Author Topic: Need a little encouragement  (Read 4681 times)

litebrown417

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Need a little encouragement
« on: October 04, 2012, 08:56:55 PM »
Hi Mustachians!

I am a 24 year old recent grad (2011) that needs some reinforcement. I work as a financial analyst at a large company but receive some of my compensation in travel benefits. It's really awesome since I'm young and can travel with my BF for cheap, but sometimes I feel like I'm moving backwards financially when I do.

I make about 2800/month after taxes/benefits/401K

I contribute about 10% or $400/m to my 401K (3500 vested, 8300 with all contributions)

I have an HSA (48/m for the plan and 80/m for the account) with 600 in the account so far.

Monthly Expenses:
Apartment rent 590 + about 60 in utilities (I have a roommate)
I recently moved and now I live 13 miles from work one way versus 24 (I know it's not biking distance but I found this blog after I signed the lease)

Renter's insurance $14

Car note (got the loan with my dad for a better interest rate) 840*
*The payments are 420 for 36 months, in February I decided to pay double instead of saving the money with no real goal in mind.
The ONLY reason I bought a car right out of school is my '96 Civic was crushed in a storm one month before I started work. I purchased a '07 Accord coupe last July (I know now that it is too fancy for my salary but I've made so much headway on the loan I don't want to sell it) for 16,500. I got 3000 for my '96 civic (thank goodness for full coverage) and my father took out a loan for 14K.
I owe about 5800 on the car and I'm on track to be done by next June.

Car insurance 85
I'm still on my parents' plan and pay them directly

Student loan 300
I pay my parents directly and they are not charging me interest.
I still owe them about 6000 and if i can snowball my car payments I will finish their loan next August.

Cell Phone 77
I have an Iphone 4 with AT&T, contract ends in July and considering switching out my sim card for straight talk (45/m) and just paying the ETF fee (after doing the math I would save $100 when compared to continuing on my contract). I get a "corporate discount" through my employer but it doesn't help much.

Gym Membership 29.99
I know what you're thinking-cut that now! lol
I just got my friends on board with working out and I have been a member since last July and have honestly been consistent (at least 3 times a week).

Internet 18
We do not have cable and split the internet bill equally.

Netflix 8

Gas 200
This number could go down since I live closer to work and don't sit in traffic as long.

Food 250
I don't split up eating out and buying groceries in my budget but I do cook at least twice a week and can make it last a few days (longer if I don't feed the BF). This amount sometimes includes alcohol.

Trip fund 150
The BF and I started a bank account together strictly for travel. Instead of paying each other back for our halves, we find it easier to pay out of this account (he puts in more since he makes more).

If I have money left over I put it in my emergency fund (currently 1100).

I would like to retire at 45 (arbitrary age at this point but I feel like working in the corporate world for 20 years is plenty)

My immediate financial goals
Down payment for a house 30K
Max out 401K (I need to take about 30% of my gross pay)
Invest in index funds and eventually stocks
Build emergency fund for 6 months of expenses
Save for a wedding 10K (may or may not happen but the stash would be nice either way)

ANY advice on how I could reach my goals faster would be GREATLY appreciated. My family and friends (not even the BF) don't have money mustaches so it gets discouraging staying on this path sometimes.





N

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Re: Need a little encouragement
« Reply #1 on: October 05, 2012, 12:09:04 AM »
Im only very new to mustachianism, so I dont think Im qualified to punch you in the face about much. I do applaud you for taking your financial situation seriously while you are so young. If you are careful now, you wont have to undo years of mistakes later.

I will say, 10k for a wedding? Seriously reconsider spending that much on one day. I know it can be culturally ingrained that the wedding is your special day, but...when you do the mustache math, it can hardly be worth it to buy 150 people dinner and drinks. :)

best,
N

ShanghaiStashing

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Re: Need a little encouragement
« Reply #2 on: October 05, 2012, 01:33:25 AM »
Few thoughts on your situation.

At 24 you're in a fairly good position and starting down this path early is the best way to go. I wish that I was more intelligent about my money when I was slightly younger! The reality is that your income will likely continue to grow, both as you gain experience and the economy improves. This will naturally help you reach your goals faster and containing living expenses as you make more money will be one of the challenges you face as expectations increase as you make more money. However, this is the single biggest advantage you have in adopting this lifestyle early, which is to live the same life you do now, without spending additional money.

Can you clarify what you mean by 'receive some of your compensation in travel benefits?' Is there an option to make more money if you aren't paid in travel or how does it work?

Stepping back to look at the whole picture, your current total spending is ~$2700, $420 of which is an optional double up on the car payment. Your income is ~$3200 net of taxes, but before 401k. The good news is you're starting from a savings rate of 16%, 28% or 38% depending on how you look at it. 16% current total savings in 401K each month, 28% if you include the double up car payment, and 38% if you include your student debt. Effectively you're already close to where you need to be, you just need to restructure a few things in your life to get there faster, and accept that like all things in life this will take some time.

