Author Topic: Reader Case Study - Increasing savings to 50%  (Read 5465 times)

johnER

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Reader Case Study - Increasing savings to 50%
« on: October 10, 2015, 05:21:34 PM »
Hi, I've been lurking around here for a while but first time posting.  I recently turned 30 and want to kick my savings into high gear, not sure when I want to retire, I don't dislike my job, but having FU forever money is quite appealing in case this situation changes. 

Life Situation: Single, no dependents.  Live in the Mid-Atlantic region, moderately HCOL.

Pre-tax deductions: All tax advantage space is being maxed, on track to save about $35k this year.

Estimated Budget: I've never really done a formal budget, but looking back over the past year this is a rough estimate of what I'm spending.
                       Monthly Yearly
Take Home Pay          5000    60000

Recurring Bills        1980    23760
Rent                   1600    19200
Amazon Subscriptions   100     1200
Gym                    90      1080
Phone                  80      960
Internet               80      960
Netflix/Hulu/Amazon    30      360
     
Discretionary          1150    13800
Groceries              600     7200
Travel                 300     3600
Going out              150     1800
Gas                    50      600
Misc Other             50      600
   
Left Over              1870    22440

      
Assets:
                       Value   Allocation
Tax advantaged         270k    85 stock / 15 bond
Taxable account        50k     60 stock / 40 bond
Emergency Fund         40k     cash
Car                    10k     n/a


Liabilities: None

Specific Question(s): I'd like to hit 50% savings of my take home, so $2500 a month.  I have a few thoughts below and want to get input on places to cut spending.

1) Buy a house/condo.  I feel like I'm throwing money away renting, I would consider a good part of a mortgage payment a form of savings, but I love being able to be lazy and not worry about fixing anything that goes wrong.  Anyone else around here keep putting off buying a place and what finally made you pull the trigger?  I figure I would need to spend about 300k for a place around here, so that would pretty much wipe out my taxable account for the down payment, which sort of bothers me too.

2) I spend too much on food, I see single people getting by on under $300 a month, I can't manage to walk out of my weekly grocery trip for under $150.  I eat healthy, a lot of grass fed meats, fish, organic produce, etc.  How do people cut cost without quality here?  I should also probably quit shopping at whole paycheck, beyond it being expensive I always manage to buy things I shouldn't, I didn't need to spend $15 at the sushi counter, $7 on beef jerky and $4 on coffee this morning, but none the less, that's what I did...

3) Anything else?  I'd love to be in a position where I was FI by 40, but it looks like I would definitely have to make some lifestyle changes to accomplish this.

csprof

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Re: Reader Case Study - Increasing savings to 50%
« Reply #1 on: October 10, 2015, 06:30:29 PM »
Recurring Bills        1980    23760
Amazon Subscriptions   100     1200
Gym                    90      1080
Phone                  80      960
Internet               80      960
     
Discretionary          1150    13800
Groceries              600     7200
Travel                 300     3600
      
Assets:
                       Value   Allocation
Emergency Fund         40k     cash

Liabilities: None

Specific Question(s): I'd like to hit 50% savings of my take home, so $2500 a month.  I have a few thoughts below and want to get input on places to cut spending.

1) Buy a house/condo.  I feel like I'm throwing money away renting, I would consider a good part of a mortgage payment a form of savings, but I love being able to be lazy and not worry about fixing anything that goes wrong.  Anyone else around here keep putting off buying a place and what finally made you pull the trigger?  I figure I would need to spend about 300k for a place around here, so that would pretty much wipe out my taxable account for the down payment, which sort of bothers me too.

2) I spend too much on food, I see single people getting by on under $300 a month, I can't manage to walk out of my weekly grocery trip for under $150.  I eat healthy, a lot of grass fed meats, fish, organic produce, etc.  How do people cut cost without quality here?  I should also probably quit shopping at whole paycheck, beyond it being expensive I always manage to buy things I shouldn't, I didn't need to spend $15 at the sushi counter, $7 on beef jerky and $4 on coffee this morning, but none the less, that's what I did...

3) Anything else?  I'd love to be in a position where I was FI by 40, but it looks like I would definitely have to make some lifestyle changes to accomplish this.

The usual comments apply.  (1)  Check the NYT rent-vs-buy calculator to help decide the house question.  It's very area-specific.

(2)  Your gym membership is quite expensive.  Can you optimize based upon what you *actually* use out of your gym?  (e.g., if you're just into lifting, there are a lot of much cheaper "black-iron" gyms around;  if you just use the elliptical, you can probably find a nice used one.)

