Author Topic: Case Study - Help for someone who moves often!  (Read 3188 times)

LaserCat

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Case Study - Help for someone who moves often!
« on: June 15, 2016, 11:22:05 AM »
Hey Mr. money mustache readers!  It's Laser Cat here, and I wanted to write a case study in the hopes that, putting it down on paper, and sharing it with others, will help me to figure some things out, and draw some new ideas from more finance minded folks.  So feel free to share any ideas that you would like!

I found Mr. money mustache a few years back, along with "Your Money or Your Life", and armed with a decent job, but a mountain of student loan debt, (I started with 65k in debt)  I've been doing my best to get back on track, and end up with more flexibility in my life that I had before.

So I feel like I have my finances pretty much handled, but I just moved to Southern California (New job!) and unfortunately, Southern California is a nightmare for cost-of-living. I lived on the East Coast before this, and there I did not need a car, rent was cheaper and I was able to put a lot more towards my student loan debt.   So I'm making progress,  it just feels so slow!  Below are my expenses on an average month.  I tend to move to a different state every few years for my career, although this is the most stable company I've ever worked at, unfortunately it's here in expensive SoCal. =(

Income:  (35 single, no kids, no pets)
Monthly Net Income after taxes:  $3920
Bonuses:  Varies year to year but is a few thousand a year which I normally throw into my emergency fund.

Savings:
Emergency Fund  $3928 (savings account)
Money invested in Betterment  $2000  (90% stocks , 10% Bonds)
Traditional IRA + 401k - $46,112  (89% stocks , 11% Bonds)

Monthly Expenses:
401k contribution  -$250
Auto withdrawal for betterment investments  - $120
Rent  -$1400  (My apartment isn't really set up for a roommate unfortunately, it's kind of just 2 big rooms)
Groceries   - $100
Eating out (or work cafe) - $100
Gas - $185
Auto Insurance -$97
Car Loan -$220 
Electric - $100
Physical therapy -$240
Random -$118
Minimum Student Loan Payments $440 (2/3 of these are now paid out years in advance) -This should drop down to $320 once the year is over.
Car Maintenance fund  $40
Holiday Travel fund  $50  (I use the YNAB method of breaking up yearly goals into monthly expenses)

Amount Left over $460, which right now I'm throwing at my student loans

Monthly Debt Payments: 
Student Loans: 
1.    $2423  - 3.75% Fixed (should be paid off within the year)
2.    $10528  -2.875% Fixed (paid out 2 months in advance)
3.    $20934  -3.690% Variable  (paid out 2 years in advance)

Car Loan:
1.  $8743  - 2.74% Fixed (should be paid off in 3.3 years if I make minimum payments)

No CC Debt.

When I do the calculations I just don't see any way to FIRE before 65 but I wouldn't mind living by teaching adjunct / doing freelance /and having partial income from investments.  (maybe there just isn't something I'm seeing here?)  I also wouldn't mind doing the tiny house thing!  I think they are so awesome!


So the questions I have are... 
1.  Is there anything here I'm not seeing / are my pants on fire for anything?   
2.  Are my allocations correct?   
3.  Should I put my emergency fund into investments?

Any insight people can offer would be much appreciated!!
« Last Edit: June 16, 2016, 09:46:37 AM by LaserCat »

MDM

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Re: Case Study - Help for someone who moves often!
« Reply #1 on: June 15, 2016, 03:40:29 PM »
Income:  (35 single, no kids, no pets)
Monthly Net Income after taxes:  $3920
Bonuses:  Varies year to year but is a few thousand a year which I normally throw into my emergency fund.
...
When I do the calculations I just don't see any way to FIRE before 65 but I wouldn't mind living by teaching adjunct / doing freelance /and having partial income from investments.  (maybe there just isn't something I'm seeing here?)
...
Any insight people can offer would be much appreciated!!