At this point, I would make a couple of points here about your financial goals. First of all, it's great to have goals and they help keep all of us motivated. Right now, your goals have one thing in common: they all require money (stupid insight... I know...). However, when I read your list I couldn't help but think to myself 'there really only is one goal, save as much money as possible'. My point is simply to say I might consider making the goal 'save x% of my income each month' and work towards that goal. Having a high savings rate is an enabler of all of the other things you want to be able to do.

So, let's talk about what we can do to get the total savings rate up.

First, your budget doesn't seem to include items like household goods, grooming, clothes, etc. This is great, but I would make sure you have a totally accurate picture of your finances and how you spend your money to start out. Do this for 2-3 months and you'll understand where everything goes, making it easier to change your behaviour as necessary.

At the same as you're taking stock, I would start to fix some of the biggest issues that I see.

I would sell the car immediately and buy a much, much cheaper model. Right now your total car spending represents ~25% of your monthly income which is way too high. This move alone, which I suspect you can pay for out of the car proceeds, assuming you can sell for 13K and owe 6K that leaves 7K to buy a nice used vehicle, will save you $500 per month before the double up.

If you get rid of the car and eliminate the payment entirely you can easily pay the student debt off in the next 10 months or so (combine the car payment with student loan and you'll pay ~700 per month off of the loan). Your total savings are up to $800 per month.

The last few are a bit more lifestyle changes / attitudes that you need to continue to build over time to become truly financially independent. First, work to reduce food spending $250 for one person is relatively high, particularly if you travel with work and have meals paid for on the road. I'd look at the spending in detail and see what you can do to reduce it. Second, reduce cell phone fees or try to get work to pay for it. Third, cut down on gas (should happen naturally through lowering your commute) but can also look at hypermiling techniques to help.

Finally, continue to make time to track expenses, progress, and learn about finance / investing.

So let's look at what happens after we make these changes:

Income: $3200
HSA: $130
Housing: $650
Renter's: $14
Car insurance: $85
Cell phone: $45
Gym: $30
Internet: $18
Netflix: $8
Gas: $100 (assuming you halved the commute)
Food $175
Trip: $150
Total Spending: $1405

Savings rate of 57% -- this allows you max out 401K at 30% of income and also save another 30% for your life goals.


sibamor

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Re: Need a little encouragement
« Reply #3 on: October 05, 2012, 10:45:35 AM »
BLUF(Bottom Line Up Front) If you change nothing you are alright.

You are in the right place starting off financially and mentally.

If you did the 50/30/20 money plan its easy to see that you are living very much in the needs category and minimized your wants.  Your only guilty pleasures are the newer car, gym membership, and travel account.  Every dollar available is going towards debt.

1. Car: I understand the logic on wanting to keep the '07 accord.  I vote keep it.  Its not entirely true mustachian but I know the troubles of those old cars and repairs can wreak havoc on a young budget for even a cheap $200 repair.  You should be fine as long as you do your regular oil changes/services to get to 100k without any problems. With the reduced gas mileage budget I would take that excess and start a "car fund" to cover maintenance.  I also don't see anything budgeted in for auto property tax/registration expenses. Also DIY oil changes/rotate tires!  Make this car last (even though its a coup).

2. Car Insurance: Understanding that you are still on your parents and you don't control deductibles and coverage speak to them.  I have two cars/two drivers insured for less $/mo.  Look at the coverage and see what you can reduce/eliminate/raise (deductible).  Venture out and get some quotes.  I wouldn't sacrifice coverage of liability of 100k/300k per accident or whatever you have; but the other areas can be flexible for needs.  Depends on your risk level.

3. Renter's Insurance: This feels a little high.  Look at what your coverage again.  Could you accept a higher deductible? Lower valuation on goods? Find out what discounts they offer for added things like monoxide detectors, etc. It could knock off a dollar or two.  Also is this an individual plan or part of parents home owner's? look at pairing with 'rents HOI or your auto if you split off.

4. Travel Account: You mentioned work has travel perks?  Please elaborate for the forum.  Also more on how much the other half is kicking in.  This is the only territory that you can potentially make room to snowball auto/student debt. It seems this is your one guilty pleasure and I vote keep it.  It seems to make all the other cutbacks worth it for you.  Not knowing how the work perks contribute I vote you reduce this some.  Plan on shorter/closer/frugal trips for the near future.

5. Auto Loan: Double payments, you rock! Keep it up.  Since your parents loan is interest free ask if they are willing to accept a deferment so you can that $300 towards the auto?  Then snowball the student.  Payoff rate is the same but you may safe a few pennies on auto loan interest.