(3)  Your phone is expensive.  Me, I switched to Cricket, but there are a lot of options - see the telecom guide. :)  There's no reason to go with anything but a pre-paid MVNO these days.  You should be paying <= $35/month.  If you have to buy yourself out of an existing contract - let's say it's $200 - you'll pay for that in 5-6 months and then be saving money.

(4)  You already said it on the groceries.  Whole Paycheck can be optimized, but only to a limit (the bulk aisle is reasonable).  But you really want to explore other options.  Costco's tricky living solo, but it's still reasonable for non-perishables if you plan carefully.  I assume that's what you're doing with Amazon Subscriptions (is that subscribe & save?).  In my area, Sprouts is a much better "lots of organic options" alternative to WFM;  there exist similar options in most markets.  WFM is awfully tasty, but it really hurts your wallet.  The MMM article on killing your grocery bill is useful here - http://www.mrmoneymustache.com/2012/03/29/killing-your-1000-grocery-bill/

(5)  You can probably cut your Internet bill by $10/month by asking them.  Always worth a try.  If you make friends with your neighbors and share their wifi, you can save even more -- if that kind of approach is attractive for you and you don't mind the potential of losing it without notice.

(6)  Depending on what your travel is, that's a very attractive option for optimization.

(7)  I don't see a great reason for someone with no debt and no dependents to have a $40k emergency fund.  But you do want it invested in a way that's relatively low risk and diversified just in case.  I've been keeping mine in VTINX - during this most recent huge market bounce, it lost a few %, but nothing like what VTSAX and other things do - and keeping about $20k in Ally bank's 1% savings account.

Your taxable account bond mix is surprisingly conservative for your age and "not very soon" retirement goals.  If you want to diversify, you might consider something like the lending club-style options.  They lock down your money for a longer amount of time, but it's an interesting way to get risk that isn't as obviously correlated with the month-to-month variations of the market while still getting good expected yield. 

Exflyboy

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Re: Reader Case Study - Increasing savings to 50%
« Reply #2 on: October 10, 2015, 07:46:01 PM »
depends on how serious you are.. but here are some additional thoughts

1) you don't NEED data.. thus unlimited talk and text can be had thru Republic wireless for $10 a month.. will cost $100 for the phone.. There are options where you only need a $20 flip phone too.

2) Gym membership?.. that's a luxury.. go for a run.. cost $0.

3) Amazon subscriptions.. could be $0.

4) Internet looks spendy.. I pay $30 for a 1.4mps connection.. fast enough to stream standard Def movies.

5) Travel/going out?.... totally discretionary.

Of course you have to decide how much these things mean to you vs how big you want your savings rate to be.. which affects your FI date.




thedayisbrave

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Re: Reader Case Study - Increasing savings to 50%
« Reply #3 on: October 10, 2015, 08:25:20 PM »
You definitely don't need 1+ year of expenses in cash... cut that down in half and invest the other $20k.

Don't feel pressured to buy a home, especially in a relatively HCOL area.  There is upkeep, maintenance, repairs you have to worry about.  Though I will say your rent seems pretty high, even for a HCOL area.  I have friends that live in Manhattan that don't pay that much...

Cell phone can be cut, I pay $20/mo.  So can the gym membership and internet.  I run at the lake for free and my internet costs $35 (which is then split with 2 other roommates).

What is the Amazon subscriptions?

And yes, stop shopping at Whole Foods.  You can stock up on bulk items quite cheaply.  I go to the Dollar Store for canned veggies, rice, beans, TP, condiments, pasta sauce, etc.  Or Food Lion.  I only go to Harris Teeter (a little more high quality grocery) for produce and meat.  I go to Whole Foods maybe 2x a year.

You're really not in a bad place, though.  Optimize a few things - you'll probably not even notice the difference, and you'll be there.

Dee18

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Re: Reader Case Study - Increasing savings to 50%
« Reply #4 on: October 10, 2015, 08:36:41 PM »
Do you have an Aldi nearby?  If so, check it out.  Mine has great produce (though many don't), cheeses, staples, and hummus.  It's small so shopping there is quick and there are no prepared foods to tempt you like at Whole Foods.

johnER

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Re: Reader Case Study - Increasing savings to 50%
« Reply #5 on: October 10, 2015, 08:50:48 PM »
Thanks for the input.

Rent vs. Buy:  My rent is high because I live close to work and don't have roommates.  As expected, NYT calculator has buying as the clear winner.  After 3 years buying wins, and I expect to be here longer.  I guess the only downside would be a commute, from <10 mins to 20 to 30.

Gym: I'ts an MMA/BJJ gym, for $90 it's about the best deal you can get short of instructing and not paying for it at all (while I'm not quite there yet, this is a real option in a couple of years).  Also, unless you plan on buying a new pair of knees from your orthopedic surgeon, one should replace running shoes every 400-600 miles, this costs me about $150 a year for 2-3 pairs.

