Reader Case Study - How do I maximize my small earnings? Stuck on a few details

[YetiConfetti]

Hi there! First of all, thanks in advance for those who take the time to read and offer suggestions, criticism, and help. I'm an eager beginner Mustachian who would like some help from the "expert Mustachians" as I get on my feet.

I'm 26 years old, single, and I'm a high school science teacher. I have a Bachelor of Science and Masters of Education, which is what attributes to my high student loan debt but also is what's helping me keep afloat financially at the moment. I'm in my third year of teaching and I'm currently working in a .8 FTE position. For those unfamiliar with education or teaching, basically I'm being paid 80% of a full-time teacher's salary. Additionally, because this is my first year in my current district I have to reapply and reinterview to hold my current position, which may actually be altogether cut next year anyway because of budget issues. Either way, I will likely find a better paying job starting September 2015.

Income: $2,100 a month year round.  My current contract is for $36k. If I were to get a full-time contact this September I could expect to take home $46k.

Current expenses

This image below is a running spreadsheet I update relatively often. I also use Mint, but because I sometimes do bulk purchases Mint didn't give a very accurate overview of my budget and spending trends. For example, I just ordered 100 pounds of cat food for $230 which will last me almost 5 months. Mint shows that as kind of one large purchase within my spending trend, which I don't like.



Student Loans

I owe $70k in student loans. Yikes. I'm currently enrolled in a 10-year loan forgiveness program where if I work in public service (education or any non-profit org) for 10 years, the remaining balance of my federal loans (all $70k) will be forgiven. While enrolled in the program I can use any loan repayment option, including the income-based repayment. Because my income has been so low my monthly bill is $0. With this in mind, it isn't worth making payments. EDITED I've verified the details with my loan repayment plant a few times by speaking with different representatives at the Fed Loan Servicing agency through the U.S. Department of Education. Each representative said the same thing, in addition to all of the resources I've read online.

If my income level were to change and I needed to make monthly payments, my parents and my grandmother have offered to help contribute up to $200/month, so I'm not worrying about the student loans for now.

Assets

I don't own any property, but two years ago I bought a used car. I bought more of a car than I imagine most Mustachians would have recommended, but it's a little late to talk about it now. It's a 2012 Ford Focus Titanium. Great fuel economy! I used a calculator to see what difference it would make if I paid off my car early, and I'm not sure if I used the calculator properly but it didn't seem to make a huge difference?

I currently have $5,280 in cash. $3,600 of that is what I just pulled out of my former saving's account with my local bank and I intend to put it into a recently opened Capital One 360 Savings account, which has significantly higher interest. I have $1,500 on my credit card, which I pay off in full every month and will be taken care of with my next paycheck. Over the past four months I made many mistakes and spent more than I should have, so I'm a bit lower in cash than I'm comfortable with. I've reigned in my spending and I'm happily adjusting to a more frugal, Mustachian lifestyle.

Where I'd Love to Have Your Help

My boyfriend has been offering (what I believe to be) good advice about what to do with my savings but whenever I look online for more opinions I see so many opposite viewpoints. Instead of putting all of my $3600 in my savings account, he suggests that I invest in a Roth IRA. I definitely intend to open a Roth IRA soon, but I felt more comfortable with having a few thousand in a savings account just in case of an emergency. But, if I do open an Roth IRA, what would be a relatively safe way to invest it? I would go with Vanguard, and maybe some kind of mutual fund that would be relatively safe. However, he also said that the stock market could be a little volatile coming up so maybe that's not the best idea?

Regarding retirement / 401(k), as a teacher I have money pulled out of every paycheck that goes towards my Teacher Retirement fund, which is a 403(b) I believe. I need to get more info on this detail but I'm not entirely sure how much is actually going into that and if I can increase it in any way. If you're a teacher and have an idea, I'd LOVE to hear from you because I'm woefully uninformed and ignorant of this side of my job. EDITED I looked into my TRA stuff and here's what I found. 7.5% of every paycheck is put into my TRA fund and this is matched by my school. For three years, I'm currently at around $7k. Not terrible? I just started in a new district (a good district) that DOES have a 401(k) option, but no matching until I'm in the district for a minimum number of 3(?) years (which is when I'd be tenured). I'm going to prioritize getting money into a Roth IRA before the 401(k).