Consider starting with gross income and then listing each line item that leads to the $3920 number - sometimes there are worthwhile changes in that space.  See
How To: Write a "Case Study" Topic

mousebandit

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Re: Case Study - Help for someone who moves often!
« Reply #2 on: June 15, 2016, 08:08:51 PM »
I'm a noobie, so take what I say with a grain of salt, but the car expenses jump out at me.  $542/mo on car expenses (and I'm guessing registration fees aren't included in that), plus it's an almost-$9000 car.  Do you have a long commute?  Can you move closer to work, perhaps to an apartment this would be conducive to a roommate, sell the car, and bike or walk to work? 

Everything else looks good, but if you could resolve the car and roommate situation, you'd be eons ahead. 

Good luck!
MouseBandit

LaserCat

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Re: Case Study - Help for someone who moves often!
« Reply #3 on: June 16, 2016, 09:43:01 AM »
No worries ANY insight is good!!  =)  Yeah I HATE owning a car, I've lived without one for so many years that I became an advocate for public transit!  Where my office is at it's in a very expensive area in Orange County with not a lot around.  (think loads of office parks)  =(  I'm pretty extroverted too, (not a homebody at all)  so life might be difficult.  There is someone at my office that does this though, so I'll pick her brain and look into the possibility.   I would also have to give up my glorious 75ft x 25ft vegetable garden. =( 
« Last Edit: June 16, 2016, 09:58:26 AM by LaserCat »

Stash Engineer

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Re: Case Study - Help for someone who moves often!
« Reply #4 on: June 16, 2016, 01:26:10 PM »
The auto expenses were the first thing to jump out at me too.  I pay less than you for insurance on FOUR cars.  Your gas expenditure is also high.  What car do you drive?  I have a Versa Note, avg about 1000-1200 miles per month, and I spend less than $100 in fuel each month.  Other than that, I'd say you are doing well :-)

Laserjet3051

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Re: Case Study - Help for someone who moves often!
« Reply #5 on: June 16, 2016, 02:56:33 PM »
Hello Lasercat:

I too live in OC/CA and can appreciate the #s you cite. without repeating what others have said already, I would commend you on your $100/mo grocery bill, well done! Public transportation in OC is awful, and in many cases impossible. But if your willing to move and are a bit lucky with regard to where you work, you can use it and drop your car expenses. Which brings me to ask how you can possibly generate a $100/mo electric bill for a 2 room apartment? I live in a 2100 ft2 house and our 2 recent electric bills were $38 and $50, and we have 4 people at home, 3 of which are electricity hogs.  Might I ask what your physical therapy is for? I've been through Pt several times and each time it was very valuable but in some cases, independent PT can be just as effective, of course, this depends intimately on the nature of the condition.


LaserCat

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Re: Case Study - Help for someone who moves often!
« Reply #6 on: June 17, 2016, 11:07:11 AM »
First off I want to say thank you guys and gals for all of your insights! :). I live out in the country, I'm in a guest house, on a horse farm. (Don't have to share walls with neighbors!  Which was a huge bonus for me!). Internet and water is included in my rent as well. In any case that's the reason for the gas being so much. Living further out means I drive more, but If I live close to work Rents are higher.

Thanks for the compliments on the grocery budget!  My garden puts out a ton of produce during the summer and I can and freeze stuff so that helps a lot. Sometimes I go over but then I just eat out less. :)

The electricity baffles me too. My colleagues have had similar small bills.  Right now, I'm not running any heat or AC, I have a small 5 sqft chest freezer, college sized fridge, electric stove, computer and 50 gallon water heater. Is it the water heater that could be running my bill so high?  It's about $80 a month at the moment.

PT is definitely necessary, but should only be a few months longer. :)
« Last Edit: June 17, 2016, 11:15:37 AM by LaserCat »

Trudie

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Re: Case Study - Help for someone who moves often!
« Reply #7 on: June 17, 2016, 11:16:31 AM »
Is it the water heater that could be running my bill so high?  It's about $80 a month at the moment.