6. Food: $8.50/meal seems high but as you said you include dining out/booze.   Keep the $250 for the category but track what is grocery/dining/entertainment/booze/needs for a few months.  I guessing you are throwing in disposable items (shampoos/deodorant/body wash) with your food budget as it $10-15 here/there; which is fine, just track it.

7. Credit Card: Do you have one? You seem responsible enough that you would pay off in full.  Look at ones that rewards points/cash back/airline miles and put everything you can afford to purchase if you had cash on there and pay off in full each month. This can help supplement your travel budget.

8. Commute: Car pool? Do the cost analysis on cost/mile. Find out if some coworkers live in your direction or are open to the idea.  Even if it is one or two days a week you alternate/share it can go a long way to reduce your expenses.

9. Healthcare: where are your benefits/costs?

10. Have good expense tracking software/system (I'm sure you are a excel guru and can conditional format like nobody's business).

11. Utilities: Do you have access to the hot water heater? turn it down a a tiny bit. Does it have a thermal blanket on it? Check toilets for leaks (food dye in upper tank) and ask landlord to fix if they do (usually just tweak the bobber/chains). Low flow showerhead (we have a nice one that moves with us). Put things on power strip and turn off at night (you would be surprised how much energy a laptop/tv draw in 24 hours).  Charge your laptop/phone at work, not a home. Etc.  Bundle up in the winter.  Get the buy in on the roommate for changes in these habits.


Now on to goals (by priority):
A: Emergency Fund: $1100 now awesome.  Get this up to 2-3 months (5-6k) as soon as you are debt free. Then you can slowly add while beginning to contribute towards your next two goals. (the only one that changed position).

B: 401K: Get to this after debt snowball is done. But if you only get to 20% in a year or so that's ok.  You are a million miles ahead of your peers.

C: House: This sounds like a 5yr plan for you.  By the time you reach that juncture I think you will be well established in your career and you will be established in your community. If this is a 130-170k range you are planning this sounds good.  Have that minimum 20%, the more the better.  Remember when you do go look at houses always start at the bottom of your price range.  Good tip for once you get closer to purchasing a house.  Once you establish what your desired house will look like do all the calculations for mortgage/interest/insurance/utilities/taxes/phone/trash/etc and start living like you were contributing that amount towards your down payment account.  Then take out your rent/utilities/internet/maintenance/etc for your current living expenses.  It will help A)determine if you can handle the new budget and B) increase your housing funds.  *Note be prepared to have an additional 5k-8k stocked away for painting, furnishing, surprises.

D: Investing: Shoot for 2yrs out to be able to contribute a sizable starting fund to a portfolio.  Being young you can afford a mix of high/medium risks options.  Do your research for the next year.

E: Wedding Fund: This is a nice reasonable amount to plan and save but don't dedicate many resources, maybe a 5k fund. Once debt snowball is done keep a low dollar amount per month, focus on the others.  Once you have $500-1000 for this start 1-2 3 to 6mo CD's offset by a month or two.  Keeps the cash on hand available if you get to the end of your emergency fund and need to pick up another month or two, as well it works your money harder.  Access your true needs for a wedding.  I used this website http://www.costofwedding.com/ to find out the average was 19-29k in my area.  We spend 13k and we had more glam than my cousins 40k wedding.



There is not much you can do to reach your goals faster.  Time is on your side.  Minimal adjustments to your expenses can accelerate your payoff by a month or two at most(if you are not selling the car).  Seek out additional means of income (babysitting,house/dog sitting, part time waiter on weekends, etc) to advance your goals if you wish. Promotions/advancements are your biggest resource. Make sure you negotiate raises that you deserve! Don't be afraid to make a reasonable counter offer (provide $, value, evidence, research) if your research tells you differently. Don't sell yourself short, if you think you are worth and you can back it up, fight for it. When you do get that raise do the right thing. Take 4/5 of that money and contribute towards your goals, and 1/5 to improve your standard of living/budget shortfalls.  Where you sit come fall of 2013 or even fall 2014 will look completely different.



$24k-$36k is the correct amount to spend annually. Spending less means you're missing something (like healthcare) or live as a hermit, spending more means you're a wasteful over-consumer.


sockmunkee

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Re: Need a little encouragement
« Reply #4 on: October 05, 2012, 12:38:32 PM »
The car thing is def. not mustachian (sorry).  But here's an idea - if you are traveling  a good bit for work (and thus not using your car during that time), then how bout renting it out to others?  You can use RelayRides (https://relayrides.com) or some other service if you're up for it.  I've never tried this but if I were in your situation, it's something I'd look into.

As far as the wedding, I spent the same amount for ours 6 yrs ago and thought we "did great" on cost.  But now I look back and think, "man, we paid about 5,000 for others to drink at an open bar for one night."  In retrospect, that would have been a nice way to max out the Roth for one year and gain some much needed momentum for FI.