I'm in the process of looking for other ways to boost my income. For example, this summer I'll be looking for a nannying or cleaning service gig or something, and my parents have offered to pay me for labor at their house (I have experience as a landscaper). However, for now I'm looking for general suggestions for how I can better manage my expenses and what I should do with the money left over after expenses every month! EDITED I've looked into nannying more seriously and I think this will be a great option for me. With my work as a teacher and my schedule flexibility I think I'm a marketable candidate. I'm thinking of advertising on CL or Care.com. I've posted tutoring ads but haven't gotten any hits yet. Someone mentioned summer school, which is definitely an option, but I hesitate with summer school because I'm worried that it might burn me out beyond my breaking point. Additionally, if I were to teach summer school I'd have to drive 30+ minutes to work every day for just half a day of work, which I don't think would be worth it.

Responses to other posts
I recognize that my commute is expensive, but I feel that it's worth it. I live in Minneapolis and I work in the suburbs. For a number of reasons I hate the suburbs and I'd prefer to live in the city. Not only that, but my boyfriend lives two blocks away from me and he only has to drive five minutes to work. If I moved closer to work I'd be farther from my boyfriend and I'd be commuting to him instead. He and I have been discussing getting a place together when our leases are up later this summer, so it would make sense for one of us live closer to work even if the other has to commute a bit.

I'm definitely trying to lower my food expenses - the $300 is a high estimate that I put in and with the help of Mint I'm trying to get a better estimate for how much I'm actually spending. There are a few reasons why my food is so expensive and why I continue to prioritize the expense, however. I'm a food and health nut - I don't buy any processed foods and I cook everything from home, including almost every meal of my week. I even bake my own bread. I think that people who have cheap food expenses are generally buying more processed foods, and I'm not wiling to do that. I also splurge on buying my meat and eggs at a local co-op, so my meat is more expensive. I limit myself to about $20/week for meat and eggs, which buys me a few meals a week worth of meat. If I were really desperate to decrease my spending I would consider cutting this expense, but again, as a health nut and environmental nut this is something I prioritize.

Regarding my gym membership, yes, it's definitely something I've considered cutting. My gym membership is for a rock climbing gym and I usually go at least 3 to 4 times a month during the winter months and I sometimes go 3 or 4 times a week during the summer. It's a social environment at the same time that it's physically and mentally engaging as well, so I'm not sure yet if I'm ready to cut this expense. I feel that this is where I try to be Frugal but I don't want to be Cheap - I want to cut my expenses where possible, but not to the point where I'm cutting all of the things that help me enjoy time with my friends and help me with mental and physical fitness.

I really appreciated all of the advice regarding investing and I really agree with Spondulix when s/he said that I should do more research. I've really enjoyed learning more about the fundamentals of finances and economics and doing research on mutual funds, index funds, stocks, bonds, etc. I'm really looking forward to increasing my income so that I can explore these options more and do some (hopefully) smart investing.

I've decided to invest my $3k into a Roth IRA mutual fund. In the long term, as I increase my income this summer with a side job I'll be putting all of that money into maxing my Roth IRA, building up a little more savings, and then looking into a 401(k) if my employment in my current district is established for next year.

So, in a nutshell, here's my conclusion:

1. Invest $3k+ into a Roth IRA mutual fund
2. Decrease my monthly expenses and contribute at least $100+/month towards my Roth IRA
3. Put some extra money in my savings account ($100/month). Once this reaches $3k, I'll invest the remaining into my Roth IRA until it's maxed.
4. If I'm still employed in my current district next year, open a 401(k) with any extra money I may be earning.
5. Once I've achieved those goals, if I have extra money I'll invest a little into stocks perhaps! It may be awhile before I get here.

