Author Topic: Just entered the grown up world and moved to the US  (Read 7363 times)

nikhilm

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Just entered the grown up world and moved to the US
« on: November 14, 2012, 11:16:37 PM »
Hi everyone,

I've been reading MMM for about 4 months now and it has been a revelation.

I just graduated a few months ago and moved to the US a month ago to start work as a software engineer. Single and no kids. I am fortunate to be MMM-aware as I'm starting out, but I'm still not aware of the more complex financial instruments, so I'm particularly weak in the investments section. I'll just lay out my expenses, and I'd really appreciate it if fellow Mustachians could give me advice (books to read is especially good advice) on how I should start investing.

Apart from the expenses below, I spent about $2500 right now because of furnishing the apartment, buying basic things (a bike), but these were one time payments.

Income: 90k/year, after taxes that comes to about $5240/month in hand
Expenses:
Rent                                                    $1275/month
(This is the South Bay Area, I share a 2bd/2ba, and the complex is very nice, and right next to public transport and shopping and only 10mins away from work by train+bike, so worth the expense)

Food & home supplies                           $300/month
(I eat lunch out with co-workers approx 3 times a week. At least for a few months I'll continue this since I'm at a new job and if this is useful in mixing in, then I don't mind spending a bit. Plus on a weekend I usually splurge a little since I love different cuisines and there is so much to try here. One important point here: buying from Costco or at wholesale quantities is a no-go for me, one person can only eat so much :))

Utilities                                                ~$70/month
(incl water, garbage, power and internet. No TV at home)

Cell phone                                            ~$35/month
(T-mobile monthly 4g $30 100min, 5gb data, unlimited text. Sometimes I go over the minutes so end up spending ~$5 more)

Linode VPS                                              $20/month

I don't have a car, and don't intend to get one until I really need it. I bike around everywhere and take public transport, a part of which is paid by the employer.

Indoor rock-climbing gym $73/month *BUT* this is reimbursed by employer
Misc. expenses                                                     $50/month
(netflix, movies, cabs, public transport)

Apart from this, I'll use ~$2500/year to fly home (India) once or twice a year. And I've set another $4000 as a budget I can use for trips because I love travelling and adventure sports.

That is my situation. As you can see, I have zero investments right now which is the problem spot. I'm really hoping to change this so that I can achieve FI by 30-35. From reading MMM, it seems a 401k is something I enroll in immediately and then max it out (Employer puts in 3-7% of base salary every year). As for Vanguard, although I understand it a bit, some books or websites which explain how index funds work and some of the underlying economics would be useful so I can make good choices. Also how much of my savings should I be investing in index funds? As a non-US citizen and non-existent credit history what are some other options I have to make sure my employees are working there hardest?

Also any suggestions to cut down on monthly expenses?

Thanks in advance!

jtmoney

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Re: Just entered the grown up world and moved to the US
« Reply #1 on: November 15, 2012, 07:55:03 AM »
I would definitely recommend A Random Walk Down Wall Street by Burton G. Malkiel. It's a good read about why index investing is a good choice for non-professional investors (or really just everyone).  Complete with a lot of data and math to back up his assertions.  He also gives a brief explanation of the tools professional investors use to evaluate stocks, and a quick synopsis of all the big market crashes and why they happened.  This was by far the most influential book I've read about how I view my personal investments.  Good luck, and it sounds like you are starting out on the right foot.

jtmoney

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Re: Just entered the grown up world and moved to the US
« Reply #2 on: November 15, 2012, 07:58:41 AM »
Also, you can just check out the MMM recommends section of the blog.  Lot's of good books there.

Self-employed-swami

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Re: Just entered the grown up world and moved to the US
« Reply #3 on: November 15, 2012, 08:34:29 AM »
I am a Canadian, so I'm not familiar with the US retirement accounts, but it might be worth asking someone (a financial planner perhaps) or looking into your particular tax situation, if you aren't a full resident of the US yet (There on a work visa or something else) if you are even eligible for the 401K's and all that jazz.  If there isn't a tax treaty between the US and India, you might also owe some income tax back home (I know that if I go work in the US, I can earn X dollars and pay US tax and not Canadian, but if I work more than 30 days/year in Canada, I also owe Canadian income tax).  Sometimes these things are tricky.

Good luck on your journey.  I was in SF a few months ago, and it was a wonderful place :)

Paul der Krake

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Re: Just entered the grown up world and moved to the US
« Reply #4 on: November 15, 2012, 10:17:54 AM »
Hey nikhilm,

Fellow foreigner here (moved to the US in June) and I was/am struggling with the same issues as you. Here is what you do for credit:
http://www.capitalone.com/credit-cards/cash-rewards-for-newcomers/
They'll give you a ridiculously low credit limit but that will establish credit. And then use it like the overly qualified engineer that you are, of course. Learn about credit scores, cards, APR, etc.

