I’d like to think that I’ve lived quite a different life from the standard normal in this society, but I’m sure there are quite a few people out there who have walked in similar shoes like mine. However, despite reading numerous financial blogs (including MMM) and various books on investing, I have absolutely NO IDEA what I steps I should be taking in my financial future as my career aspirations have changed.
A quick background about my lifestyle and finances to help you understand the conundrum I am currently in. I live in Richmond, VA and started out my college career going to University of Virginia in 2006. However, one semester into school I decided that I didn’t want to burden my parents with tuition payments to this school and decided to drop out and do things on my own. I received a LOT OF criticism for this supposedly reckless decision of leaving a top tier university.
Following that first semester, I ended up taking a retail job and going to a local community college. Making $8.50/hour, I made just enough to afford the tuition (roughly $1800 a semester while still earning credits that could be transferred to any Virginia college as long I met a GPA requirement). I felt like this was the smartest education and financial decision because of Virginia’s unique education agreement with its community colleges and 4 year colleges which allowed you to transfer all credits.
It was a really trying time in life living in a really dump of an apartment with 2 friends from high school. I paid $250/month for rent and utilities and had to live a super Mustachian lifestyle (even though I didn’t know I was at the time).
During this time, I caught a really really big break in life. While I was working this retail job, I realized that I needed to get out of the job and working towards building a better financial future. I was pretty talented at computer trouble shooting and had even worked on building servers during high school. Therefore, I applied to around 50 IT jobs at a local military base. I was rejected from all 50 of those jobs and never heard back because I had no degree and no working experience (I’ll admit I was VERY ambitious back in those days). However, 3 months after receiving 50 rejections, I received a call out of the blue for an interview from one of the companies I had submitted an application too. I went in for an interview and the hiring manager had me sit down with the top level Systems Administrator who asked me a barrage of questions. I was able to answer all his questions and the hiring manager offered me an IT Specialist position on the spot.
At 19, I just entered my first salary job. I wanted to negotiate salary as I had read in so many articles but I felt I had no leverage. I had no degree, no experience, and just felt super grateful to have a job. On a site note though, I did receive something more beneficial than a higher salary in my personal opinion. Since the job required a 4 year degree, I had to complete my 4 year degree while working the IT Specialist job. Therefore, my job agreed to pay my tuition and books for the remaining 2.5 years of schooling I had left to do.
So what’s the catch? There had to be one to all this goodness. I had to work 40 hours a week from 11 PM to 7AM working on server maintenance. This meant that I had to go to work, then go leave for school at 8AM (I transferred to a local 4 year college after I received the job) and stay on campus until around 5PM usually. Once I came back home, I had to do homework and then sleep for 4 -5 hours before heading back into work.
So what was the result of taking this job?
1) Graduated at 21 with a 4.0 GPA and no student debt
2) I saved up enough to purchase a house at age 22 with a 20% down payment on a $215,000 house.
3) I had a 401k worth about $15,000 at the time.
4) I had emergency savings for 6 months and my car was paid off as well.
*Just to note, I was making about $45,000/year from my salary job throughout my college years. I was underpaid in relativity to my co-workers, but my tuitions/school expenses amounted to about $10,000/year (which was all paid for).
I’ll a quick summary that fast forwards to the present day where things have gotten a little weird.
After graduating, I met this super anti-Mustachian woman who loved the high life, eating out every meal, etc. It went against all my principles but I was blinded and dated her. I went from living a Mustachian lifestyle to buying fancy cars (OUCH!), eating out every meal (instead of cooking at home), and just buying fancy gifts and whatever I pleased. She convinced me that life was too short to save money and that we should both spend all our paychecks on enjoying life.
That relationship should have ended very quickly but it went on too long before I finally came to my senses. When I came to my senses, I was 24. 3 years of anti-Mustachian living had taken a huge toll. I had a car I couldn’t afford, no additional money saved up, and I hadn’t made any career advancement. Thankfully, I hadn’t dipped into home equity or 401k (what a disaster that would have been).
I made a decision that day age 24 that I needed to play catch up. So I did something kind of crazy. I applied for a second job IT job (day shift) since I was still working my first IT job that was (night shift). Due to my degree and years of experience, I landed a second IT job.
So at age 24, I was working a night shift IT job ($50k/year salary) and a day shift IT job ($65k/year salary). I worked from 11PM – 5PM, 80 hours a week. Although I had no life, I was able to go back to a Mustachian lifestyle and build up savings.
Things I did to go back to a Mustachian lifestyle:
1) Rented out 2 bedrooms to friends in my house which covered my mortgage payment.
