Author Topic: Must deflate my lifestyle!  (Read 11853 times)

Lifestyle Deflation

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Must deflate my lifestyle!
« on: May 30, 2014, 11:39:24 AM »
Hi all, new user and I've read a ton of great info here so far. I have unfortunately fallen into the trap of insane lifestyle inflation and it's time to fix it.

I am 29 years old (30 in August) and I have spent a ridiculous amount of money. I bought 2 brand new cars, including a BMW (which I am now planning to sell). The only good news is that I have been contributing to my 401k.

Here is the damage:
Take Home Base Income: $5,300/month (usually more with commissions but I plan on investing all bonus money from this point on. Bonus is usually in the range of $10,000-20,000 net extra per year)
Rent: $1200
Utilities: $170
BMW Payment: $908 ($17,700 remaining @ 4.9% interest)
Car Payment: $473 ($15,800 remaining @ 2.7% interest)
Student Loan Payment: $137 ($5,700 remaining @ 6.55% interest)
Car Insurance: $120
Fuel: $150
Food: $200

In the past, everything not on this budget got spent on other things. I took luxury vacations, I recently got my pilot's license so that was about $12,000 all told. I bought a bunch of luxury furniture/clothes/home wares, etc. It was quite over the top. I even developed some credit card debt (about $6,000) which I just paid off.

Assets:
401k: $42,000 (This year I started contributing 15% which will max it out)
BMW: Could probably sell it for $20,000 or so, 2012 model with low mileage
Car: $15,000 or so


I had a horrifying moment when I sat down and looked at my finances and realized while I make good money, I'd never be able to buy a house at this rate. So I started researching online and came across this and other blogs and realized what I had to do. I'd love to hear stories from people who were in similar shoes and how you achieved your goals.

My goal is to become FI and be able to retire by the time I am 45 years old (15 years from now). I am planning on having at least $2 million in assets by then.


homeymomma

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Re: Must deflate my lifestyle!
« Reply #1 on: May 30, 2014, 11:47:27 AM »
Your car payments made me gasp audibly. LOL.
Are these really all your expenses? We live frugally, but we have lots of other expenses that are not listed here. Cell phone or internet comes to mind, or the occasional trip to a restaurant? Just curious if your expenses are actually this low or if you've missed some categories on your tabulations.

Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #2 on: May 30, 2014, 11:58:02 AM »
Your car payments made me gasp audibly. LOL.
Are these really all your expenses? We live frugally, but we have lots of other expenses that are not listed here. Cell phone or internet comes to mind, or the occasional trip to a restaurant? Just curious if your expenses are actually this low or if you've missed some categories on your tabulations.
Yeah, the car payments are crazy. What's even crazier is that I rarely drive the BMW. I put about 50 miles a month on it. I got it as an ego/status-mobile and now I don't even care. I only drive it if I'm going to some kind of client appointment. $900 a month for that is totally insane.

Cell and internet are paid by my job, thankfully. And a lot of meals are expensed to my company as well, so the food budget is about right over the past 6-8 months. There may be another $100-200 in miscellaneous expenses I didn't list there, but it's not too far off.

warfreak2

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Re: Must deflate my lifestyle!
« Reply #3 on: May 30, 2014, 11:58:37 AM »
Welcome! Definitely sell the BMW, but the student loan is a higher priority.

My goal is to become FI and be able to retire by the time I am 45 years old (15 years from now). I am planning on having at least $2 million in assets by then.
Is this goal supported by the maths? Even under optimistic assumptions, you'll have to save $65k/year, or $50k/year with consistent raises so that you can save more later. Also, what do you need $2MM for?

Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #4 on: May 30, 2014, 12:25:28 PM »
Welcome! Definitely sell the BMW, but the student loan is a higher priority.

