On the Move and Interested in the Ways of the Stache

[beard423]

Hi Everyone!

I've just discovered FI and this site, and I find it completely fascinating. Coincidentally, my job is moving me to Mr. Money Mustache's hometown, Longmont, CO. I'm in a bit of an odd financial situation, certainly not FIER yet, but I think I'm in a good position to get down that path. I'd love to hear some feedback from some experienced mustachers. Here's my situation:

The Debt
I've got practically $0 savings right now. My fiance and I have been very focused on paying down debt, but we've still got about $36k in student loans. Mine are about $28k and hers are about 8k. We're planning on her going back to school (she has about 2 years left), so deferment is an option on her loans (all subsidized). I'm planning on opening up a 529 to contribute to for her education.

The Assets
I own my house here in my home state outright. It's worth about $xxx-xxxk. A relo company will be taking care of the sale of the home and any fees incurred, including realtor fees.

We have a couple cars, worth about $5k and $7k.

Have about $7k cash on hand.

Income
I'm currently the only income earner, and my fiance will probably only work part time while finishing up school for a couple years. My salary is $xxxk in my new position. Variable pay is around x%.

Employer has stock purchasing program and 50% 401k matching up to 6% of salary.

What to do?

A Home
We'd like to buy a home in Longmont. We're looking at a lot of things; all within the range of 150k-250k. Closing costs are covered as part of the move package. The real estate market there seems to be in a bit of a bubble at the moment, as MMM could probably attest to. Looks like, for something nice, we're looking at close to that 250k number. We're leaning towards a 10-year mortgage, while putting down a significant chunk from the proceeds of the sale of the home. I'd love to hear what you guys think about the home buying situation.

Investing
I'm planning on maxing out the 401k contributions, opening up an IRA and maxing out stock purchasing; I'm still researching this stuff. They also have this deferred compensation option that I'm just now reading about. Any input on this stuff is greatly appreciated. I've considered becoming a landlord, but the real estate seems to be a bit too pricy in the area. Cap rates are not appealing.

The Debt
It seems best to just pay off my student loans from the proceeds of the house, and defer my fiance's loans until she's finished with school.

Any feedback on the strategy would be greatly appreciated. I'm just now learning the ways of the mustache, so I want to get off to the best start possible. Thanks for taking a look at my post!

[MDM]

Investing
I'm planning on maxing out the 401k contributions, opening up an IRA and maxing out stock purchasing; I'm still researching this stuff. They also have this deferred compensation option that I'm just now reading about. Any input on this stuff is greatly appreciated. I've considered becoming a landlord, but the real estate seems to be a bit too pricy in the area. Cap rates are not appealing.

beard423, welcome to the forums.

From what you wrote, it seems the two of you have your act together very well.  Keep up the good work.

I'd particularly like to commend you on your investing plan, and encourage you to investigate that deferred compensation option.  All your specified plans look good.

You'll want to understand the deferred compensation details - this could be a great deal or a not-so-great deal.  Folks here (or at http://www.bogleheads.org/forum/, or http://www.early-retirement.org/, etc.) can help explain wording if needed.

Good luck!

[lpep]

What rate are your student loans? Some people might tell you, depending on your loan rate and return you could expect by investing, to invest any leftover proceeds from your house in the stock market. Your money could earn you more there than in paying off debt (including your new mortgage), but this all depends on how you feel about having debt. It's a perennially sticky subject.

I've never owned a house or (luckily) been in debt, for full disclosure, but I suggest running some spreadsheets to see the possibilities and having conversations with yourself and the fiance!

[beard423]

Investing
I'm planning on maxing out the 401k contributions, opening up an IRA and maxing out stock purchasing; I'm still researching this stuff. They also have this deferred compensation option that I'm just now reading about. Any input on this stuff is greatly appreciated. I've considered becoming a landlord, but the real estate seems to be a bit too pricy in the area. Cap rates are not appealing.

beard423, welcome to the forums.

From what you wrote, it seems the two of you have your act together very well.  Keep up the good work.

I'd particularly like to commend you on your investing plan, and encourage you to investigate that deferred compensation option.  All your specified plans look good.

You'll want to understand the deferred compensation details - this could be a great deal or a not-so-great deal.  Folks here (or at http://www.bogleheads.org/forum/, or http://www.early-retirement.org/, etc.) can help explain wording if needed.

Good luck!

Thanks MDM!

So, upon further research, it seems I'm not qualified to participate in the deferred compensation plan (it requires 165k base salary).

btw, I forgot to mention that we got approved for a 3% mortgage for a 10-year term with up to 240k financed.

I'm wondering, if say, I wanted to be FI within 10 years when the mortgage is paid in full, if I should be more focused in non-tax-deferred investment options. What do you guys traditionally invest in? It seems there's a lot of talk about IRA's and 401k's, but not quite as much about the non-tax-deferred investments. Real estate doesn't seem to be a very good option in this market. Should I be looking into index funds and possibly bonds (interest rates are so low) with that money? I'm currently 29, so I have a few years before 59.5.

I'm also wondering if you guys would recommend a smaller down payment given the low mortgage interest rate, say 20-25% instead of something like 50%.

[beard423]

What rate are your student loans? Some people might tell you, depending on your loan rate and return you could expect by investing, to invest any leftover proceeds from your house in the stock market. Your money could earn you more there than in paying off debt (including your new mortgage), but this all depends on how you feel about having debt. It's a perennially sticky subject.

I've never owned a house or (luckily) been in debt, for full disclosure, but I suggest running some spreadsheets to see the possibilities and having conversations with yourself and the fiance!

Thanks for the reply, lpep.

The student loans are about 6% on average. With the mortgage rate of 3%, I figure it's best just to pay off the student loans and finance a little more of the house. I guess the amount of a down payment is the variable in the scenario. I'm personally averse to carrying debt; not being FI, there's always the chance I could lose my job and not be able to make the mortgage payments.

[MDM]

So, upon further research, it seems I'm not qualified to participate in the deferred compensation plan (it requires 165k base salary).
...
I'm wondering, if say, I wanted to be FI within 10 years when the mortgage is paid in full, if I should be more focused in non-tax-deferred investment options. What do you guys traditionally invest in? It seems there's a lot of talk about IRA's and 401k's, but not quite as much about the non-tax-deferred investments. Real estate doesn't seem to be a very good option in this market. Should I be looking into index funds and possibly bonds (interest rates are so low) with that money? I'm currently 29, so I have a few years before 59.5.

I'm also wondering if you guys would recommend a smaller down payment given the low mortgage interest rate, say 20-25% instead of something like 50%.

Oh well, just keep that deferred comp option in mind if the career trajectory allows it....

While you should fully use any and all tax-advantaged options, realistically even maximized IRAs and 401ks will not allow FI in 10 years.  E.g., assuming (optimistically) 7% real return and $24,000/yr investment, the value after 10 years - in Excel, =FV(7%,10,-24000) - will be $331,595.  Taking 4% of that, $13,264, will not be enough for most people's annual expenses.

So you will need to use non-tax-deferred investment options.  You can get fancy about what investments you hold in tax-advantaged vs. taxable accounts (e.g. see http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement), but for starters you can simply hold the same investments (i.e., the same index funds) in all accounts.

There can be good reasons to invest in bonds, but because "interest rates are so low" (and if you believe they will go higher) is not one of them.  Does that make sense?

And yes, given a 3% mortgage you might well prefer to put money into investments rather than a larger down payment.