 

[mozar]

I think you could easily live on 24k, which means 600k to save up. Can you get a roommate? You have almost 1000 square feet! Can you put a wall up?
I wouldn't pay off or refinance since you might leave in ten years.
With your overtime are you able to get 17,500 into your 401k?.

[jakenoack]

Thanks for all the responses. I do appreciate you fellow mustachians. I guess I will have to explore cell phone options and see if I can shave that amount down a bit. I do have a bit of a commute to work. (42 miles roundtrip). I drive a Toyota Corolla, which is pretty fuel efficient. If I am not working 7 days a week, then I do a bit of driving to get up to the mountains and fish. In terms of food, I could probably cut that down a bit. I do eat a ton of food and I mean a ton. I wouldn't want to force myself to live on a diet of rice and beans though. I am going to search craigslist and look into building my own home gym, so I can cut the gym membership out.

I guess just to add to the equation....let's say I retired in 10 years and chose to sold my condo (regardless of the market)...would that change anybody's opinions on scenario 1 or 2?

In terms of my 401k...contributions are only allowed up to 25% on regular 40 hour work week. All the sweet overtime pays me extra money (time and a half or double time) and accumulates extra vacation time. With my current rate of pay I contribute $368.70 to my 401k every 2 weeks. Once I max out, I will be contributing roughly $720 every two weeks. I max out in 4 years, so I guess at that point, I will be putting in about $17k into my 401k.

In terms of a roommate, probably unlikely. I live in a 1 bedroom condo. Unless I somehow converted my garage into living quarters for someone. Maybe I just need to find a girlfriend who is financially savvy, wants to retire early, and will pay a chunk of my mortgage? haha