The Money Mustache Community

Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: cavalier on September 16, 2013, 04:05:31 PM

Title: need direction...
Post by: cavalier on September 16, 2013, 04:05:31 PM
A little background:

I am 27 years old.
My only debt is a $20,000 car loan at 0.9% interest. (I know...still have 40 months worth of payments left at $499/month)
I make between salary, bonus, and my maxing my expense account at work, I will bring home approximately $85,000 gross this year.

I have the following:
$6k cash
$20k in stocks in an investment account
$21k in mutual funds in a Roth IRA
$97k in a 401k

I currently contribute the max to my 401k, I will scrounge together enough to max out my Roth this year (another $3k to go), and I save approximately $200/wk into my investment account.  I live in Hudson County, NJ.

My question is...I feel like I am throwing away money at rent at this point and I would like to consider buying something.  Should I contribute less to my 401k account and try to horde cash?  Should I aggressively pay off my car loan and then horde cash?  Any halfway decent place in my area is going to cost at least $300,000 so I need to come up with $65,000 on top of another $20k safety net...and barring a huge pay increase it seems impossible for that to happen in the anytime near future.  I just don't know what to do with my money and need some direction.


PS.  I drive for work so not having a car isn't an option.  I do not pay for gas and part of my compensation is a car allowance which covers my car payment and insurance...if the car payment went away I would still get the car allowance.
Title: Re: need direction...
Post by: Lans Holman on September 16, 2013, 04:29:32 PM
Don't buy a house just on that feeling, try to figure out if it actually makes sense and if you would enjoy homeownership.  What is your rent now and do you enjoy your living situation?  Are you planning on having a family at some point?  How tied are you the area where you live?  If a job came up in your field somewhere else, the freedom to make that switch might be valuable. 

There's certainly no need to attack the car loan with interest that low, although I think the almost obligatory mustachian advice would be to sell the car and find something cheaper.  Think of that car allowance as just another piece of income, since you don't actually have to be using it to pay for the car.
Title: Re: need direction...
Post by: cavalier on September 16, 2013, 04:41:19 PM
My portion of the rent is $1100/month....I live with my best friend and in walking distance of all my closest friends. I am probably going to stay another year and then move into a 1 bedroom with my girlfriend. Although it will cut down on cost I will probably still pay about the same. She makes less than me and we would likely split rent proportional to income.

I can't see myself ever leaving New entire family is here. I work in sales and if I got another job it would most likely just involve more travel vs moving.  Right now I drive about 20-25k miles a year.  I understand trading down but I'm underwater right now by about 3k and it just doesn't make sense at the moment.  I need to drive for work so trade ins are my only option on selling this car...I can't go one day without a car so private sale is out of the question and due to the parking situation having 2 cars for a brief period of time is also out of the question.

I guess where I'm going with this I putting too much into retirement?  My monthly take home is about $3800 plus whatever the year end bonus is. I pay out 2k in bills.  Should I back off on my 401k and try and horde?
Title: Re: need direction...
Post by: pbkmaine on September 16, 2013, 04:45:08 PM
That you should buy a house is conventional wisdom, but what you will find here is unconventional wisdom. If you plan to buy a house and live in it for for many years, and you can walk or bike from it to everything you need, and if there are good schools nearby, and if the rent versus buy equation makes sense in your area, then by all means, buy a house. You need to take into account that there are costs to maintaining a house, and costs for buying and selling, and real estate taxes and mortgage interest. Yes, interest and tax may be deductible, but what does that actually mean? It means that, if you are in the 40% marginal tax bracket, you are still paying 60% of the taxes and interest. You are not throwing money away on rent. You are paying a certain price for a certain amount of space. Can you get a better deal by buying? In Detroit, probably yes. In New York City, probably no. Look at the buy versus rent calculators out there on the web and run your own numbers. 
Title: Re: need direction...
Post by: Lans Holman on September 16, 2013, 04:57:55 PM
+1 what pbkmaine said.  Are you excited about the idea of owning a home?  They have the potential to be a lot of work, and there's no guarantee that they're going to be a good investment.  If there are cool places to rent where you live, don't feel like buying a home has to be an automatic next step.  If you do decide it makes sense, then yeah, you might need to back off the aggressive retirement savings for a little while to build up a down payment.  The question isn't really about the money, though, it's about your goals for your life.
Title: Re: need direction...
Post by: seattlecyclone on September 16, 2013, 05:07:34 PM
I don't think you're putting too much into retirement. Tax-deferred accounts are a good thing.

At your income you should be able to afford to max out your 401(k) and save up for a down payment. You say you have $20k saved in an investment account already, and you're contributing to it at a rate of $200/week (or $10.4k/year). This should be enough for a 20% down payment in 4-5 years even at your current rate of savings. To get there faster, try reducing your other spending.

You say you make $85k/year. Is this pre-tax? The expenses/saving you've mentioned are the following:
* Rent: $1100/month ($13.2k/year)
* Car payments: $499/month ($6k/year)
* 401(k) contributions ($17.5k/year)
* Roth contributions ($6k/year)
* $200/week into the investment account ($10.4k/year)
That's $53.1k/year. Where's the other $31.9k going? If you post the rest of your spending we might be able to identify some areas you could cut in order to save up for a house faster.
Title: Re: need direction...
Post by: cavalier on September 16, 2013, 06:26:57 PM
Yes the 85 is pretax.

Here are my expenses

Rent: $1100
Cable/Internet: $76
Gas/electric: $50
Car payment: $500*
Car insurance: $180*
Cell phone: $121*
Health/dental insurance: $225 (pretax)
Renters insurance: $15
*fully reimbursed by company

Travel is very important to me and I probably spend about $4000/year on travel. I maximize credit card rewards as much as possible.

Cutting back on cell phone or insurance just means ill get reimbursed less so I'm not interested in cutting those expenses.

Monthly take home is $3700 (after taxes and expense reimbursement)

I will get a year end bonus gross between 8000-15000.