Groceries: Amazon subscriptions are subscribe and save, it's actually a pretty good deal 15% off items I would be purchasing anyway (TP, dish soap, vitamins etc), but Costco may actually be better even after the $55 annual fee, I will need to check this out.  MOMs is the local competitor to whole foods, but their pricing isn't really different...

Phone: While I don't NEED data, not having it would have a fairly noticeable impact on my work (maybe they'd pay for it, but doubtfull) and just suck personally.  I still have unlimited ATT data and haven't looked at alteritives.  Cricket will save $30/mo for a 5G plan (I really do use that much data), this seams like a no brainer and I'm kicking myself for sticking with ATT for so long.  Have people ad experience with poor coverage on some of the low cost providers?

Internet: I may be able to get a little off of it, but Comcast has a total monopoly on the building I live in, its them or old school dial up, they know it and I haven't had success in the past reducing the bill.

Travel/going out:  Yes, it's discretionary, I think cutting going out spending in half is a good goal.  As for travel, I'm a diver and spending a week or two a year on a Caribbean island doing nothing but diving is worth it to me.  I'd love to spend some time in pacific (Indonesia, Philippines, Australia etc), but this gets really pricey so I haven't been.  Any other divers around here?  If so do you have any good ideas for low cost trips?  I've been looking at Blackbeard's Cruises.

Emergency Fund / Taxable: Yes, these are very conservative, I've been thinking of using these for a down payment for a couple of years and been getting more conservative over time.  Between half the E-Fund, the bonds in taxable and another 9 months of saving I should have a down payment more than covered by the time my lease comes up for renewal.

csprof

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Re: Reader Case Study - Increasing savings to 50%
« Reply #6 on: October 10, 2015, 11:14:07 PM »

Phone: While I don't NEED data, not having it would have a fairly noticeable impact on my work (maybe they'd pay for it, but doubtfull) and just suck personally.  I still have unlimited ATT data and haven't looked at alteritives.  Cricket will save $30/mo for a 5G plan (I really do use that much data), this seams like a no brainer and I'm kicking myself for sticking with ATT for so long.  Have people ad experience with poor coverage on some of the low cost providers?

I couldn't get online in a small town outside of Yosemite on Cricket, but that's the only bad experience I've had.  (There was pretty obviously some kind of signal, because I could make an emergency call - or at least, my phone thought I could).  Not sure if that was a roaming issue or something.  Everywhere else has been OK.  It worked in the next town over.

Airvoice gets a lot of love in the guide, but for high-data-gobblers, Cricket is pretty awesome.  But look through the list:  http://forum.mrmoneymustache.com/share-your-badassity/communications-tech-son-of-the-superguide!/

(shameless self-plug:  If you sign up there, use a referral link, because you and the referrer both save $25.  If you can't find a friend who's using it, mine is https://refer.cricketwireless.com/5Veafgr  .  But check locally first, I'm just some dude on the Internet who doesn't need the money.)

I believe that the coverage becomes more of an issue with the really cut rate providers like Republic.  I wouldn't go there if you live & die by your cell and data.

Re Costco:  I've found it to be a decent win.  We went for Subscribe & Save bigtime after our child was born, but we've just switched to a mostly-costco centric approach and it's working out better.  The other big win for Costco is that they've got cold and perishable items that Amazon can't deliver, and bulky/heavy items are a *much* better deal.   Example:  I buy stupidly expensive pastured / organic eggs.  But at least the Costco package of 18 is just a smidgeon cheaper than the Whole Foods package of 12.  With bulky/heavy, for example, WFM sells 32oz (2lbs) of organic brown rice for $5.39 ($2.69/lb).  Costco sells a 12lb bag of the same stuff for $13.99 ($1.16/lb).  You can Amazon Pantry the 2lb one for $4.99, but nothing comes close to that Costco price if you can go through it in a year.  Same deal applies to the crazy massive bag of black beans they sell.  Things that are relatively cheap per pound are hard to find on the Internet.  But cooking for 3 is different than cooking for 1;  you'll have to really get in touch with your freezer.  But it totally works *if* you can plan the big bulk things to cook and freeze, and set up a schedule for breaking them out later.  As a second advantage, you'll actually spend less time cooking.

brooklynmoney

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Re: Reader Case Study - Increasing savings to 50%
« Reply #7 on: October 11, 2015, 05:51:09 AM »
If you could deal with having a roommate you could probably halve your rent. I don't know where you live but a few years ago I paid that for a one bedroom in Brooklyn so I'm sure you could find something cheaper.

