Last semester in College, looking for advice!

[jrwang93]

Hi guys! First of all, I wanted to thank the guys over at MMM for giving out some great articles and advice! I'm so glad I found the blog early, as there is a ton of knowledge I have yet to learn!

Anyways, I had a few questions in regards to my situation. I'm 21, and will be graduating in May (pretty scared for the real world!). I spent 2 summers interning in commodities trading, but ended up signing to start in management consulting since I wanted to travel more and be more client facing. I will be starting in August this year.

Since I will be traveling monday-thursday, most likely to a different state or country, I have decided to live at home to build up a large nest egg. My starting salary will be 72k base + 10k sign on bonus + % of end of year (up to ~25% of base). Fortunately, I get per diem which takes care of my food and other variable expenses.

My question is, I don't think my parents would like for me to stay home indefinitely. Eventually, I'd like to save up to purchase a home. My game plan now is to max out my 401k limit ASAP, and save up enough cash to buy a modest home IN cash. Since this may be in 3-4 years from now, would it be wiser to leave the money in a high-yield checking account or DCA it into my taxable account?

Also, since the 401k will be a traditional instead of a roth (employer doesn't offer a roth), is the tax-deduction + deferment more valuable than just a normal taxable account? Would it be a better idea to just contribute up to the employer match (mine is the first 75% of 6% of salary), and put the rest into my taxable account?

And finally, here is what my current portfolio looks like. I would love some critique on how it looks, and what could be done to make it better. I've left out my 529 account that I just opened up with myself named as the beneficiary, since I have like $25 in it lol. I don't plan to have kids for another 10 years or so, so I might just put in like $50-100 a month and see what happens in 28 years when they are off to college! Roth IRA is maxed out for 2014 & 2015 contribution years.

Roth IRA: http://imgur.com/bX1Oldu,MltLH93#1
Taxable account: http://imgur.com/bX1Oldu,MltLH93#0

Thanks all for the advice in advance! Hoping to learn a ton more while I'm here!

[Bracken_Joy]

Out of curiosity, why the desire to buy the home in cash? If you have good credit and get a low fixed rate on a mortgage, it can work out better to invest the money now and carry the mortgage.

[jrwang93]

Out of curiosity, why the desire to buy the home in cash? If you have good credit and get a low fixed rate on a mortgage, it can work out better to invest the money now and carry the mortgage.

Hi! Thanks for the response.

Its more of a personal preference. I have never owed a single cent to anyone, and plan on never borrowing any money whatsoever. I understand the financial benefits since the interest on the mortgage is tax deductible, and if I get a super low FI mortgage, the equity markets can generate a higher % if I just invested that money. I'm just wired to have no debt - my mindset is that the borrower is slave to the lender.

In fact, the credit card companies all think I'm a deadbeat because I've never revolved a single cent in 3 years, and I'm a pretty big churner as well (signing up for CC's for sign on bonuses and never using them again). I try and keep my FICO between 720-740 to qualify for the best sign on bonuses :)

[mxt0133]

You sir are KICKING A$$!  Great job, man at 21 years old you're way ahead of the curve, keep it up.  Nothing really wrong with your asset allocation and with those Schwab ETFs and funds that are comparable to Vanguard's fees no reason to switch them.

As you start traveling and experiencing the "real world" and people start to tell you to start living or that you "deserve" a new car or a fancy vacation, just remember that they should be taking advice from you.  Keep life style inflation in check and you'll be retired by 30.  I'm not saying you shouldn't do things that you really enjoy or value, just think for yourself and don't follow the heard just because everyone is doing it.

The world is your oyster, enjoy it!

[MDM]

My question is, I don't think my parents would like for me to stay home indefinitely. Eventually, I'd like to save up to purchase a home. My game plan now is to max out my 401k limit ASAP, and save up enough cash to buy a modest home IN cash. Since this may be in 3-4 years from now, would it be wiser to leave the money in a high-yield checking account or DCA it into my taxable account?

With all your travel, and becoming an adult, consider finding an inexpensive 1BR rental.  Also, that travel may lead you to settle somewhere else so renting makes sense for that reason also.

Also, since the 401k will be a traditional instead of a roth (employer doesn't offer a roth), is the tax-deduction + deferment more valuable than just a normal taxable account?

Yes.

Would it be a better idea to just contribute up to the employer match (mine is the first 75% of 6% of salary), and put the rest into my taxable account?

No.

Its more of a personal preference. I have never owed a single cent to anyone, and plan on never borrowing any money whatsoever. I understand the financial benefits since the interest on the mortgage is tax deductible, and if I get a super low FI mortgage, the equity markets can generate a higher % if I just invested that money. I'm just wired to have no debt - my mindset is that the borrower is slave to the lender.

The phrase "don't cut off your nose to spite your face" comes to mind.  Yes, you could deny some bank the interest you would pay, but at the cost (as you realize) of retarding your FI journey.  See, e.g., http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/.
Not sure this rises to the level of a facepunch - perhaps one could blame your college instructors for not sufficiently enlightening you in this regard.... ;)

[jrwang93]

Damn, I read through that thread and its pretty enlightening. Definitely makes the mortgage alot more attractive.

What about any mistakes that you guys made when you guys started working at 21-22? Is there anything you wish you did differently?

[MDM]

Try this:


...and that should give you a good night's reading. :)

Good luck!

[Bracken_Joy]

Damn, I read through that thread and its pretty enlightening. Definitely makes the mortgage alot more attractive.