Thank you again for taking the time to read this and for your help!

[MDM]

YetiConfetti, welcome to the forums.

whenever I look online for more opinions I see so many opposite viewpoints.

Many of those differences are due to different assumptions, not always specified, about what will/might happen in the future.  E.g., you would do different things now if you assumed a) you will get a 1.0 FTE position this fall and keep it as long as you want, vs. b) you will not get any position this fall, and only a 0.5 FTE starting January 2016. 

Instead of putting all of my $3600 in my savings account, he suggests that I invest in a Roth IRA. I definitely intend to open a Roth IRA soon, but I felt more comfortable with having a few thousand in a savings account just in case of an emergency.

Both options are defensible, but I'm voting with you.  The more certain your full time employment, the more the Roth makes sense.

But, if I do open an Roth IRA, what would be a relatively safe way to invest it? I would go with Vanguard, and maybe some kind of mutual fund that would be relatively safe. However, he also said that the stock market could be a little volatile coming up so maybe that's not the best idea?

If you follow your instinct and develop a good emergency fund, then you can be more aggressive with the Roth IRA - and that seems a good thing to do based on your age.  For one stop shopping, you could do worse than Vanguard's VTTSX - but other options, e.g. http://www.bogleheads.org/wiki/Three-fund_portfolio, are also defensible.  Note: if you look at the composition of VTTSX, it's not all that different from the Three-fund portfolio, so we are talking nuances here.

Regarding retirement / 401(k), as a teacher I have money pulled out of every paycheck that goes towards my Teacher Retirement fund, which is a 403(b) I believe. I need to get more info on this detail but I'm not entirely sure how much is actually going into that and if I can increase it in any way.

Teacher, assign homework to thyself: yes, you should find out the details ASAP.  Call HR, your union, etc.

Good luck!

P.S.  Nice spreadsheet!  You might look through http://forum.mrmoneymustache.com/welcome-to-the-forum/spreadsheet-collection/ to see if there are any ideas you could incorporate.  And/or post your own there.

[teen persuasion]

What is the local teaching job market like?  In some areas it is nearly impossible to get a job, there are just too many teachers competing for a shrinking pool of positions.  In growth areas, you can have a job in a matter of days, with a signing bonus to boot.  Sadly, we are in a competitive area, and salaries reflect that.  DH just left teaching for a different field.  After teaching for more than ten years, he still made less than $35k a year, but he was working for a private agency, not a local school district (could never catch an open position).

You need to find out the details on your retirement situation.  DH had no access to the state retirement system (unlike most teachers), but he did have a 401k.  In the early years it had a match, but that disappeared in the recession.  I believe school district teachers have access to the state retirement system and a 403b, but this will vary by state.

Can you teach summer school?  DH did this for many years, since they needed him, and for the extra pay.  He was paid biweekly only during the school year, so 21x a year, and summer school ran for 6 of the 10 weeks of summer break, so an additional 3 biweekly paychecks, or about $4500 IIRC.

We have 5 kids, so refundable credits were a big supplement to our income when DH was the only wage earner and I was SAHM.  Putting the max we could into DH's 401k decreased our AGI, increasing our EITC, pushing our refunds up even more after the CTC on five kids (only a few left at home now).

You will also want to know all the nitpicky details on the loan forgiveness program.  DH got $5k forgiven after working at least 5 years in a low income district.  They were fussy with the application submission, his was sent back three times before they were satisfied with all of the contacts, etc.  Find out now what info will be needed - those contacts were hard to pin down after a few years, people changed jobs, moved, died.  We were also paying on the loans while he worked to qualify, so there was little left once he was finally approved.  I know you said you are not currently paying due to income based stuff, but what if you don't make the full time at an approved position, for whatever reason?  Your loans are growing as the interest is amortized.  Be careful.  Also check to make sure that forgiven amounts are not treated as income, or you may owe taxes on forgiven loans.

