Author Topic: Reader Case Study - Advice for starting my financial life  (Read 3276 times)

cmoo51

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Reader Case Study - Advice for starting my financial life
« on: September 09, 2015, 05:15:14 PM »
Life Situation - I am a 21 year old male and I am currently single and living at home. I have a job working for a family owned lawn-care company. I'm wanting to invest some money because I feel like this is the optimal time because my expenses are very low.

Gross Salary/Wages - I earn $1,800 a month on just salary. Also get a monthly bonus based upon the previous months commission. Generally is about $1,000.

Pre-Tax Deductions - 10% for tithing (yes, I really do base it off gross income)

Other Ordinary Income - during the winter months I help with scorkeeping basketball and they pay me an hourly wage of $8.25, usually only 16 hours a week. Pretty much do it just to help out and isn't a significant source of income.

Qualified Dividends and Long-Term Capital Gains - I have a Roth IRA that I add to with each paycheck.

Current Expenses - I spend around $400 a month which includes my share of the phone bill and gas for my vehicle. It's a gas guzzling truck that gets about 15 mpg, actually looking into getting a new vehicle. Other than that, I don't budget at all. I haven't tracked my expenses to see exactly what I spend my money, which I know is bad and just purely lazy.

Specific Questions - My main question is about investing, I've done some research and my plans are to invest in Index Funds using Vanguard. I would like y'alls opinion on a good amount to invest. Should I invest ASAP, or  should I save up some extra cash and wait until January of 2016? I don't know what would be best for me, also any advice/help that y'all would like to offer is always appreciated on some wise financial decisions I should be thinking about in my current situation.

MDM

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Re: Reader Case Study - Advice for starting my financial life
« Reply #1 on: September 09, 2015, 05:35:30 PM »
cmoo51, welcome to the forum.

Might be helpful if you would clarify a few things:
 - For income (both wages and other), what is your total annual amount divided by 12 (in other words, monthly amount averaged over the entire year)?
 - If you haven't tracked expenses (and yes, you should), one way to estimate total expenses is
      Total expenses = Total income - (today's bank balance - bank balance 1 year ago)
   What do you get if you do that?
 - What do you expect for income and expenses over the next 2-3 years?  In other words, are they likely to stay the same or are you planning changes such as different job, different living arrangement, etc.?

cmoo51

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Re: Reader Case Study - Advice for starting my financial life
« Reply #2 on: September 09, 2015, 05:54:38 PM »
In total my gross is  $2,800 a month. And after figuring out my expenses the way MDM said it ended up being $475. Over the next 2-3 years I expect my income to be relatively the same. And adding to the expenses within in two or three years could include the added expense of having a second person if I get married with in that time. Hopefully that'll also add a second income. And whether it be renting or owning, a home. Does that help clarify a little more?

MDM

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Re: Reader Case Study - Advice for starting my financial life
« Reply #3 on: September 09, 2015, 06:49:25 PM »
Hmm...expected the total expenses to be much higher because taxes alone should be ~$500/mo.  Assuming the $475 is non-tax expense, putting your numbers in the case study spreadsheet we get the following.  Does that all look correct (enough)?

CategoryMonthly
Comments
Annual
Salary/Wages for person #1$2,800$33,600
Federal Total Income$2,800$33,600
Federal tax$2532015 rates, S, stand. ded., 1 exempt.$3,034
State/City tax$58Guess, using 3.00% * Fed. Taxable$699
Soc. Sec.$174Assumes 1 earner paying$2,083
Medicare$41$487
Total income taxes$525$6,303
Income before other expenses  $2,275$27,297
Monthly Average Expenses:
Charitable contributions$280$3,360
Miscellaneous$195$2,340
Non-mortgage total$475$5,700
Total Expense$475$5,700
Total to invest$1,800$21,597

MDM

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Re: Reader Case Study - Advice for starting my financial life
« Reply #4 on: September 09, 2015, 06:50:46 PM »
Other question: do you have access to a 401k?  If not, has the owner ever considered http://www.employeefiduciary.com/?

cmoo51

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Re: Reader Case Study - Advice for starting my financial life
« Reply #5 on: September 09, 2015, 07:27:14 PM »
I don't have access to a 401k, but I do have a RothIRA in which I add $300 a month. And yeah, I didn't take into account on my monthly expense. That graph is pretty close, although state tax is more like $130.

MDM

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Re: Reader Case Study - Advice for starting my financial life
« Reply #6 on: September 09, 2015, 07:53:37 PM »
If you contributed that $3,600/yr to a traditional IRA you might save ~$980/yr in taxes.  Some of that is simply due to lower taxable income at the 15% federal and ~6.7% state rates, but another $200 is due to the saver's credit.  Of course, contributing only $3,599 to the tIRA (more to the point, having $36,001 AGI) means a $0 saver's credit.

To your question about investment timing: statistically, "now" is the best time to invest.  The market goes up and down so there may well be a better time in the future - but then again there may not be.  For people just starting, "put it all in VTTSX" is my default, but many other options are defensible.

See http://www.bogleheads.org/wiki/Category:Getting_started and http://jlcollinsnh.com/stock-series/ for more info.

And consider lobbying for that 401k....

cmoo51

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Re: Reader Case Study - Advice for starting my financial life
« Reply #7 on: September 09, 2015, 08:39:13 PM »
Okay thanks for all the advice MDM. I'll check all the points out.

cmoo51

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Re: Reader Case Study - Advice for starting my financial life
« Reply #8 on: September 09, 2015, 09:26:40 PM »
Also, another quick question. Say I had $5,000 to invest up front. Would y'all suggest investing the min $3,000 into the VTSMX and the min $1,000 into VTTVX and possibly another $1,000 elsewhere? Or all into one? Or just stick to those two and add an extra $500 to each, making on $3,500 and the other $1,500?

Dicey

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Re: Reader Case Study - Advice for starting my financial life
« Reply #9 on: September 09, 2015, 10:41:16 PM »
You asked for advice, so here's something I think every High School graduate should have engraved on their diploma. "The sooner you start saving and investing for retirement, the fewer actual dollars you will need to save for a happy and carefree retirement."
You are in a wonderful position to give your future self a leg up. Start saving and investing NOW, and you will have nothing but praise for your past self when you reach FI and can RE whenever you want to.