My goal is to become FI and be able to retire by the time I am 45 years old (15 years from now). I am planning on having at least $2 million in assets by then.
Is this goal supported by the maths? Even under optimistic assumptions, you'll have to save $65k/year, or $50k/year with consistent raises so that you can save more later. Also, what do you need $2MM for?
Thanks! I might not necessarily "need" $2MM, but I want it. I want more than that even :)

Can I save $65k a year? If I get rid of the debt I can. Let's see:
401k: $17,500 + $3000 employer match: $20,000
Sell car/pay off loan: $1500/month * 12: $18,000
Additional Savings: $1000/month * 12: $12,000
Bonus/Commission: $10,000-$20,000

Total: $60-70k

Now obviously this is without the car debt and assuming a frugal life, but that's right in range. For the tactical stuff my education never ends and that's the reason I'm here!

rmendpara

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Re: Must deflate my lifestyle!
« Reply #5 on: May 30, 2014, 01:05:21 PM »
Hi all, new user and I've read a ton of great info here so far. I have unfortunately fallen into the trap of insane lifestyle inflation and it's time to fix it.

I am 29 years old (30 in August) and I have spent a ridiculous amount of money. I bought 2 brand new cars, including a BMW (which I am now planning to sell). The only good news is that I have been contributing to my 401k.

Here is the damage:
Take Home Base Income: $5,300/month (usually more with commissions but I plan on investing all bonus money from this point on. Bonus is usually in the range of $10,000-20,000 net extra per year)
Rent: $1200
Utilities: $170
BMW Payment: $908 ($17,700 remaining @ 4.9% interest)
Car Payment: $473 ($15,800 remaining @ 2.7% interest)
Student Loan Payment: $137 ($5,700 remaining @ 6.55% interest)
Car Insurance: $120
Fuel: $150
Food: $200

In the past, everything not on this budget got spent on other things. I took luxury vacations, I recently got my pilot's license so that was about $12,000 all told. I bought a bunch of luxury furniture/clothes/home wares, etc. It was quite over the top. I even developed some credit card debt (about $6,000) which I just paid off.

Assets:
401k: $42,000 (This year I started contributing 15% which will max it out)
BMW: Could probably sell it for $20,000 or so, 2012 model with low mileage
Car: $15,000 or so


I had a horrifying moment when I sat down and looked at my finances and realized while I make good money, I'd never be able to buy a house at this rate. So I started researching online and came across this and other blogs and realized what I had to do. I'd love to hear stories from people who were in similar shoes and how you achieved your goals.

My goal is to become FI and be able to retire by the time I am 45 years old (15 years from now). I am planning on having at least $2 million in assets by then.

Seems like you like cars? If you want to impress clients, you can rent a Ferrari by the hour for a few hundred a day. Sell the BMW you barely drive and do that instead. You will come out $500 ahead per month.

Sweet job, btw, +/- $100k around 30 years old? Solid!

1) Continue maxing out 401k, and also open up a Roth and contribute $5.5k/yr (you won't qualify for traditional with your income).
2) Do #1 until you are debt free, and start saving up for home down payment.
3) Buy the house you "need" (not want...), and pay this off aggressively while continuing #1.
4) Live like a rap star by investing all your extra money since you have no consumer debt AND no mortgage and are basically rolling in the dough! Go to the bank and withdraw $1,000 in 1s and swim around in it. Then return it.
5) Start investing additional money (beyond $17.5k 401k and $5.5k Roth).

You can hit $1m+ by 45, probably more if your earnings increase a little over the years.

Good luck!

frugaliknowit

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Re: Must deflate my lifestyle!
« Reply #6 on: May 30, 2014, 01:23:04 PM »
Start by getting rid of the beemer.  Unless the other car is a basic one, get rid of it as well.  Assuming you need a car, buy a used basic sedan, for cash if possible (honda civic, hyundai sonata, toyota corolla and the like). 

After that, assuming you are qualified, contribute to the 401K only to the extent of the match.  The balance should go toward eliminating any debt.  Once the debt is zero, start maxing out a Roth IRA, but only in cash equivalents until you have 8 months expenses in reserve.  Once you have reached that, open a savings account to add to reserves until you have eight months reserves there.  Do not add to any debts. 

Going forward from there:  401k match, then max out roth (start moving into stock index funds), maintain 8 months cash reserves, keep adding to cash reserves until you have 8 months reserves plus a home downpayment.

Buy a home that makes sense financially (no more than 25% of take home pay on a 15 year fixed mortgage).