But as the others said, you are in a good position.  Only other suggestion is to look for similar ways to save on travel (instead of hotels and expensive crap) - there are many sites now (like AirBNB) that allow to get MUCH cheaper accommodations...without the bed bugs

litebrown417

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Re: Need a little encouragement
« Reply #5 on: October 05, 2012, 04:30:07 PM »
I want to thank everyone for the responses!

@startingfromthestart Thanks for not blacking my eyes out haha. The wedding amount will probably change once itís here.

@ShanghaiStashing Ė I work for an airline so I can fly standby for free* (the BF pays a nominal fee each time). I say that I receive my compensation in travel benefits because if I worked in another industry I could potentially make around 15K more/year for the same job.
*Domestically; I pay the tax on international flights

Iím a little impatient with this debt/saving situation because Iíve never had to deal with it. My first car (the civic) was given to me in high school (I drove it for 7 years) and I know that I could do so much more with the money Iím using to pay down debt (not sure how Iím eventually going to deal with a mortgage, haha).

Iíve been going back and forth with myself on selling the car. I have put 25K miles on it (between work and a road trip) so Iím already at 75K. I donít want to buy another less expensive car with more mileage because I donít want to have to pay for more maintenance than I have to.

I do not travel for work and I do lump in household goods/misc expenses in with the food category of my budget. The food category is also inflated because sometimes Iím not the only one consuming the food (I have to feed the BF sometimes haha). If it were just me I could drop the food category to the 175 you suggested with no problem.

@sibamor Ė I do get oil changes regularly (my car has a gauge) and will begin getting the tires rotated with my oil changes from now on. Last year I started saving for the tax/registration in January since it wasnít due until the end of May and thatís what I planned to do next year.

Iíve asked around but most of the rates I have gotten were above 85. I planned on shopping around again this winter when I turn 25 to see if age really matters. Until then Iíll get the details of the coverage (I just know itís full, not sure about deductibles and whatnot)

The renterís insurance was the cheapest I found. When I moved closer to the city it actually went up to the 14 I have now, but it wonít hurt to shop around. This is an individual plan I found.

The BF contributes 200/month to the travel fund but as I said earlier he has to pay more than me to fly. We have only taken two trips that lasted more than 1 night. Most are day trips to cities weíve never been before domestically.

I never thought about asking my parents to defer their loan. Iíll run some numbers and see what I can save.

I do have a credit card. I did not get one in college so I had no credit history when I started work. I opened an account with our credit union and have a ďyoung adultĒ card with them. I currently have automatic payments sent to the card for the gym, cell phone, and Comcast internet. I also use the card for gas. I manage to pay the entire balance every month.

I have discussed car pooling with a coworker but weíve never been able to coordinate (or wake up early enough haha) but I will press the issue again.

The HSA has a 2700 contribution max. After that, everything is 100% covered. I get 80% coverage after I reach 2500. ALL preventative care is free and when I see a specialist in network I get a discount. Iím satisfied right now but will probably change once I decide to have children.

I will take your utilities advice into consideration. My roommate has been pretty good about going along with my suggestions to save money. I suggested we not get cable when we moved and now we have just the internet and antennas. We currently use power strips as well.

Thanks for all of the tips on my goals!

@sockmunkee Ė The wedding amount is just an estimate. I know NOTHING about planning a wedding and while going through the process, Iíll probably have a better picture of what I think is necessary and what is just unnecessary fluff.




plantingourpennies

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Re: Need a little encouragement
« Reply #6 on: October 07, 2012, 04:53:55 PM »
Don't get discouraged-you're doing all the right things! Much awesomeness awaits if you stay the path.

A word about weddings; my wife and I spent about $300 for the experience of a life time. You can read about it here:

http://www.plantingourpennies.com/2012/06/11/what-did-our-wedding-cost/

We highly recommend doing something similar! All of our friends, before, during, and after their nuptuials say they wish they had done the same...

Best,
Mr. Pop

Jamesqf

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Re: Need a little encouragement
« Reply #7 on: October 07, 2012, 09:11:05 PM »
Just one point: 13 miles each way certainly could be biking distance, if the route is fairly flat.  Maybe not something you'd want to do every day, but even a couple of days a week makes a good workout.

grantmeaname

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Re: Need a little encouragement
« Reply #8 on: October 08, 2012, 07:10:51 AM »
Iíve been going back and forth with myself on selling the car. I have put 25K miles on it (between work and a road trip) so Iím already at 75K. I donít want to buy another less expensive car with more mileage because I donít want to have to pay for more maintenance than I have to.
You would rather knowingly throw away $840 each month than occasionally (at most, five times a year) pay $200-400 in repairs for a car you own free and clear?