Bucksandreds

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Re: Reader Case Study - Increasing savings to 50%
« Reply #8 on: October 11, 2015, 07:21:47 AM »
You've got assets of 370k at 30 and are on pace to be close to $1 million at 40. You also have no desire to quit working.  Just enjoy what you're doing.  If you wanted to retire then that would be different.  Don't buy if you like renting. Put a little more towards travel and go to Asia to dive. Keep doing what you're doing to stay healthy. You are so on your way to the ideal situation, already.  Enjoy your life.  You only get to go through it one time.

rmendpara

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Re: Reader Case Study - Increasing savings to 50%
« Reply #9 on: October 11, 2015, 08:04:28 PM »
Could get tight if you want to increase savings by $625/mo (to get to 30k in aftertax savings rate of 50% of 60k).

Of your total spending of $3.1k, rent + phone + internet is $1.8k. To save $625 of the remaining $1,300 in spending you have would mean cutting everything in half. That's not going to be easy, and likely will require a lifestyle adjustment somewhere.

The easiest switch would be less meat (as your non-negotiable for grass/organic) and more fresh cooking (less packaged stuff) to get your groceries down to $400. You could get down to $200 if you got super lean and changed your diet, but 400 is certainly doable with a bit of planning. Not sure what travel and amazon consists of, but if you took 100 out of each, that's gets you to $300 more in savings fairly quickly.

Without tackling rent, it seems tough to really come up with any magic tricks to squeeze out another 625 without what I presume would be a significant lifestyle adjustment. Seems like at your savings status and rate and goals, it may not be necessary, but always good to think of ways to do better.

Nothing seems outrageous, but plenty could be cut down. Whether you reach your goal of another $625 or even another $300, every hundo' helps!

Easye418

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Re: Reader Case Study - Increasing savings to 50%
« Reply #10 on: October 12, 2015, 07:55:44 AM »
You've got assets of 370k at 30 and are on pace to be close to $1 million at 40. You also have no desire to quit working.  Just enjoy what you're doing.  If you wanted to retire then that would be different.  Don't buy if you like renting. Put a little more towards travel and go to Asia to dive. Keep doing what you're doing to stay healthy. You are so on your way to the ideal situation, already.  Enjoy your life.  You only get to go through it one time.

+1.  I see nothing to be concerned about. 

2Birds1Stone

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Re: Reader Case Study - Increasing savings to 50%
« Reply #11 on: October 12, 2015, 08:25:06 AM »
You will easily be FI by 40 =)

Keep it up and enjoy the next 10 years.

Travis

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Re: Reader Case Study - Increasing savings to 50%
« Reply #12 on: October 13, 2015, 05:59:27 PM »
Quote
Cricket will save $30/mo for a 5G plan (I really do use that much data), this seams like a no brainer and I'm kicking myself for sticking with ATT for so long.  Have people ad experience with poor coverage on some of the low cost providers?

What do you use your data for?  I saved 500MB a month by avoiding using Google Maps and Facebook outside a WiFi connection.  For coverage, you can check coverage maps online.

For Comcast, what speed are you paying for?  7Mbps is all you need to stream HD television and anything beyond that you probably won't notice the difference. Ask them about lowering your speed and bill and they might just give you your current speed at the discount rate.

freeatlast

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Re: Reader Case Study - Increasing savings to 50%
« Reply #13 on: October 13, 2015, 06:14:04 PM »
Any chance you could buy a duplex, live in one side and rent the other out? I have been very thankful for the second income stream out of my rentals... gives one some cushion if the job thing goes south.

johnER

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Re: Reader Case Study - Increasing savings to 50%
« Reply #14 on: October 17, 2015, 10:39:16 AM »
So I was able to cut my internet bill by a bit more than $10 a month by dropping my service down, haven't noticed the difference yet so that's good.

I should also start biking to work, if I give up my parking space I get an nontaxable stipend of $125/mo, plus any gas savings, but maybe I'll hold off until spring, this winter is going to blow.

I  just came back from Aldi and only spent $73.  While this is half my normal grocery bill, thanks for the tip, Aldi's produce section is a sad and depressing half of an isle.  Meat selection wasn't too good, but I did find grass feed beef at $7/lb.

Not much organic - ok, I can manage
Avocados - hard as golf balls
Cilantro - nope
Brussels sprouts - nope
Greens - wanted kale or spinach or maybe just any non-iceberg lettuce, had nothing, really wtf?
Hot peppers - not one single variety of fresh or dried hot pepper, seriously, WTF?

Is this typical for Aldi or did I just go on a week they had really poor selection? For the NoVa folks, there looks to be a bunch of locations near by, are there particular ones that don't suck?