You might want to consider taking Dave Ramsey's "Financial Peace University" (DaveRamsey.com).

warfreak2

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Re: Must deflate my lifestyle!
« Reply #7 on: May 30, 2014, 01:32:01 PM »
Can I save $65k a year? If I get rid of the debt I can. Let's see:
Great! Enjoy your retirement in 15 years, then. But seriously, why do you want $2MM? Why do you want it more than, say, retiring in 5-7 years instead of in 15?

Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #8 on: May 30, 2014, 03:14:53 PM »
Seems like you like cars? If you want to impress clients, you can rent a Ferrari by the hour for a few hundred a day. Sell the BMW you barely drive and do that instead. You will come out $500 ahead per month.

Sweet job, btw, +/- $100k around 30 years old? Solid!

1) Continue maxing out 401k, and also open up a Roth and contribute $5.5k/yr (you won't qualify for traditional with your income).
2) Do #1 until you are debt free, and start saving up for home down payment.
3) Buy the house you "need" (not want...), and pay this off aggressively while continuing #1.
4) Live like a rap star by investing all your extra money since you have no consumer debt AND no mortgage and are basically rolling in the dough! Go to the bank and withdraw $1,000 in 1s and swim around in it. Then return it.
5) Start investing additional money (beyond $17.5k 401k and $5.5k Roth).

You can hit $1m+ by 45, probably more if your earnings increase a little over the years.

Good luck!
Thanks! Yeah my job has been a blessing and a curse. Mostly because when I started making $100k+ at 27 I decided I was rich and could buy whatever I wanted, anytime. My actions with money would have made any followers of this blog cringe!

I just took my BMW to Carmax to appraise it, and they offered to buy it for $27,000. Considering I had put it up on Craigslist for $28,500 and got literally zero responses, I am going to take this deal. After they pay off the loan, I should have around $9000 in cash as a result of the sale.

With that $9000 I will be able to completely pay off my student loan. I am debating whether to shove money at the other car loan or invest the rest, since the 2.7% interest rate is fairly low. I am leaning towards investing.

But as of tomorrow when I officially sell the BMW, I will have over $1000 freed up per month! That'll feel amazing!

BayIslandSaver

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Re: Must deflate my lifestyle!
« Reply #9 on: May 30, 2014, 03:24:10 PM »
Seems like you like cars? If you want to impress clients, you can rent a Ferrari by the hour for a few hundred a day. Sell the BMW you barely drive and do that instead. You will come out $500 ahead per month.

Sweet job, btw, +/- $100k around 30 years old? Solid!

1) Continue maxing out 401k, and also open up a Roth and contribute $5.5k/yr (you won't qualify for traditional with your income).
2) Do #1 until you are debt free, and start saving up for home down payment.
3) Buy the house you "need" (not want...), and pay this off aggressively while continuing #1.
4) Live like a rap star by investing all your extra money since you have no consumer debt AND no mortgage and are basically rolling in the dough! Go to the bank and withdraw $1,000 in 1s and swim around in it. Then return it.
5) Start investing additional money (beyond $17.5k 401k and $5.5k Roth).

You can hit $1m+ by 45, probably more if your earnings increase a little over the years.

Good luck!
Thanks! Yeah my job has been a blessing and a curse. Mostly because when I started making $100k+ at 27 I decided I was rich and could buy whatever I wanted, anytime. My actions with money would have made any followers of this blog cringe!

I just took my BMW to Carmax to appraise it, and they offered to buy it for $27,000. Considering I had put it up on Craigslist for $28,500 and got literally zero responses, I am going to take this deal. After they pay off the loan, I should have around $9000 in cash as a result of the sale.

With that $9000 I will be able to completely pay off my student loan. I am debating whether to shove money at the other car loan or invest the rest, since the 2.7% interest rate is fairly low. I am leaning towards investing.

But as of tomorrow when I officially sell the BMW, I will have over $1000 freed up per month! That'll feel amazing!

great start!
That is extremely low interest, plus its a deduction.  I had st debt at 3.2% but paid it off first for the psychological benefit.

James

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Re: Must deflate my lifestyle!
« Reply #10 on: May 30, 2014, 03:28:55 PM »
Nothing wrong with the goal of $2 million, much better than a goal of $100,000... :D  You will have a lot of time to decide on the exact amount between now and then, no reason to get bogged down on that, just focus on what it would take to get the 2 million built up and go from there.


Just read through the MMM blog archives, it will give you a better sense of how to make decisions going forward rather than a set of rules or ideas you find here.

Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #11 on: May 30, 2014, 03:46:36 PM »
Nothing wrong with the goal of $2 million, much better than a goal of $100,000... :D  You will have a lot of time to decide on the exact amount between now and then, no reason to get bogged down on that, just focus on what it would take to get the 2 million built up and go from there.


Just read through the MMM blog archives, it will give you a better sense of how to make decisions going forward rather than a set of rules or ideas you find here.
Thanks all! I am of the philosophy that having more money is better than having less money!

I really want as much as humanly possible, but I set all my goals with the SMART method so $2 million by 45 seems like a good, challenging place to strive for.

CarDude

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Re: Must deflate my lifestyle!
« Reply #12 on: May 30, 2014, 03:48:36 PM »
You've already gotten lots of advice, so...

...what's the BMW? :D

Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #13 on: May 30, 2014, 03:56:09 PM »
You've already gotten lots of advice, so...

...what's the BMW? :D
328i Sport line sedan. 2012 new F30 body style, less than 12,500 miles. Silver.

I've kept it in mint condition and it is a gorgeous car, drives great, great gas mileage, but I simply can't rationalize away the cost anymore.

MrsPete

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Re: Must deflate my lifestyle!
« Reply #14 on: May 30, 2014, 06:05:02 PM »
Getting rid of the cars is the right choice.  You say you love them, but -- especially since you rarely use the BMW -- I suspect you won't miss them as much as you think.  You'll quickly become addicted to seeing your numbers add up, and you'll wonder why you ever cared about the cars.  They're not really unique or special -- anyone who has the money (or good credit) can buy them. 

Given that you're still young, I think shooting for the 2M goal is smart.  I'd rather do that than retire earlier (though many on this board will disagree).  If you retire before 50, you're going to have a long retirement, and it's much better to go into it with ample resources rather than one day discover that you're 80 and your money is running out. 

marty998

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Re: Must deflate my lifestyle!
« Reply #15 on: May 30, 2014, 06:20:33 PM »
*self modded*

sorry, this had already been answered :)

wtjbatman

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Re: Must deflate my lifestyle!
« Reply #16 on: May 30, 2014, 08:41:41 PM »
Jeez. How many yachts can you water ski behind?

CarDude

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Re: Must deflate my lifestyle!
« Reply #17 on: May 30, 2014, 08:57:31 PM »
You've already gotten lots of advice, so...

...what's the BMW? :D
328i Sport line sedan. 2012 new F30 body style, less than 12,500 miles. Silver.

I've kept it in mint condition and it is a gorgeous car, drives great, great gas mileage, but I simply can't rationalize away the cost anymore.

Niice. You're making the right decision. You'll always have the memories!

jr1029

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Re: Must deflate my lifestyle!
« Reply #18 on: May 30, 2014, 08:58:29 PM »
Quote
great start!
That is extremely low interest, plus its a deduction.  I had st debt at 3.2% but paid it off first for the psychological benefit.

To nitpick a tiny bit, At $100K, student loan interest is not deductible. Phases out by $75K adjusted gross income for a single person.  ;-P


Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #19 on: May 31, 2014, 08:44:02 AM »

To nitpick a tiny bit, At $100K, student loan interest is not deductible. Phases out by $75K adjusted gross income for a single person.  ;-P
Yup, found this out the hard way!

The BMW is officially sold! I have a check in hand for $9,300! Time to crush the student loan!

NinetyFour

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Re: Must deflate my lifestyle!
« Reply #20 on: May 31, 2014, 10:59:45 AM »
Nice!  Congrats on selling it!

But even more important, big congrats on the turnaround in your attitude.  It wasn't very long ago that you believed that you "needed" that BMW and that it would make you happy.  Now, you realize that having a check in hand for $9300 plus an extra $900 per month is much more meaningful.  You are doing great!

Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #21 on: June 01, 2014, 11:58:10 AM »
Nice!  Congrats on selling it!

But even more important, big congrats on the turnaround in your attitude.  It wasn't very long ago that you believed that you "needed" that BMW and that it would make you happy.  Now, you realize that having a check in hand for $9300 plus an extra $900 per month is much more meaningful.  You are doing great!
Thank you!

