Author Topic: Reader Case Study: Recent graduate, first job. Looking for investment advice.  (Read 2868 times)

TANSTAAFL

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Iíve been reading MMM since last fall and have learned a lot! Now that I have graduated and scored my first job Iím looking to apply the mustachian principles in my life.

Iím taking advantage of the rent/utilities provided by my parents cost-free while I am starting out, so my expenses are minimal (see below).  I drive 21 miles round-trip when working from the office, and 40 miles round-trip in the opposite direction when working at a client site. Regarding investment, my employer wonít allow me to invest pre-tax until early September (3 months employment) and my employer also has a discretionary match given in March for the previous year (unsure of this value). Also, all employer plans are handled by Vanguard.

I plan on living with my parents for 1-2 years at most.

Additional information: I plan to get a masterís degree at some point over the next seven years. Employer will pay 75% tuition if I study while working. I still have access to my parentsí 529 plan (this is why Iíd like to acquire a masterís in seven years), so I donít need to save 100% of a masterís degreeís expenses.

Income: $55,000/year (~$1,500 bi-weekly post-tax, including benefits deductions)

Current expenses:

Fixed

Rent/utilities: $0
Car Insurance: $1000 (includes liability)
Car Maintenance: $300 (no clue)
Total Fixed/year: $1,300

Variable

Gasoline: $1000
Groceries: $2400 (tentative Ė am just now starting to track)
Entertainment: $600 (Iím a homebody and a cheapskate)
Phone: $600 (My portion of the family plan. Investigating future personal options)
Medical/Dental: $200 (Iím healthy and have insurance through my employer)
Vacation: Two-week backpacking, likely overseas (~3,000?).
Total Variable/year: $7,800

Total Expenses/year: $9,100 (~9,000)

Expected ER expenses: Not sure.

Assets:

Car: 2005 Honda Accord, 4 cylinder, manual transmission, 90,000 miles (~$7,000). Plan to keep.
Various personal items: Clothing, exercise/outdoors equipment, musical instruments (~1,000). Plan to keep.
Savings: Low-interest bank savings account savings (~$4,000).
Cash: Checking account (~$2,000).

Total Assets: $14,000

Liabilities: Zero debt (no student loans)

Total Liabilities: $0

Specific Question(s):

  • If I use an 80% paycheck deduction (maximum allowed) for my companyís pre-tax 401(k) plan I would only be able to invest $14,500 by the end of 2014. Should I try and do this, or would it be wiser to invest a portion of this $14,500 somewhere else?
  • What should I do with the money I make before September (when my pre-tax company plan becomes available to me)? Should I invest this on my own, or would the company Roth 401(k) (which is already available) be a better choice?
  • Between now and the end of the year, how much of my savings should I invest in company plans vs. on my own (such as in a Vanguard Index Fund)? And if I choose to invest some of this money on my own, should I pick a company other than Vanguard (my company uses Vanguard to manage the company plans)?
  • I am also looking into getting a credit card sooner rather than later (I want to start building credit history) Ė any suggestions on a good card?

Thanks in advance for the responses! Any advice is greatly appreciated.
« Last Edit: July 06, 2014, 07:15:47 PM by TANSTAAFL »

boarder42

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assuming your company plan has low cost good investment options start by maxing that out.  Amex blue cash preferred for groceries and gas unless your bank is BofA then get a cash rewards card from them and use it for gas. 

Chrissy

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How long do you intend to live with your parents?

viper155

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Be mustachian in your lifestyle. Be a Boglehead in your course of investment.

medinme

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first off congrats!    looking over your info car ins high 1000 for 7000 car,  you should look at serring up a roth ira now 5500/ yr with vanguard  and get the high deductable ins plan so you can set up a health savings account  HSA then max 401k  check to see if your work offers roth 401k and contribute to that vs 401k while income is low, then save for house down payment so you can live on your own.

hexdexorex

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    Specific Question(s):

    • If I use an 80% paycheck deduction (maximum allowed) for my companyís pre-tax 401(k) plan I would only be able to invest $14,500 by the end of 2014. Should I try and do this, or would it be wiser to invest a portion of this $14,500 somewhere else?

    Does the company match everything you put in or only a certain %? I took the route to go up to company match than invest on my own terms. Looking back I sort of regret it because you can buy/sell in retirement saving accounts without paying taxes on each sell.

