The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: denverite on November 25, 2014, 04:54:23 PM
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Hello, Mustachians,
I'm 29, male, single, and currently renting. I paid off my grad-school debt in February and found Money Mustache in May. Since then, I have been saving and simplifying my life in order to maximize the income I bring home from a teacher's salary. I had a savings account for a new car (my current hand-me-down minivan cost me $2k last year in repairs), but now I'm leaning more towards getting rid of one altogether.
My question is: where should I put my money at this point in my life and career? Should I spring for a home (with the help of family), invest in stocks, or something else? One long-term ideal would be to purchase a house or land for a housing cooperative that could facilitate transitions out of prison or homelessness through affordable rent/food. Less ambitiously, I could also be happy in a simple home with one or two roommates.
Take home Monthly Income: 2800 ($150 from Lyft, 2650 from salary + occasional stipends)
Savings: $700 ($400 in Savings, $300 in Health Savings Account)
Investment: $334 ($234 Roth IRA, $100 in Mutual Funds) --I put all stipends (4k per year) toward the ROTH to max it out.
Bills: $772 (Rent: $575, Phone: $55, Gym: $99, Car insurance $43)
Charity/Donations: $300
Fun: $80
Grocery: $300
Gas: $80
Restaurant: $100*
Freedom Account: $135 (Short term savings for future expenses: clothes, repairs, tools, books, fees, and furniture)
Assets: $19,636
Mutual Funds: $7,147 (Edward Jones)
Roth IRA: $4,455
Savings: $6,367
Cash (freedom acct/checking): $1,667
*I acknowledge that the place I could cut spending the most (and where most of my extra income goes) is restaurants, which is my priority to change this month.
You can see I have a little over 6k for a car or to use towards a downpayment (family could support me in buying if I asked them). Should I consider doing something else with this money? Should I be investing in something else?
Thank you in advance for all wisdom, censure, advice and criticism!
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- Don't buy a home until you're ready to settle someplace. You have to live in a home for at least 5 years for it to be financially worthwhile.
- $99 a month is a lot of money for a gym. Exercise is important, but there are more frugal ways to do it. Buy a set of weights and go running outside instead.
- $300 a month in groceries is a lot of money for a single guy. Don't buy the frozen/premade dinners, buy raw ingredients and cook them yourself and you can easily knock $100/month off of this.
- Do you really need a new car, or do you just *want* a new car? If you just spent $2k on repairs, it's probably in much better shape than it was before the repairs. Why spend $6k and take on a monthly payment if you don't have to? On the other hand, a minivan isn't very practical for a single guy, you could sell it and buy something smaller, newer, and more fuel efficient, although you are only spending $80/month in gas.
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I would buy a property if my mortgages is less than my rent, if it's more, as long as you are willing to take in roommates. Remember whatever you buy, bear in mind that if you ever decide to move, is it a good cash flow rental property? Will you be able to manage yourself? If not, factor in management fees, vacancies and repairs, etc.
You are on the right track at age 29, best luck!!!
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It is great that your savings rate is so high, but your money is going in a lot of different directions (HSA, Roth, Mutual Fund, Savings account, etc.). Thinking hard about your short and long term goals might help you clarify what is best at this point. You mentioned multiple potential paths, all of which are fairly different (FIRE? house? car? co-op?)
Another option to consider: You currently are donating quite a bit of your income which is very laudable. However it sounds like one of your long term goals is quite the charity project in itself. Would you be better off saving most of that money for a future cooperative purchase? It is hard to tell at what stage in this process you are at (is this just an idea or are you taking active steps to get there?). Either way, it is a big task and you'll want to make sure to surround yourself with some talented advisers.
Does your mutual fund account have a specific purpose? Would it be better off in a tax-advantaged account like an IRA? Does your employer offer any kind of retirement match?
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Thanks for the advice, everyone!
Based on what I've heard, I'm planning to reduce the amount I spend on food and direct my savings towards a long term goal like a house down payment, rather than a car. If my car gives me trouble this year, I'm donating it to NPR and using my bike.
To answer by_1008's questions, I do need some clarity and focus in my goals, which is always the hardest thing for me to do. Thanks for pointing that out. I may consider "giving" some of my money to a future endeavor.
My mutual fund isn't tax-advantaged. It was an account I started in my early twenties, hoping to get my feet wet in investing. I didn't know anything about IRAs at that point. I started my Roth two years ago, and this is the first year that I'm maxing it out, mostly due to reading folks like MMM. I realize an IRA has more immediate tax benefits, but I appreciate being able to take out of my ROTH if I need to for a downpayment in several years.
As for retirement match, I'm a state employee, so I don't have an IRA, but I do qualify for the matched pension contributions in 3.5 more years. (I may not stay on as a teacher).
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In your shoes, I would fire Edward Jones first thing Monday morning. They sell you front loaded (sales commission) high fee mutual funds that benefit them, not you. Move your money to Fidelity or Vanguard and don't look back. Read up on investing over at the Bogleheads website and read some of the articles referenced on this site. For a beginner, a couple of index funds that are no commission, low expense ratio, and low turnover (less to pay in capital gains tax) are what you need. Fidelity and Vanguard both offer this type of fund. Fidelity offers a better website with a little more guidance, Vanguard is the granddaddy of index funds. Don't allow the parasites at EJ to skim another dime off your stash.