Bingo.  My money is on that.  Water heaters are typically energy hogs... especially if it is not a newer model.  Much like clothes dryers there are rarely any efficient water heaters.  I would put an energy usage meter on it (sometimes available free from the utility company) and see if it's draining you.  I'm  not an expert on water heaters, but I do know there are some things you can do to cut down on energy use... among them, turning the heater down so it doesn't heat your water up to scalding... also, I think you can mess with the setting so they don't cycle constantly.  Is the water heater just for your cottage or for other areas of the property?

I would also use the usage meter to try to track down other phantom energy usage.

etselec

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Re: Case Study - Help for someone who moves often!
« Reply #8 on: June 17, 2016, 11:34:14 AM »
Other folks have said good things, but a few more possible changes jump out at me:
  • Betterment: since you're not maxing your 401(k) and, if I'm reading right, not contributing to an IRA at all, what's the rationale for non-tax advantaged investing? You could save some $$ on taxes here. (Unless your Betterment account is an IRA?)
  • PT: I see this expense is ending in a few months, so that will be a big help. In the future, if you know in advance that you'll need expensive health care like this, check if your work has an FSA (or even better, an HSA sounds like you might have a high-deductible plan, if PT costs you this much). Medical expenses suck (as someone with a chronic condition, I get this) but paying for them with pre-tax money definitely helps.

Best of luck!

LaserCat

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Re: Case Study - Help for someone who moves often!
« Reply #9 on: June 17, 2016, 04:14:57 PM »
Etselec, I'm no pro at investing (hence the reason I did Betterment in the first place, it's easy to understand.). My 401k is tied up in a work account. (Only a few thousand since I just started this job) and the rest is in a traditional IRA account.  Then I have 2k on top of that in a regular non-retirement betterment portfolio since I want that money to be accessible before 59 1/2. 

The investing part is probably the part I have the least knowledge about. Should I be maxing out my 401k instead of investing my after tax money? I thought that you want your money accessible before 59.5? Any insight is much appreciated as this is not my strong suit.

As for PT. yeah it was a bit unexpected I always put money in an FSA if I know but I also know it gets lost if you don't use it. :(

As for my water heater, it's just for my cottage. It has a blanket on it, but I should be a able to access it if I want to battle the shed filled with spiders :P

Thanks again folks for the help!!

Bracken_Joy

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Re: Case Study - Help for someone who moves often!
« Reply #10 on: June 17, 2016, 04:25:00 PM »
1. You can access money in retirement accounts before retirement age. You ABSOLUTELY should be taking advantage of the tax savings of your 401(k) and an IRA. You're paying the government more than you need to. Stop it ;)
Especially find out if you have an employer match on the 401(k), and contribute at least to that.
Useful posts:
http://www.gocurrycracker.com/never-pay-taxes-again/
http://www.gocurrycracker.com/cash-flow-management-early-retirement/

2. I don't understand why you're paying down your loans so aggressively when they're at such low rates. Pay the minimums and invest that money instead- you're likely to get better returns on the market than the low interest rate.

A helpful investing order:

Quote
WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield. (Currently 1.6%, so 6.6% or more)
3. Max HSA
4. Max Roth or Traditional IRA based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield. (Currently 1.6%, so 4.6% or more)
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: trad if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial

mjs111

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Re: Case Study - Help for someone who moves often!
« Reply #11 on: June 18, 2016, 04:00:53 PM »
I'd recommend maxing out your 401(k) especially if the company matches at all. If your company matches even a small amount this is a risk free return on your money that will be difficult to match anywhere else.  As an added important bonus you get to shield a considerable amount of income from one of the highest tax areas in the nation.  When you combine these two things its almost certain (especially if you are an inexperienced investor as you say you are) you will not find a better return on your money.

I'd also recommend taking a look at what you're investing in.  You're 11% in bonds.  Why?  Bond yields are at generational lows these days and you're many years out from retirement.  Of the 89% that's in stocks what is it invested in?  Why not put your entire 401(k) into an S&P 500 Index fund if it's offered (ex. VINIX). That gives you a huge amount of diversification (500 of some of the biggest market cap companies that do business worldwide) at very little cost.