Now that I have freed up about $1000 a month, I am going to begin saving it. However I looked into the Roth IRA and it appears I will make too much money to do it the "normal" way. Should I do the backdoor Roth IRA or invest in simple taxable index funds?

I am a newbie at this and I am not sure if I should take advice from the internet or hire someone to help with this quite yet. The taxable index fund seems a bit easier than trying to dodge loopholes at this point.

Sunflower

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Re: Must deflate my lifestyle!
« Reply #22 on: June 01, 2014, 02:47:23 PM »
I'm not quite sure what your income is (i.e. is the 10-20k bonus the same as your commission or is there more on top of that) but anything you contribute to your 401k will reduce your AGI so if you max it out, you might not be making too much to contribute to a Roth. If you have an HSA, that's another $3300 that you can put in pre-tax and lower your 'income' for the year. Also, if you're single and making just above $112,000 you can still contribute some to a Roth, it's just going to be reduced.

I'm right around the same income (its always a little hard to calculate with bonuses/raises/random other complications) so I contribute leftover money each month to a taxable index fund and am planning to fully fund my Roth for the year after figuring out how much I ended up making. You can contribute for this year up to April 15th 2015 so I'll sit down and run the numbers at the beginning of next year and make sure I'm still under the limit for contributing. In the meantime, I keep $5000 as an emergency fund so I'll just funnel that money into the Roth all at once and build that fund back up.


Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #23 on: June 02, 2014, 01:30:35 PM »
I'm not quite sure what your income is (i.e. is the 10-20k bonus the same as your commission or is there more on top of that) but anything you contribute to your 401k will reduce your AGI so if you max it out, you might not be making too much to contribute to a Roth. If you have an HSA, that's another $3300 that you can put in pre-tax and lower your 'income' for the year. Also, if you're single and making just above $112,000 you can still contribute some to a Roth, it's just going to be reduced.

I'm right around the same income (its always a little hard to calculate with bonuses/raises/random other complications) so I contribute leftover money each month to a taxable index fund and am planning to fully fund my Roth for the year after figuring out how much I ended up making. You can contribute for this year up to April 15th 2015 so I'll sit down and run the numbers at the beginning of next year and make sure I'm still under the limit for contributing. In the meantime, I keep $5000 as an emergency fund so I'll just funnel that money into the Roth all at once and build that fund back up.
Great idea! I wasn't aware you could contribute up until April 15, which is nice since I can't predict my exact income level. My "On Target Earnings" are $150k gross (112.5 base/37.5 commission) all told, so if I have a decent year it'll be difficult to get under the cutoff. Good problem to have, I suppose.

rmendpara

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Re: Must deflate my lifestyle!
« Reply #24 on: June 02, 2014, 02:32:23 PM »
Nice!  Congrats on selling it!

But even more important, big congrats on the turnaround in your attitude.  It wasn't very long ago that you believed that you "needed" that BMW and that it would make you happy.  Now, you realize that having a check in hand for $9300 plus an extra $900 per month is much more meaningful.  You are doing great!

Thank you!

Now that I have freed up about $1000 a month, I am going to begin saving it. However I looked into the Roth IRA and it appears I will make too much money to do it the "normal" way. Should I do the backdoor Roth IRA or invest in simple taxable index funds?

I am a newbie at this and I am not sure if I should take advice from the internet or hire someone to help with this quite yet. The taxable index fund seems a bit easier than trying to dodge loopholes at this point.

Roth is probably not ideal in your situation (either regular Roth or "backdoor" Roth). Your effective tax rate is likely ~30%+, and you will have an upfront tax bill when you convert since you have 401k assets (look up "pro rata rule").

I'd just max out the 401k, and then start investing in a taxable account. Most index funds will be fairly tax efficient anyway. Going forward, dividends will be your friend with a 15-20% tax rate on most of them.

Generally, real estate will also be a decent investment due to tax deferrals and significant cash flow (this is not really "passive" though).

Good luck!

Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #25 on: June 02, 2014, 02:40:20 PM »

Roth is probably not ideal in your situation (either regular Roth or "backdoor" Roth). Your effective tax rate is likely ~30%+, and you will have an upfront tax bill when you convert since you have 401k assets (look up "pro rata rule").