    • What should I do with the money I make before September (when my pre-tax company plan becomes available to me)? Should I invest this on my own, or would the company Roth 401(k) (which is already available) be a better choice?

    Are they going to match here if its already available? If not I would just put it in your own Roth IRA account...you should def get this filled every year first.

    • Between now and the end of the year, how much of my savings should I invest in company plans vs. on my own (such as in a Vanguard Index Fund)? And if I choose to invest some of this money on my own, should I pick a company other than Vanguard (my company uses Vanguard to manage the company plans)?
    I would just stick with vanguard. But not all vanguard funds are the same...I would go for the cheapest (lowest expense ratio) broadest ones in the markets you like. Personally I do VTI mostly...

    • I am also looking into getting a credit card sooner rather than later (I want to start building credit history) Ė any suggestions on a good card?
    Matters how much you care about the small nickel and diming things. Personally I rotate cards based on who is giving the best cashback at the time...chase freedom is a great one to always have. Barclay Arrival is one of the best travel ones (you get 2.2% on everything if you use it towards travel)...400 dollar sign up bonus (480 if you use it for travel) etc....overall its the only fee one I keep around.

    [/list]

    Thanks in advance for the responses! Any advice is greatly appreciated.
    « Last Edit: July 06, 2014, 03:59:46 PM by hexdexorex »

    TANSTAAFL

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    Thanks for all the comments - some really useful information so far.

    boarder42: I looked up some BofA credit cards (I bank there) and I noticed two rewards cards that seemed to work equally well. One saves up to $25 ($30 for BofA members) per quarter whereas the other card has 3% gas, 2$ groceries, and 1% everything else. Any thoughts?

    Chrissy: I plan to live with my parents no more than 2 years (updated original post).

    viper155: Thanks for the share - I'm reading up on the Bogle approach and am liking what I see.

    medinme: I'm confused as to why you would recommend the HSA. I am generally a very healthy individual and I don't see the benefits to investing in one.

    hexdexorex: Company match isn't set (it varies depending on the company's success each year), but I plan to ask around the office this week to get a good figure for calculation purposes - will keep you posted. You also mentioned investing in a Roth IRA if a company match isn't yet available. Would you still recommend a Roth IRA over a company Roth 401(k)?

    4alpacas

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    Thanks for all the comments - some really useful information so far.

    boarder42: I looked up some BofA credit cards (I bank there) and I noticed two rewards cards that seemed to work equally well. One saves up to $25 ($30 for BofA members) per quarter whereas the other card has 3% gas, 2$ groceries, and 1% everything else. Any thoughts?

    Chrissy: I plan to live with my parents no more than 2 years (updated original post).

    viper155: Thanks for the share - I'm reading up on the Bogle approach and am liking what I see.

    medinme: I'm confused as to why you would recommend the HSA. I am generally a very healthy individual and I don't see the benefits to investing in one.

    hexdexorex: Company match isn't set (it varies depending on the company's success each year), but I plan to ask around the office this week to get a good figure for calculation purposes - will keep you posted. You also mentioned investing in a Roth IRA if a company match isn't yet available. Would you still recommend a Roth IRA over a company Roth 401(k)?

    If you have access to a Roth 401k at your company, I would definitely put as much as possible in it!  Before my income jumping substantially because of my partner's income, I would max out my Roth 401k and Roth IRA. 

    usmarine1975

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    When looking at your Car Insurance a couple thoughts because someone mentioned it might be high.

    Go over your policy with a fine comb if you find something you don't know what it is Google it, ask your insurance guy to explain it etc...   Ask him to give you quotes for different ranges of coverage.  For me mainly in the Full Tort/limited tort & Comp and Collision.  I tend to carry Comp on older vehicles and self insure the Collision but that is a personal decision and not one I can make for you.  I usually consider the difference in premium for the collision compared to without.  And if it's a huge difference how many years does it take to put that savings into an account to purchase a car comparable to what you have.  Yea it's a risk but depending on the numbers sometimes worth it.  Again it's a personal decision not really a right or wrong answer.

    Shop it around try to find highly rated insurance companies if you have been with them for a while they can charge you more.  Your credit score affects your premium.

    I tend to keep my liability portions higher and do not self insure that.  Also medical is a good one to keep on the higher end.