Author Topic: Need some advice (or just some perspective on how I am doing)...  (Read 3187 times)

SonicReducer22

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I have been reading and thoroughly enjoying the articles on MMM. I am also an avid watcher for the Suze Orman show on CNBC. So with all that said. I came to the MMM Forums on some advice and some perspective how I am doing at age 32. So some background information. I am single. I have been working for the last 10 years since college in various jobs. I had savings account at one point (from 2003-2007, the highest I saved was $5-6K) that I missed used (and I kind of regret doing) and stopped contributing to it after spending it all and was not able to setup direct deposit directly to that account with a new employer at that time. Anyway, I have always contributed 10-16% of my pre-tax salary to a 401K at all my jobs except my current one that I started working at in April 2013 (there is no matching contribution currently since it is a contract position).   Also, since June 2012, I got out of $7K of credit card debt and started savings account again. I sold off a ton of old junk (books, CDs, DVDs on the internet) to boost that savings account. I still have some more books to sell off, gently used hockey equipment, and some comic books to sell (I know the comic books are not worth too much given the market for them and the fact mostly from the '92-'97 era, but selling them for anything will bring in some more cash for the savings account and empty out the space there occupying). So here are my stats (I have the envelope budgeting method applied to a few accounts since it works for me):

as of 8/12:
Checking1: $200 *Discretionary/Normal spending
Savings1: $9250 *Emergency Fund/House fund
Savings2: $350 *Discretionary/Emergency
Checking2: $400 *Discretionary/Emergency
Savings3(Food and Insurance): $600 *This is for next year's renter's/car insurance along with saving my budgeted amount for food for a given week.
Savings4 (Rent and Utils): $300 *I just started this account this week, I should have plenty saved in this account by end of the month to pay Rent and Utils.

Credit Card debt: $690 *I just signed up for a class. I will have this paid off by end of August.

Expenses (Rent and utils): ~$1200 a month

401K: ~$68000

I know this could all be better since I was an idiot financially between 2006-2012. I realize that. I have learned from that. I just want to get back on track financially. I finally was able to land a job that I have wanted for years. Currently it's a contract position but I needed to take the chance to do what I have always wanted to do. The contract is up in Apr 2014. I hope to have $24000 saved by then in Savings1 account and then either have my current contract extended or find a similar position with another company. I figured with $24000 saved, I would have an decent emergency fund set aside then I could start focusing more on saving for a house purchase in 2016-2017. I would still save to the emergency fund I would just dial it down to focus more on saving for a house.

So what do you think? Is this a decent 3-4 year plan? Is there anything I can do maximize my savings or generate additional income? Any advice or perspective from any Mustachians would be greatly appreciated.

Thanks,
Sonic








Zamboni

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Re: Need some advice (or just some perspective on how I am doing)...
« Reply #1 on: August 12, 2013, 01:05:28 AM »
Hi Sonic!  Don't worry about your past . . . no blame, no shame, as the saying goes.

Congrats for always being a 401K participant.  Is your current company not allowing you to participate bc you have a contract position?  I think it's always a good idea to participate even if there is no match because it's pre-tax.

$1200/month for housing is pretty substantial for a single person.  Not sure where you live or what the numbers look like there for rent vs. buy, but you might want to just go ahead and take a look at zillow.com (or similar site) to see what's available for purchase now rather than waiting.  Probably you can easily also contact a mortgage lender at your local bank - or banks - and he or she can look at your numbers and pre-approve you for some amount.  He or she can also tell you ballpark for down payment & closing costs cash you'll need at different purchase price levels.  Then contact a buyer's agent to show you a few places, an you're off to the races!  For example, in my area it's cheaper to buy a 2-3 bedroom townhouse than rent a comparably nice 1 bdrm apt.  Makes no sense, but that's the way it is here.  As an added bonus, interest rates are still really low but starting to creep back up.  A roommate (or roommates) if you don't already have them could make the cost of home ownership/renting even lower.  In other markets it makes sense to keep renting.  In any case it doesn't really hurt to look around at what's available for purchase; it will make you a more saavy buyer when the time comes even if it's in a few years.

Also, good job on selling your stuff.  Keep up the good work!  Glad to hear you like your new career direction.

I'm not a big fan of keeping all those bank accounts, which I'm guessing is an Orman idea.  I did it at one point, but for me it just made my financial life unnecessarily complicated.

marty998

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Re: Need some advice (or just some perspective on how I am doing)...
« Reply #2 on: August 12, 2013, 01:41:16 AM »
Yep, close all those bank accounts. you need 1 transaction account and 1 savings account. Thats it.

I once did a little (rich) old lady's tax return. She had 11 bank accounts. Some had over $250k in them. Some were overdrawn. The ones overdrawn were incurring bank fees of $50 a day, which could have been avoided by dumping a measly $300 in there. I suppose when you have millions you stop being worried about $50 here and there.