I'd just max out the 401k, and then start investing in a taxable account. Most index funds will be fairly tax efficient anyway. Going forward, dividends will be your friend with a 15-20% tax rate on most of them.

Generally, real estate will also be a decent investment due to tax deferrals and significant cash flow (this is not really "passive" though).

Good luck!
Thanks! Taxes are obscene for me. My take-home pay is something like 55% of my gross (albeit with 15% taken out for 401k). A single renter gets the shaft on tax! I've already started an index fund investment in my Schwab brokerage and plan on adding at least $2350 a month to that.

I am interested in real estate (at first to buy a house to live in) but I need to build up some cash reserves for a down payment. Looking to have that in a year or so.

SDREMNGR

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Re: Must deflate my lifestyle!
« Reply #26 on: June 02, 2014, 07:30:39 PM »
When I started working, I said my FU retirement number would be $50 mil.  Then after working for 8 years and making and losing about $500k, that number became $2 mil.  Now after 13 years of working, I'm down to FIRE with around $1 mil.

I think the longer you work, the more you want to make money the passive way.  I still plan on doing real estate and active stock investing in retirement so that will be my 2nd career.

Check back after 10 years and you may be swapping the work for lower stash.  Good job on cutting expenses early.  Wish I had done the same in earlier years.

Sunflower

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Re: Must deflate my lifestyle!
« Reply #27 on: June 02, 2014, 07:40:31 PM »
I'm not quite sure what your income is (i.e. is the 10-20k bonus the same as your commission or is there more on top of that) but anything you contribute to your 401k will reduce your AGI so if you max it out, you might not be making too much to contribute to a Roth. If you have an HSA, that's another $3300 that you can put in pre-tax and lower your 'income' for the year. Also, if you're single and making just above $112,000 you can still contribute some to a Roth, it's just going to be reduced.

I'm right around the same income (its always a little hard to calculate with bonuses/raises/random other complications) so I contribute leftover money each month to a taxable index fund and am planning to fully fund my Roth for the year after figuring out how much I ended up making. You can contribute for this year up to April 15th 2015 so I'll sit down and run the numbers at the beginning of next year and make sure I'm still under the limit for contributing. In the meantime, I keep $5000 as an emergency fund so I'll just funnel that money into the Roth all at once and build that fund back up.
Great idea! I wasn't aware you could contribute up until April 15, which is nice since I can't predict my exact income level. My "On Target Earnings" are $150k gross (112.5 base/37.5 commission) all told, so if I have a decent year it'll be difficult to get under the cutoff. Good problem to have, I suppose.

Definitely a good problem to have! At $150k gross you might be just under the cuttoff after taxes + 401k (+HSA?). Whether or not it's worth it though you can decide later. I'm not at a point in my life where I'm thinking about real estate so even though I'm contributing regularly to a taxable account, I'm going to fully fund my Roth because....getting taxed at a high rate and growing tax free is still better than getting taxed at a high rate and paying high taxes on investment gains!

Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #28 on: June 02, 2014, 09:25:24 PM »
When I started working, I said my FU retirement number would be $50 mil.  Then after working for 8 years and making and losing about $500k, that number became $2 mil.  Now after 13 years of working, I'm down to FIRE with around $1 mil.

I think the longer you work, the more you want to make money the passive way.  I still plan on doing real estate and active stock investing in retirement so that will be my 2nd career.

Check back after 10 years and you may be swapping the work for lower stash.  Good job on cutting expenses early.  Wish I had done the same in earlier years.
It's very possible! The best part is looking forward to a bright, early retiring future regardless of what "the number" turns out to be. I must say it feels better already to be free of the BMW payment and getting rid of student loans entirely. I am a serious spreadsheet geek, and the money surpluses for savings on my spreadsheets now are making me drool.

I saved about $70 per month cutting the BMW from my car insurance, and eliminated some completely unnecessary expenses like a $30/month cellular data plan for my Ipad.
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Definitely a good problem to have! At $150k gross you might be just under the cuttoff after taxes + 401k (+HSA?). Whether or not it's worth it though you can decide later. I'm not at a point in my life where I'm thinking about real estate so even though I'm contributing regularly to a taxable account, I'm going to fully fund my Roth because....getting taxed at a high rate and growing tax free is still better than getting taxed at a high rate and paying high taxes on investment gains!
I checked into a HSA with my job and all we have is a "FSA" (flex spending account?) where if I don't use the money by the end of the year I lose it entirely. It seems like it's for health/child type care. As a healthy single young man, I spend very little on healthcare so that would be a complete waste of money. If HSA is something I can get outside of work, let me know.