Regardless of your intention of getting a car, DO get a driver's license ASAP. I cannot stress this enough. Even just to save you from carrying your passport around for identification... and you never know when you'll need it.

Here in NC, you need a car (not necessarily yours, borrow a coworker's), and proof of liability insurance. Buy a non-owner policy just to pass the test, and cancel it as soon as you have the license.

For Vanguard, they will require you to send physical documentation because you don't have a green card or citizenship. Judging from the timing of your response, I take it you are on an H1B? With your salary range and being a developer in California, you will be treated like royalty. Shop around of your banking services: I had some representative from Bank Of America trying to explain to me that here in America, people pay for checking accounts... I laughed and left.

Good luck!

icefr

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Re: Just entered the grown up world and moved to the US
« Reply #5 on: November 15, 2012, 10:34:12 AM »
I moved to the States from Canada. I had no problems opening an account with Vanguard and didn't need to send them any physical documentation or anything.

If you don't plan on staying here permanently, I wouldn't put any money into the 401(k) past the match, nor would I put any money in a Roth IRA. Just invest in index funds and that'll save you a tax headache later.

If you just moved here a month ago, you're probably going to be non-resident alien in the US for tax purposes this year, which might mean you don't get any deductions? I'm not quite sure since I moved early in the year I moved and was a resident alien for the whole year.

I'm with you on not being able to buy from Costco. I do tend to buy toilet paper, paper towels, and Kleenex boxes there every once in awhile though :)

I love T-Mobile prepaid! I'm switching back to them once I actually get my hands on a Nexus 4 unlocked!

Paul's comment on the Capital One credit card is perfect. Make sure that the balance is never more than 20% of your credit limit each month and you'll be golden.

As for a savings plan, I would sit down and think about some goals. Do you want to buy a house some day? A car? How far away, life-wise, do you think those goals are? Do you want to do those things once you're married? Do you have plans to get married anytime soon? Do you plan on staying in the US?
1) Set aside, in a savings account, a few months of living expenses. Everyone on this forum is on different sides on this, but I think that with no credit to float you to pay day, you should definitely have at least 1-2 months or 6 months at the most.
2) Then, if you're going to stay in the US, max out your 401(k) and your Roth IRA while you're able to do that (only up to AGI of like $110,000 or so IIRC).
3) Now open up another savings account for your house/car/wedding plans. ING is great for this.

Also, if you're working in tech, you might be eligible to join First Tech Federal Credit Union, which is a really awesome one. They could probably also help you get started with credit - they had great programs when I moved here.

For investments, I would read the blog "Oblivious Investor" and the "Bogleheads" wiki. They are both great.

Good luck and welcome to the US!

nofool

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Re: Just entered the grown up world and moved to the US
« Reply #6 on: November 15, 2012, 10:53:35 AM »
Nothing really to add here, just wanted to welcome you to the Bay Area! :) We'll have to do a meet-up soon!

Jamesqf

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Re: Just entered the grown up world and moved to the US
« Reply #7 on: November 15, 2012, 11:38:12 AM »
Just a couple of notes.  First, I second the idea of looking at a credit union for checking & savings accounts.  If you're with a medium to large employer, the company HR department will probably have a relationship with one already.  (When I was with Big Computer Company, the credit union actually had an office in the building.)  The credit union will probably offer some sort of credit/debit card, too.

For investments, just be aware that there are other mutual fund companies besides Vanguard, IMHO just as good if not better.  My 401K is with Vanguard (legacy from last employer), so on the nont keeping all one's eggs in one basket principle, my personal investments are with T. Rowe Price.  Costs are similar, and I find their web access much more convenient & informative than Vanguard's.

$_gone_amok

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Re: Just entered the grown up world and moved to the US
« Reply #8 on: November 15, 2012, 12:43:17 PM »
Also how much of my savings should I be investing in index funds?
You have no debt and that is great. I suggest you to invest as much as you are comfortable to into an index fund of your choice.

As a non-US citizen and non-existent credit history what are some other options I have to make sure my employees are working there hardest?
Invest in the stock market. Depending on your investment style, you could either invest in individual stocks, mutual funds or bonds. But do your research and know your risk level before purge into it.

Also any suggestions to cut down on monthly expenses?
I think you are doing great so I have no advice for you in this area.

PS. Welcome to the Bay Area!

nikhilm

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Re: Just entered the grown up world and moved to the US
« Reply #9 on: November 15, 2012, 10:33:57 PM »
Thanks for the advice everyone!