2) Sold my fancy pants car and bought a used reliable car (Yay for no car payments!)
3) Maxed out my 401k contribution.
4) Re-financed my home to a lower mortgage interest rate.
5) Re-built my emergency savings and started stockpiling cash for my next investment moves
6) Went back to eating at home, not going out every weekend, and just enjoying cheap activities like running, biking, and tennis.
So after a year of working, I felt like I was on the right track to a better financial future. However, here’s where things changed.
I met another woman. She’s the most amazing woman who takes after my own heart. Super Mustachian lifestyle. We love exercising together, share the same core values and beliefs, enjoy spontaneity, and love living a minimalistic lifestyle. After spending a lot of time with her, she asked me one day if I enjoyed working so much and if I loved my job. To be honest, I hadn’t really thought of it too much. I was kind of a robot who went to work and just came back home and then lived my life. I didn’t hate work, but I didn’t enjoy it either.
After reflecting and thinking about this for a while, I realized that I had forgotten my dreams and passions. Ever since I’ve been young, I’ve had a heart for helping those who are underprivileged or have special needs. However, I was so caught up in school and working that I just forgot. So long story short, we both decided to do some researching into various organizations out there who would allow for both of us to have an opportunity to serve and help underprivileged children.
We found an organization where we could work in Southeast Asian volunteering and teaching younger children in rural areas. It was a very spontaneous move, but we applied to work for this organization and accepted positions in this organization. We only had one month to prepare, so here’s what happened.
1) I hired a property management company to find tenants and manage my house
2) I quit both jobs
3) I sold my car and any other possessions that I felt I wouldn’t need to store away
4) Moved all possessions that I had to my parents house
So let’s do another quick time lapse, I had an amazing and enlightening experience while volunteering in Southeast Asia for one year. I loved every moment of it. However, during this time I had an epiphany that I wanted to start my own business. I spent months developing a business plan, developing websites, and have launched my business. Now that I am running my own business, I love every moment of it. I love my business, I love having freedom to spend time with my significant other/family/friends, and I simply enjoy life.
This is where I need your help now. I want to basically restructure my assets and invest in the right areas to properly set myself up for retirement by age 45. I need your advice on holding/selling rental property, investing in IRA/Roth IRA/taxable accounts, and what to do with my surplus cash.
Here’s the present day breakdown:
Age: 25
Assets:
• Rental Property Value - $225,000
• IRA (Rolled over from 401k when I quit jobs) - $25,000
• Roth IRA - $3,000
• Taxable Investment Account - $2000
• Cash Savings - $18,000
• Car - $8500
Debts:
• Mortgage on Rental Property - $168,000 (30 year at 3.75% Fixed)
Net Worth:
Assets Total: $281,500
Liabilities Total: $168,000
Net Worth: $113,500
Income:
After Tax Income from Business per month (currently): $2600
Rental Income: $1485 (after 8% property management fees)
Total: $4085
Expenses:
Mortgage: $1027 (Interest Rate
Rent (living in an apartment with roommates): $500/month
Utilities and Internet: $70/month
Cell Phone Bill: $35/month
Car Insurance: $65/month
Health Insurance: $70/month
Groceries: $200/month
Eating Out/Restaurants: $40/month
Gasoline: $50/month ( hooray for biking around town)
Car Taxes: $12.50/month ($150 yearly)
Donations/Tithe: $260/month
Personal Purchases: $35/month
Total: $2364.50
Monthly Savings: $1720.50
Estimated Yearly Savings: $20,646
So here is where I am confused with what to do in terms of investing/asset allocation:
1) Do I contribute to my Roth IRA or IRA? I want to do a max contribution of $5500.
2) Do I keep the rental property or sell it? (Would my home equity be better in a taxable investment account?) *I haven’t made additional principal payments yet because I haven’t made a decision yet.
3) I currently have my cash savings in a checking account producing 0.45% interest, how can I maximize my cash savings benefit while still retaining liquidity for emergencies?
4) With additional savings should I prepare myself to purchase a primary residence in the future which will then be turned into a rental property down the road? *My apartment lease will be ending next May – I have the option to rent another place or purchase a home possibly.
At the end of the day, I am kind of torn between purchasing rental property or putting that money into a taxable investment account. During the year that my rental property has been active, there have been too many repairs and miscellaneous things that have arisen which have just been stressful. Although the rental property still produces positive cash flow with continual home equity building up, the added stress sometimes takes away from my livelihood.
Maybe I’m getting too caught up in making the best investment decisions possible, but I do want to set myself up for an early retirement without having any worries.
Please help!! I would love any input/advice/life experience from fellow Mustachians.
Ambitious but Confused in Virginia.