Sunflower

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Re: Must deflate my lifestyle!
« Reply #29 on: June 03, 2014, 05:38:58 PM »
I'm pretty sure you can't get an HSA outside of work. An FSA might be good for some things if you have recurring health costs (allergy shots, bc, etc.) but otherwise I know people who have struggled to use the funds they put in.

Rpesek6904

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Re: Must deflate my lifestyle!
« Reply #30 on: June 03, 2014, 06:21:42 PM »
Good Job.

Bateaux

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Re: Must deflate my lifestyle!
« Reply #31 on: June 03, 2014, 06:55:53 PM »
I share the FIRE goal of 2 million.  I'm 45 and should be done in 2018 at 49.  I've decided that 2018 is a hard date and the 2 million is no longer a hard number.  Unless there's a huge stock market loss both are on schedule.

Icecreamarsenal

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Re: Must deflate my lifestyle!
« Reply #32 on: June 03, 2014, 07:06:51 PM »
I'm in a similar boat, and am surprised that you sold the BMW so quickly! 32yo making 325k (gross). I purchased an m3 convertible in 2011 that I'm still making payments on! Turned on to this blog 2 months ago, but the m3 won't budge off of craigslist. I'll have to look at carmax! I don't think they have any in my state (nj) though. Exciting!! Can't wait to be free from that loan. Congrats man.


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Lifestyle Deflation

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Re: Must deflate my lifestyle!
« Reply #33 on: June 03, 2014, 10:09:10 PM »
Thanks all! Here is my net worth after the BMW sold. The debt other than the $15k car payment should be gone after the payoffs clear. As you can see I started from $0 a couple years ago so this is good. I expect my "positive" curve to speed up a lot with my new savings rate.


Icecreamarsenal, Craigslist was challenging for me too. There may be other places in your area that buy cars in a similar way. It was easy (they took care of the back-end payoff and title transfer, which was nice) and I got what I thought was a reasonable price.

The Happy Philosopher

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Re: Must deflate my lifestyle!
« Reply #34 on: June 03, 2014, 10:30:49 PM »
Nice!  Congrats on selling it!

But even more important, big congrats on the turnaround in your attitude.  It wasn't very long ago that you believed that you "needed" that BMW and that it would make you happy.  Now, you realize that having a check in hand for $9300 plus an extra $900 per month is much more meaningful.  You are doing great!

Thank you!

Now that I have freed up about $1000 a month, I am going to begin saving it. However I looked into the Roth IRA and it appears I will make too much money to do it the "normal" way. Should I do the backdoor Roth IRA or invest in simple taxable index funds?

I am a newbie at this and I am not sure if I should take advice from the internet or hire someone to help with this quite yet. The taxable index fund seems a bit easier than trying to dodge loopholes at this point.

Roth is probably not ideal in your situation (either regular Roth or "backdoor" Roth). Your effective tax rate is likely ~30%+, and you will have an upfront tax bill when you convert since you have 401k assets (look up "pro rata rule").

I'd just max out the 401k, and then start investing in a taxable account. Most index funds will be fairly tax efficient anyway. Going forward, dividends will be your friend with a 15-20% tax rate on most of them.

Generally, real estate will also be a decent investment due to tax deferrals and significant cash flow (this is not really "passive" though).

Good luck!

I  don't think this is true, the pro rata rule applies only if there are assets in a traditional IRA, not 401k.  Backdoor Roth is what I  would do in your situation after maxing out the 401k.  Roth IRA is superior to a taxable account from a tax treatment, estate planning and asset protection stand point.

hexdexorex

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Re: Must deflate my lifestyle!
« Reply #35 on: June 03, 2014, 10:57:57 PM »
FSA I usually put in 100 a year and just use on common things...(condoms count).

Do you have someone to help with the rent?
Did you buy a different car? What did you end up going with?

HSAs are great but often times the funds you are restricted to suck and the servicer has a monthly fee attached