Mike

Jim2001

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Re: Case Study - Help for someone who moves often!
« Reply #12 on: June 18, 2016, 07:36:30 PM »
+1 for a larger emergency fund.
+1 for pay the minimum on the student loans until 401k/retirement fund is max'd.

I like the idea of diversified pre-tax and post-tax accounts, but you'll definitely want to make sure you're getting the maximum company match.  Then it's a personal decision on the split.  As Braken_Joy says, there are ways to get at the money prior to 59 & 1/2.  I also second the "What/Why" priorities.

Double check on the FSA rules, I'm pretty sure they relaxed the "use it or lose it" requirements.  Even if they haven't, it's still useful for the "known" expenses (i.e. regular medical & dental checkups) and sounds like you've been using that.

Congrats on the grocery bill and growing your own.  I plan to get back to that soon, but haven't had time due to my commute.


LaserCat

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Re: Case Study - Help for someone who moves often!
« Reply #13 on: June 19, 2016, 12:05:04 AM »
So I just read over all of the stuff that you guys posted, and you are totally right!  I don't know why but I never looked at my 401k like a sure return on investment before, that really changes a lot for me.  It makes a lot of sense! I always knew that the match was free money, but I didn't realize that I could actually use that money before age 60!   My employer offers a pretty hefty match especially the more I put in so I should take advantage of that, and it is a much better % than my 2-3% loans. =)  I also appreciate the advice about where and how to invest my 401k money, as well.

I also looked up the FSA rules and you guys are right they did relax it a few years back, up to $500 can be rolled over if your employer allows it!

As for my emergency fund,  I'm planning on padding that with my bonuses this year so hopefully I can get it up to 10k in the very least.

I want to thank you guys and gals so much for your help and insight on this, and I just spent some more time today freezing some of my harvest, so hopefully I can keep that grocery bill low!  You guys are awesome!

« Last Edit: June 19, 2016, 12:10:06 AM by LaserCat »

mjs111

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Re: Case Study - Help for someone who moves often!
« Reply #14 on: June 19, 2016, 08:41:06 AM »
Agreed on getting a bigger emergency fund.  It looks like you only have a little over a month's living expenses saved up. I'd shoot for something more like six months.  There are people (including Mr. Mustache himself I believe) who don't believe in having large emergency funds since that's money not invested that's losing value over time to inflation, but the key difference between these people and you is that they have large amounts of money invested in non-retirement accounts that they can draw from in case of emergency. If you have $500,000 invested in an index fund in an after tax account and you need a $2,500 car repair you can easily pay for that on a credit card and sell off some shares to pay off the loan the following month.  The amount you're selling is so minimal to your total stache that whether or not the market is up or down it doesn't make a huge difference. You don't really have that (yet).

Not sure where your emergency fund money is located but as it gets bigger make sure to move most of it to a high yield savings account like CapitalOne360.  While yields are very low now Capital One offers higher yields than most, and yields won't always be this low.  Back when yields on savings accounts like Capital One's were in the mid single digits in the mid 2000's the yields offered on a typical retail checking account were still pretty low, typically 1% or  less.

Mike
« Last Edit: June 19, 2016, 11:44:39 AM by mjs111 »

Dicey

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Re: Case Study - Help for someone who moves often!
« Reply #15 on: June 19, 2016, 11:09:06 AM »
I second B_J's list, except I see you have access to an FSA, not an HSA. Still, max the FSA and use it effectively

Ditch Betterment in favor of maxing out your employer's match. Sorry, I take huge issue with Pete's position/endorsement of this company. I agree that it might be a perfect choice for someone who's FIRE and still pulling in around a half a million a year on top of that. It is NOT anecessarily optimal product for newbie investors, especially if they are choosing Betterment over a company match. Not right at all.