@Self-styled-swami: I'm eligible for a 401k and also India has a tax treaty so I don't have to pay taxes over there

@Paul: Thanks for the credit card tip, I already did that a few days ago so I should get it soon. I'm also getting a secured credit card from Wells Fargo (where I have my account right now) since the CapitalOne card has a really low limit of $300.

Also already in the DL process, written test done, giving behind-the-wheel in a week or two.

@icefr: If you could just clear up some confusion I have. How does employee matching work exactly? Assuming a 3% match, does it mean that my employer will put in 3% of 90k which is $2700 into the 401k every year, and that I only need to put in an equivalent amount of $2700 and should avoid putting in more if I'm not planning to settle here?
Also how does investing in index funds save me a tax headache?

I won't get any deductions, but with only a 3 month payroll, I'll be in a much lower tax bracket

Again some terminology confusion. By credit card balance do you mean the amount I *carry over* to the next month? A lot of websites say I should never spend more than 50% or so of the card limit. Does this mean I should never spend more than $150 on the $300 limit card, because that sucks. If I intend to pay of the full amount at the end of every billing cycle, can I use it completely?

@nofool: Lets :) Will be good to meet like-minded people

@jamesqf: My employer does 401k through Fidelity, any specific advice?


icefr

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Re: Just entered the grown up world and moved to the US
« Reply #10 on: November 15, 2012, 10:49:54 PM »
@icefr: If you could just clear up some confusion I have. How does employee matching work exactly? Assuming a 3% match, does it mean that my employer will put in 3% of 90k which is $2700 into the 401k every year, and that I only need to put in an equivalent amount of $2700 and should avoid putting in more if I'm not planning to settle here?
Also how does investing in index funds save me a tax headache?

I won't get any deductions, but with only a 3 month payroll, I'll be in a much lower tax bracket

Again some terminology confusion. By credit card balance do you mean the amount I *carry over* to the next month? A lot of websites say I should never spend more than 50% or so of the card limit. Does this mean I should never spend more than $150 on the $300 limit card, because that sucks. If I intend to pay of the full amount at the end of every billing cycle, can I use it completely?

Most employer matches are worded really strangely. 3% could mean that they put in 3% of your salary or that they put in 3% of what you put in. Normally it's worded something along the lines of "Employer will contribute 25% or 50% of the employee's contributions, up to a maximum of X%". You want to make sure you put in that X%. Some employers contribute the matching money once a year, some every month.

But yes, I would avoid putting in more if you're not planning to settle here because you would pay 10% penalties plus income taxes on the amount you withdraw before age 59.5, which works out alright if your employer matching is high enough.

Investing in an IRA or a 401(k) past the match is a tax headache when you leave because of the penalties for withdrawing before 59.5, depending on your country's tax treaty with the US. Investing in index funds, you'll pay some taxes each year on dividends, but at least you wouldn't be subject to any penalties for withdrawing early.

Ah, sounds like no deduction isn't too much of a problem then. Excellent!

Hope that clears it up a bit!

Paul der Krake

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Re: Just entered the grown up world and moved to the US
« Reply #11 on: November 16, 2012, 06:11:20 AM »
Again some terminology confusion. By credit card balance do you mean the amount I *carry over* to the next month? A lot of websites say I should never spend more than 50% or so of the card limit. Does this mean I should never spend more than $150 on the $300 limit card, because that sucks. If I intend to pay of the full amount at the end of every billing cycle, can I use it completely?
No! Never ever put more than 30-50% of your total credit limit, as low as it is. I also have a Wells Fargo checking account, and use my debit card after I hit $100 on the $300 card. It sucks because you don't get cash rewards on a debit card, yes.

Now with your income, just wait 12-18 months and then call capital one and tell them to up your limit, or shop around since you will now have credit. Believe me, I got my card less than a month ago and know exactly how frustrating this is. :)

Paul der Krake

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Re: Just entered the grown up world and moved to the US
« Reply #12 on: November 16, 2012, 06:29:34 AM »
Other tip that may not be completely obvious to you, I don't know how retail is in India: sign up for rewards shoopers progams at your grocery stores. If you are like me and usually buy the same food, they will save you a ridiculous amount of money. All major stores have them, and they're free. Usually you don't even need to carry the card with you (they add up on the keychain), you can just give them the phone number used to register. Some stores even send you personalized coupons for items you already buy. They will save you hundreds over the years.

Just to be curious, what do you need a $20 VPS for? If you work in tech often employers will just give you access to spare machines for free.

nikhilm

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Re: Just entered the grown up world and moved to the US
« Reply #13 on: November 16, 2012, 09:49:06 AM »
@icefr: If you could just clear up some confusion I have. How does employee matching work exactly? Assuming a 3% match, does it mean that my employer will put in 3% of 90k which is $2700 into the 401k every year, and that I only need to put in an equivalent amount of $2700 and should avoid putting in more if I'm not planning to settle here?
Also how does investing in index funds save me a tax headache?

