Just paid off my student loans! What should I do next?

[atrian]

Hey Mustachians!

Just wanted to thank the people here for helping me reach some important milestones in my financial life :)

The first was buying a used car in cash. The second, which I just reached this week was paying off all my student loans (graduated with $27K in debt).
I'm wondering what I should be focusing on next in terms of trimming and saving. My friends and family are saying to put my money into a house.

I earn $110K/year and pay $1500/month for a studio in the Bay Area. In terms of wealth, I have no debt (yay!), $40K in my 401K, a measly $5K in Betterment, and another $5K in my checking account.

I take the bus almost every day. In terms of food, I usually buy out half the time and eat at home the other half.
I'm trying to move to a place with cheaper rent (definitely with public transit nearby).

Thoughts or suggestions on what  I can do to improve?

Thanks!

[former player]

Congratulations on paying off the student loans - that's a major act of badassity.

You seem to me to be doing pretty well at the moment: very good income, no debt, limited expenses and a good start to the stash.  You could try heading over the Investment and Real Estate parts of the forum to see if anything catches your fancy. 

I'm not sure whether buying real estate makes sense for you at the moment: you need to work that out for yourself.  Buying a house is the easy default investment for people who don't know much about investing, which is probably why friends and family are suggesting it to you.  Given that you are coming here, you probably already know more about investing and real estate than they do.  For what it is worth, my view is: only buy a house to live in if you are committed to the area and to the lifestyle that house will give you, and only buy investment properties if you want a side business investing in properties.  Buying property does have a lot going for it, but at the same time it is a tie which doesn't suit everyone and which can limit your opportunities to do other things in life - like changing location, changing job/career, changing your lifestyle.

Apart from that, please remember that MMM is not just about saving for the future, it's about maximising life returns without trashing the planet.  So don't spend money wastefully but do spend it where you get value for it.  To me, that means having experiences and connecting with people.  Whatever it means to you, don't wait until you are FIRE to do it, but incorporate at least some of it into your life now.

[chuckaluck]

First of all, congratulations Atrian on paying off your student loans.  You should be proud of yourself --- so many young folks do not make that a priority and regret it for so many years.  I agree with the comments and guidance provided by former player.  This is the time of your life where you have the most flexibility and least amount of responsibilities (I'm assuming you are single, mid to late 20s? and in the early part or your career).  Owning real estate ties you down and will likely limit your decisions regarding taking a new dream job, moving to a different part of the country, etc. You may regret not having maintained your flexibility 10, 20 years from now.  In my opinion, build up your savings/retirement funds as much as possible BUT still experience life. And make sure, after a few more years, that you really want to stay in the area doing what you are doing. If so, then buy property.  With your impressive income and your wonderful attitude about continuing to look for cheaper alternatives, you should be able to accumulate a "critical mass" relatively quickly.  Trust me when I say, you will never regret having "money in the bank" whether or not you buy property.  Keep us updated.

[bdoubleu]

I take the bus almost every day. In terms of food, I usually buy out half the time and eat at home the other half.
I'm trying to move to a place with cheaper rent (definitely with public transit nearby).

Thoughts or suggestions on what  I can do to improve?

Thanks!

Given that you didn't provide many details, my one recommendation is to cut back on eating out.  Bring lunch/snacks to work, eat at home before going out with friends, etc, whatever your vice may be.  "Half the time" is a lot!

From what I've read (no real experience), your rent seems very reasonable for the area.  If you can find something similar, or even a bit more expensive closer to work, that would be more ideal.  Unsure of how much time you spend commuting. 

I personally wish we would have kept renting at least another year or two before we bought our house - it would have been easier to move across town after job changes, didn't have to worry about maintenance, and utilities were much less while renting.  Definitely a personal preference/decision though.

[jda1984]

I consider a Roth IRA before taxable accounts.  Do you have a HDHP and an HSA?  If so, max that out too.

I second bdoubleu's recommendation on cutting way back on eating out.  I bought a small rice cooker and keep some frozen/canned veggies at work along with some beans.  I can eat pretty cheaply for 2 meals of the day at work (I also have some bread and peanut butter for toast in the morning).

Regarding the housing, the bay area is pretty expensive.  Unless you plan to be there forever, renting makes the most sense.  Even rich people rent long term out there.  The price/rent ratio isn't as favorable for ownership as in other locations.  Also, the responsibility/liability it opens are additional costs to be considered (just the hassle of dealing with insurance if your tree falls onto your neighbor's property or something).

[afreeman85]

Congrats! I am down to my last 4k on my student loans and with my upcoming bonus, I should have that out of the way by May. Once that is gone, my plan is to up my 401k contribution (right now I am just contributing the minimum to get the maximum match), and start throwing more money at my wife's student loans.

She just finished her Master's in Education, so she just got a pay bump, which will help us pay the loans down pretty quickly.

If I were you, without any debt, I would max out my 401k contribution and a Roth IRA. The Roth IRA will give you the flexibility to pull out your contributions if you absolutely need to, for say a down payment on property, if that's what you eventually want to do. Then dump whatever is left into a taxable Betterment account. I 2nd the notion to avoid buying a house in the Bay Area. You have very reasonable rent for that area, so I would hang on to that until you know 100% that you want to buy property. There is a lot of value in the flexibility it gives you to be renting.

Are you able to dump riding the bus to work, for riding a bike? I was paying $90/month taking public transportation to work here in Chicago. Luckily, I am now working just shy of 2 miles from my house. It is now actually much cheaper for me to drive than to take the bus. I haven't started to commute by bike yet since I work evenings and would be cycling home at midnight every night including weekends. I should be moving to more day shifts and feel much more comfortable riding during the day. Given that I owned the car either way, it only costs me about $16 per month to drive.