usoverseas

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Re: Case Study - Help for someone who moves often!
« Reply #16 on: June 20, 2016, 09:34:39 AM »
Hi Lasercat-
I lived in the OC for about 10 years before moving overseas and I definitely agree that housing and car costs really eat into your budget.  First of all, I'm totally curious as to where you live in the OC that is considered the country? That aside, a few tips from my personal experience and some things I've learned from reading all of these blogs:
1. Find somewhere less expensive to live.  I lived in newport beachfor 3 years and was only a half a block from the beach.  I had a random roommate in a small two bedroom apt and paid $700 per month.  I will qualify that by saying it was quite a while back, but I think if you look you will find something that will work for you. Another bonus is that you will meet some new people.  Newport Beach  has a lot of young professionals looking to share apartments.   Most are terrible with their money though!
2.  Benefit of living somewhere like the peninsula in NB is that while you will still have to commute for work after that you can walk every where.  I had a beach cruiser and rode or walked everywhere other than my work commute and the beach and boardwalk is easy, free entertainment. A lot of the places have roof decks where you might be able to have a roof garden....
3. People have recommended adding to your 401k, make sure to look at the expense ratios of what you are investing in.  If they have vanguard funds like the vanguard 500 - I think that is what is called in my 401k - then something like that is great.
4.Check out jlcollins stock series.  Seems like from what i have read it would much better for you to open a vanguard with a few simple fund like total stock market and would be more costs effective than vanguard.

 Where is your office located?  I might be able to give some suggestions that would be good places to live in the area.
   

LaserCat

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Re: Case Study - Help for someone who moves often!
« Reply #17 on: June 20, 2016, 11:56:52 PM »
Thanks for your help, you guys have given me a lot to think about!  (and calculate, haha!)

former player

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Re: Case Study - Help for someone who moves often!
« Reply #18 on: June 21, 2016, 03:00:19 AM »
Mostly just repeating what others have said -

1.  Everything you save except the emergency fund should be going into the 401(k) up to the maximum allowed by the taxman each year ($18k?).  Make sure that your 401(k) money is in a low expense index fund, preferably Vanguard.  If you are increasing your 401(k) payments by a lot, check whether your tax withholdings need adjusting so that you do not end up with a big refund at the end of the year.

2.  Increase your emergency fund and put it into a high interest (but safe - do not play the high risk/high reward game with an emergency fund) cash deposit.

3.  If your lease allows it, could your apartment work for the occasional AirBnB?

4.  Water heating is an energy suck.  You do not need hot water while you are at work or sleeping.  Ask your landlord to put a timer on the system (or use one already there) so that you can heat it up half an hour before getting up and half an hour before getting ready for bed, which is all you need - boil a kettle for the washing up in between.

5.  I reckon you are currently putting $1,270 per month towards savings and debt payments, which is pretty good.  You just need to optimise where it is going, which is firstly the 401(k).  After that, well your car loan is your lowest interest debt, so just pay the minimum on it.  Pay the minimum on the two larger student loans until the smallest, which is also the highest interest, is gone.  Then pay the minimum on the 2.875% debt until the biggest is gone.  I know others have said it might be worth investing rather than paying this off, but it is close to 4% and overall you have most of a year's income in debt still, so I'd say pay it off.  The one thing I would say is: don't pay "in advance", instead specify that all your payments from now on are to pay off capital - this will be administratively a bit more fiddly to arrange each time but is the better return.


Sibley

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Re: Case Study - Help for someone who moves often!
« Reply #19 on: June 21, 2016, 02:20:19 PM »
One thing I noticed, and not sure if this is just your wording or what. On the SL, you say "paid out 2 years in advance".

There are 2 things you can do when paying more than the minimum on loans.
1. Extra is applied to premium, thus reducing premium and future interest rates.
2. Extra is applied to the NEXT PAYMENT due.

Your wording implies #2. If that is indeed what's happening, that's not as advantageous for you. When you pay extra towards the principle, it actually reduces the total amount of interest you pay out over the life of the loan. If you pay towards the next payment due, it doesn't effect the interest over time.

And I used to live in CA. Car insurance sucks - was double what I pay now in IL, and I have a newer car. I sympathize.