I won't get any deductions, but with only a 3 month payroll, I'll be in a much lower tax bracket

Again some terminology confusion. By credit card balance do you mean the amount I *carry over* to the next month? A lot of websites say I should never spend more than 50% or so of the card limit. Does this mean I should never spend more than $150 on the $300 limit card, because that sucks. If I intend to pay of the full amount at the end of every billing cycle, can I use it completely?

Most employer matches are worded really strangely. 3% could mean that they put in 3% of your salary or that they put in 3% of what you put in. Normally it's worded something along the lines of "Employer will contribute 25% or 50% of the employee's contributions, up to a maximum of X%". You want to make sure you put in that X%. Some employers contribute the matching money once a year, some every month.

Mine is worded "We offer a 401k savings plan through fidelity and *********** currently contributes a minimum of 3% of your annual base salary each year and has funded upto 7% historically"

This means they'll unconditionally put in ~$4000 a year right? Does it make sense for me to put in the remaining 17000-4000 = $13000k every year and reduce that much of my taxable income. Or if I'm not planning to settle, then it makes more sense just for the employer to keep putting in that much money and me to not put in any, correct?

nikhilm

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Re: Just entered the grown up world and moved to the US
« Reply #14 on: November 16, 2012, 09:51:49 AM »
Other tip that may not be completely obvious to you, I don't know how retail is in India: sign up for rewards shoopers progams at your grocery stores. If you are like me and usually buy the same food, they will save you a ridiculous amount of money. All major stores have them, and they're free. Usually you don't even need to carry the card with you (they add up on the keychain), you can just give them the phone number used to register. Some stores even send you personalized coupons for items you already buy. They will save you hundreds over the years.

Just to be curious, what do you need a $20 VPS for? If you work in tech often employers will just give you access to spare machines for free.

Cool I do that already with Safeway. The VPS is in some ways an indulgence, in some ways a necessity. I've had it for a year so I was paying for it myself and I think I'll keep doing that, although I might hunt around for a cheaper one (Prgmr?) It runs my website, etherpad and a few other services, and I also host some small websites for friends.

TLV

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Re: Just entered the grown up world and moved to the US
« Reply #15 on: November 16, 2012, 10:11:39 AM »
This means they'll unconditionally put in ~$4000 a year right? Does it make sense for me to put in the remaining 17000-4000 = $13000k every year and reduce that much of my taxable income.

It looks like their contribution is unconditional, but you should ask an HR person to be sure.

For contributing to a 401k, the employer's contribution doesn't count towards the limit - you can still put in 17k (17.5k next year) regardless.

nikhilm

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Re: Just entered the grown up world and moved to the US
« Reply #16 on: April 06, 2013, 10:04:53 AM »
Just a six month update and a thanks to everyone who helped.

I took some of the advice and have been too lazy for the rest of it.

I'm shifting almost half of every paycheck into index funds, and the 401k is also invested in index funds. Both are doing great. For now I'm on 100% stocks, but looking to start investing a part in bonds soon.

I'm still with Wells Fargo, but now that my checking account has only a bare minimum of funds (since my daily use checking is with Schwab and my emergency stash is in savings), they've started hitting me with fees and I'm considering a switch to First Tech as my brick-and-mortar bank.
I've an emergency stash of 2 months of living expenses, which seems enough since medically I'm covered well (and generally healthy) and so the most likely cause of me needing a lot of money would be if I totalled someone's car.

The one thing I haven't managed to stick to is staying below 50% on my wells fargo secured card. I still pay everything in full, but sometimes the expenses are just stacked such that they go to 70-80% of the credit limit for that statement period (for example this month i made a big purchase and also rented a car for 3 days).

I'm moving to a VPS which is 1/4th of the price of Linode (the same one MMM uses, DigitalOcean), which should save me a few meals worth of money :)

Apocalyptica602

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Re: Just entered the grown up world and moved to the US
« Reply #17 on: April 06, 2013, 11:19:59 AM »
Hey Nikhilm,

Glad to see you're doing well. One thing I'd add is, call your bank and ask for a credit increase. You've been paying your bills for six months now, you have plenty of income. You should at least be able to get bumped up to a 1k-2k limit.

Obviously make sure you still pay your balance in full every month, sometimes larger limits let people think they can 'float' some expenses because they're in no danger of maxing their credit card. That's a slippery slope (although no worries for well-disciplined mustachians I'd hope).

I got my first credit card from BofA just about 2 years ago now, with an initial credit limit of $500. I never was voluntarily upgraded, I just 'asked' via their online 'credit increase' thing every couple of months.

Now I just got upgraded to an 8k limit. Which should be more than I'd ever need at one time.