Honestly, we owned a house, paid down the ugly 9.75% mortgage 15 years early, and raised 5 kids on a salary like your current one.  We didn't have the gym membership, the pet bills, the car note, and our grocery bill is probably similar, for all of us.  Your rent and utilities look great.

[skunkfunk]

That's a low interest rate on the car loan, which is perhaps why you don't see much of a difference in the loan amount when you pay off early. The bigger difference will be that you can drop full coverage when you pay it off.

I estimate you drive around 15K miles a year. You'd be best served to get a car that you don't make a payment on and don't have to carry full coverage. That is not an absurd amount of driving, really, but if you could cut that down, too, all the better.

Really, though, that's just trimming around the margins. You seem to be doing pretty well.

[catccc]

Just scanned the responses, but did anyone mention (or did you already know?) that you can withdraw your Roth contribution any time without penalty?  Vanguard will be fine.  I can't remember what the minimum is, but maybe just put that in and have a bit of cash on reserve if market swings make you nervous?  I think starting by putting something in there and learning to live with a bit of volatility is better than sitting on cash.  I learned this lesson the stupid way by hoarding way too much cash. It started small enough and wasn't a big deal, but it grew and grew.  Eventually, I was maxing out my Roth and 401K, but anything extra was earning a measly 1% in savings.  This time last year, 25% of my 480K stash was in cash!  I dumped $80K into a taxable vanguard account, and still have $40K on reserve.  I wish I had made that move sooner.  I'm sure it could still be argued that I currently have too much in cash, but I'm kinda holding that $40k as a potential house down payment.

[Spondulix]

Great spreadsheet! I might be getting nitpicky, but is there anything you can do to lower grocery expenses and ditch the gym membership? Anyone you can carpool with a couple days a week?

I think you're in a good place to set some goals, and that'll help define what type of account your leftover money should go (and in what order). It sounds like your concerns are:
Emergency Fund
Car payment
Work retirement 403b
Excess retirement (Roth)
Brokerage (taxable stocks)

I'd just put those in order, and work your way down. Don't let your boyfriend talk you into anything unless you fully understand and completely agree - if you can manage your budget that well, you can certainly manage your retirement/stock funds. I think you'd find it a lot of fun... I wish I had discovered it a lot earlier! I'm not talking about buying individual stocks, but just the fundamentals of what drives the market, understanding how index funds work, the balance between stocks and bonds, the tax implications of a brokerage account (short term investments vs long term).

[MrMathMustache]

Regarding retirement / 401(k), as a teacher I have money pulled out of every paycheck that goes towards my Teacher Retirement fund, which is a 403(b) I believe. I need to get more info on this detail but I'm not entirely sure how much is actually going into that and if I can increase it in any way. If you're a teacher and have an idea, I'd LOVE to hear from you because I'm woefully uninformed and ignorant of this side of my job.

Hi,

Math teacher in Florida here.  My guess is that the deduction you refer to is a mandatory withholding toward your state-level pension/investment account.  Many states, mine included, either started requiring public employees to contribute a percentage of their income toward their pension, or increased the required contribution in the depths of the recession.  I'm not aware of any district that auto-enrolls their teachers in a 403(b) plan; you're sort of on-your-own to sign-up for any other investment accounts.  Benefits vary greatly state-to-state, and even district-to-district, but hopefully this information helps a bit.  Good luck with landing a full-time position for the fall!

[Zette]

There is a great need for dyslexia tutors.  In our area most charge $50-$60 per session.  There is a very well regarded dyslexia reading curriculum created by Susan Barton.  See http://www.bartonreading.com/  It is intended to be used for 1:1 tutoring, and she gives a lot of support to those wanting to start their own tutoring business.  I think it would be a great side gig for any teacher.

[YetiConfetti]

Thanks everyone for your comments! I edited my initial post in response.