What about any mistakes that you guys made when you guys started working at 21-22? Is there anything you wish you did differently?

I'm not far past that point (I'm 26), but I've had a few false starts, so I figured I would share. I see two major things to keep your eye on: 1- lifestyle creep (a problem my brother had/has) and 2- picking the right partner (the problem I had).

Lifestyle creep is pretty self-explanatory, but remember, it's a CREEP. You won't wake up one day and go "oooh, I know I only ride bikes, but now I really want a lotus evora. Better go buy that!". Way more subtle than that, and many intelligent and rational people suffer from the process. It starts with office lunches and new work clothes and other perfectly logical purchases. But they add up.

As for 2: ex and I had started a business, I moved to another state for him, etc. We were together 3 years. When everything went down in flames (I was 22), I was dealing with a lot of depression, and didn't want anything to do with the whole process. I took my car, clothes, and our dog. He got everything else: all of our shared household goods, the business, etc, etc. It was worth it for me to leave the situation, but the monetary and emotional cost of the process was massive. I even ended up back with my parents for a while. So you can be on top of the world (business ownership, plenty of invested money, etc) but if you then have to live off that money for the next 3 years while you re-start your life, there won't be much left! If nothing else, bear this in mind and have sympathy as you see friends go through similar.

[2ndTimer]

Do offer to pay your parents some rent while you live there.  Even if they refuse, they will feel proud that you asked.  I have heard several parents bemoaning that their kids haven't offered and others bragging that their kids have.  However, it comes out it will make for a happier living situation.  Tip:  You don't have to offer market rate. 

[Bracken_Joy]

Do offer to pay your parents some rent while you live there.  Even if they refuse, they will feel proud that you asked.  I have heard several parents bemoaning that their kids haven't offered and others bragging that their kids have.  However, it comes out it will make for a happier living situation.  Tip:  You don't have to offer market rate.

I did this. They collected the rent from me, and at the end of me living there, gave the whole amount back as a gift. =P

[a1smith]

Do offer to pay your parents some rent while you live there.  Even if they refuse, they will feel proud that you asked.  I have heard several parents bemoaning that their kids haven't offered and others bragging that their kids have.  However, it comes out it will make for a happier living situation.  Tip:  You don't have to offer market rate.

I was just getting ready to post something along the same lines.  I agree completely.  Offer to help pay for utilities, pay some rent, help with the groceries, etc.  Also, you can offer to help out around the house - mow the yard, clean the house, do laundry, cook meals, etc.  It doesn't just have to be monetary.

If you do this it will be a win-win situation.  You will save money and your parents will get to have your company for a while with no cost burden.

[jrwang93]

Damn, I read through that thread and its pretty enlightening. Definitely makes the mortgage alot more attractive.

What about any mistakes that you guys made when you guys started working at 21-22? Is there anything you wish you did differently?

I'm not far past that point (I'm 26), but I've had a few false starts, so I figured I would share. I see two major things to keep your eye on: 1- lifestyle creep (a problem my brother had/has) and 2- picking the right partner (the problem I had).

Lifestyle creep is pretty self-explanatory, but remember, it's a CREEP. You won't wake up one day and go "oooh, I know I only ride bikes, but now I really want a lotus evora. Better go buy that!". Way more subtle than that, and many intelligent and rational people suffer from the process. It starts with office lunches and new work clothes and other perfectly logical purchases. But they add up.

As for 2: ex and I had started a business, I moved to another state for him, etc. We were together 3 years. When everything went down in flames (I was 22), I was dealing with a lot of depression, and didn't want anything to do with the whole process. I took my car, clothes, and our dog. He got everything else: all of our shared household goods, the business, etc, etc. It was worth it for me to leave the situation, but the monetary and emotional cost of the process was massive. I even ended up back with my parents for a while. So you can be on top of the world (business ownership, plenty of invested money, etc) but if you then have to live off that money for the next 3 years while you re-start your life, there won't be much left! If nothing else, bear this in mind and have sympathy as you see friends go through similar.

Yeah, I'll definitely keep the lifestyle creep in mind. Its definitely important to see exactly which dollar goes where.

Gotcha, a simpler thing would just be not to date at all lol! I haven't even started dating yet, so a few more years while I get myself situated and started up shouldn't hurt the slightest :)

[jrwang93]

Do offer to pay your parents some rent while you live there.  Even if they refuse, they will feel proud that you asked.  I have heard several parents bemoaning that their kids haven't offered and others bragging that their kids have.  However, it comes out it will make for a happier living situation.  Tip:  You don't have to offer market rate.

I'm definitely thinking about doing this. Since I'll be home 2.5 days out of the week, would you just offer to pay for pretty much 10 days of rent per month? Thats what I'm going to try and do

[mxt0133]

Damn, I read through that thread and its pretty enlightening. Definitely makes the mortgage alot more attractive.

What about any mistakes that you guys made when you guys started working at 21-22? Is there anything you wish you did differently?

If I were to go back to when I started working, what I would do differently is take charge of my career earlier.  I was misguided enough to believe my managers and employers that they were trying to grow my career and it was in their best interest as well.  It was true up to a certain point but after that they really can't have everyone advance because they need someone to do the actual work.  So it is just natural for companies to throttle your growth.  If you feel like you are not learning or are bored then it might be time to go.  Be open and honest about your career goals and if your company can support it great but don't let them lead you on with failed promises.

[jrwang93]

Gotcha..thanks for the reply! I'll definitely keep that in mind!