Bank accounts are like rabbits. You need to eliminate them early and often, otherwise you end up with a plague.

EK

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Re: Need some advice (or just some perspective on how I am doing)...
« Reply #3 on: August 12, 2013, 06:23:40 AM »
I used to confuse myself with having a zillion different bank accounts too, but like the other posters are saying, it only makes your life complicated!  I had each account for something different- it looks like that's maybe what you're trying to accomplish.

Instead of that silliness, you might give YNAB a try.  It's budgeting software that allows you to see all your money in one place, and it forces you to give every dollar in your accounts a "job" by assigning it to a category.  Then it keeps track how much you've decided to put towards all your different goals for you so you're not stuck and confused trying to keep track of a thousand bank accounts.  It's very much like an envelope budgeting sytem, but so much easier to keep track of and manage.  They offer a one month free trial, so it can't hurt to give it a try: youneedabudget.com .

SonicReducer22

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Re: Need some advice (or just some perspective on how I am doing)...
« Reply #4 on: August 12, 2013, 01:11:04 PM »
I actually use mint to track all the different accounts and budget along with Google Docs spreadsheet. I track them daily so that nothing becomes over drawn. Plus all the accounts are with Ally Bank, so there aren't any fees if they do go to low. I will probably consolidate in the future, but for now this works for me.

Also, just for clarification, I miss typed earlier, my rent and utils is actually ~$1100 a month (~$1460 if you count the food/insurance budget as well), save $800 a month, that leaves $560 left over for whatever either extra savings or to use as a buffer.

@Zamboni, there is a 401K offered, but since there was no match and since I have been saving pretty substantially in that area over the years. I figured I would just use that extra money to build up an emergency fund. Once I get that $24K mark, I will probably restart a 401K or Roth IRA and back off on saving as much in the emergency fund. I will look into contacting a mortgage lender to get a ball park Idea of what I can afford and go from there. My only question is that, if I don't have a 20% down payment, isn't that just setting me up for additional costs? Currently, I only have $10K if I pull everything together, I am not sure that would be enough for a fixer upper in my area for a single person. I really do not want to be house poor because I could only put down 5% on $200K or less house. 

Or is there a way (or is it normal) to only put down a low percentage and then just make additional payments (or large scheduled payments in the future or one large payment in the future) to offset not having 20% down? I really don't know much about home ownership. I know that interest rates are low, but I heard great advice in that one should wait to buy house until you are ready not when the market is ready. That way of thinking makes more sense to me but again I am open to anyone's ideas on the matter since I am trying to figure this out for myself.

Thank you everyone for the advice so far.


Numbers Man

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Re: Need some advice (or just some perspective on how I am doing)...
« Reply #5 on: August 12, 2013, 02:29:47 PM »
Sonic - It seems that you're doing a good job of saving. I think you really need to work on securing a permanent job, unless you are self employed. Because it seems like you are building up your EF because you might be unemployed after the contract ends. Also, cut down the number of savings accounts to one account. Better yet, open up an account at a discount broker where you have check writing and investing options.

CrochetStache

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Re: Need some advice (or just some perspective on how I am doing)...
« Reply #6 on: August 12, 2013, 04:49:10 PM »
SR22,
Money placed in a Roth IRA can be removed tax-free. So this could serve as part of your emergency savings.

And any money placed in a Roth IRA can go towards possibly reducing your Fed Inc Tax. It's called a Retirement Savings Contribution Credit on the tax form.

Yes, you could lose all the Roth IRA money if it is invested in the wrong thing at the wrong time BUT, it is possible to have basic CDs within your Roth IRA that do not lose money but still provide the option to use the Retirement Savings Contribution Credit which can be several hundred dollars making up for the low interest rate earned on CDs.

I am most happy to read you have a job you really love, this will make a huge difference for you moving in the right direction!

SonicReducer22

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Re: Need some advice (or just some perspective on how I am doing)...
« Reply #7 on: August 12, 2013, 07:32:36 PM »
@Numbers Man, I am not self employed. I took a contracting position in April 2013 after having the same job for 7 years. I was working in IT Support at a large company, no matter how hard I tried to get promoted to the next level in the IT Support organization, it just never happened. So I decided to pursue my main passion in Databases and was able to secure a job as a Junior Level Database Administrator (you have to start somewhere) at another company. It just so happens that it is a contract position. I have never had a contract position before so I am kind of nervous of where I will be in April 2014 but regardless of that I am looking forward to gaining a lot of experience and knowledge between now and then to secure another job after April 2014. There is a slight possibility that my contract might get extended after April 2014 but that is unknown as of now. That's why I am kind of focused on the Emergency Fund aspect of all this.

What does the discount broker help me do? Does it give me a decent APY? Do you have any info on them or should I just google "discount broker" to find out?

Thanks for the recommendations.

@CrochetStache, its been great to have a job that I look forward going to day after day where I get to learn something new every day. Thanks.