Author Topic: Reader Case Study -- What next?  (Read 2978 times)

jml2307

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Reader Case Study -- What next?
« on: March 03, 2015, 09:59:08 AM »
So this is my first step into the forums, although I started reading the MMM blog about 10 months ago. In fact, I read every post from beginning to end of the blog over the course of last summer, along with many of the comments. I must say, it has been a life changing event and I have worked hard to put many of the suggestions into practice.

Specifics:

Income:
$85,000 / yr for 2015 in a very stable job. Take home pay is $1015 / wk, which averages to 4400 / month

Expenses (fixed):
Rent                              $1400 / month
Groceries                     $230 / month
Car / rental Ins            $74 / month
Internet                         $39 / month
Water / Gas / Elec      $215 / month*
Phone                          $25 / month**
Dog                               $75 / month***
Gas                               $50 / month

TOTAL:                        $2108 / month
* denotes estimated due to recent loss of room-mate
** denotes upcoming expense due to near-term end of parent's cell contract (switching my number to Republic)
*** food, meds averaged across year. She had one $500 vet trip last year and another upcoming

Expenses (discretionary):
Travel                                  $500 / month
Take-out / Beer / Wine     $110 / month*
Hobbies                             $100 / month
Grooming / Wardrobe     $58 / month

TOTAL:                      $768 / month
* denotes non-travel related take out

Assets
Employer Sponsored Plans    $28,500*

TOTAL:                                         $28,500
* 100% pre-tax contributions equaling 8% of my salary, with a 7% match (15% inflow per year ~ $12500 / year). This is the personal contribution level which maximizes the employers contribution

Liabilities
Student Loans                            $92,500*
Credit Cards                               $0**
Car Loan                                     $0

TOTAL:                                         $92,500
* 6.1% weighted average rate across all sources, both Federal and Private. 34% of total current balance is variable rate (currently at 5.75%). Currently pay approximately $1400 / month onto student loans with 8.5 years left on 10 year repayment plan. I anticipate paying them off, at current rate, in about 6 years. I am investigating refinancing these.
** Approximately $30k in available credit which can be accessed at 3% for 18 months which I think of as my emergency fund


Net Worth           $28500 - 92500 = -$64000

**************

So to explain the two glaring (to me) holes in my above list:

Rental Expenses.

I moved into this house in November taking an 18 month lease to save myself $50 / month in rent and a $500 less security deposit (compared to the 12 month option). At the time I anticipated a split in the housing costs 50-50 with a roommate. This did not materialize and, at this time, I am not really interested in getting a room-mate. I would be open to moving (as this house is kind of an inefficient polished turd), but more on this shortly. Additionally, I am concerned about the implications of breaking my lease with my current landlord on things like future background investigations and the financial terms of the lease (I could be stuck with the full balance of payments due, though I doubt this would happen -- he seems like an understanding guy).

Travel Expenses.

I take one to two weeks of vacation each year with a large group of friends. Each of these costs me about $1000. The remainder of my travel expenses are related to the fact that most weekends I travel about 1.5 hours from my home to visit my family and friends where I grew up. This is really where my life outside of work is, and where I would ultimately like to be. Because I am away from my home each weekend (though stay for free with family), things become more expensive; gas, eating, going out with friends since I don't have a place to host there, etc.

My primary thoughts on eliminating those two holes in my finances have been this: Move jobs to be closer to my friends and family. My company, and others, have operations about 40 minutes from my desired place of living, which means I could split the difference between work and F&F, maintain something comparable to my current easy commute, likely reduce my rent by at least $400 / month, and significantly reduce the monthly travel expense. Also, internal transfers in my company typically do not take a pay hit when momving, and many get relocation stipends. The savings could then be plowed back onto the SL, to the tune of $600 or more (depending on the realized COL reduction), reducing my payoff time to about 4 years or so.

The problem with this is that the other location is highly specialized and I am unsure if I would enjoy it (I don't know). My current work-facility has alot of flexibility in my various assignments. I don't want to wedge myself into something with limited prospects.

So, now that you have read a novel (thank you for sticking in there), My questions are:

Do I switch jobs to the other facility and risk sticking myself into a career I don't like, or do I stick it out at my current place of employment and continue wasting $$ with the current pattern? How long do I wait to make the jump, if I do it? Should I talk to the Landlord about breaking the lease and moving ASAP, or should I wait it out until the lease is over? Is an internal transfer after ~3 years frowned upon?

Thank you for your patience, and I know it was a long read, but I have been considering these questions for a long time. I look forward to seeing the responses!!
« Last Edit: March 03, 2015, 06:45:05 PM by jml2307 »

Glenstache

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Re: Reader Case Study -- What next?
« Reply #1 on: March 03, 2015, 05:37:17 PM »
That was a long read. A bit more brevity would probably be appreciated and get more responses.

Good job on reducing your commute and reducing spending. Keep it up. I admit that I skimmed a lot of the text in the lower parts. Apologies if I missed something. A few specific points on your post below:

1. Don't stress too much, you're one the right trajectory and have room for easy improvement. Pull out your optimism gun and look at your bright future.
2. There are a number of threads about how people have set emergency funds, and the rationale varies person to person. You are unlikely to get hit with a big expense (new roof, etc) that is unexpected so you can probably afford to run on the lower end. Keeping 5k or so in savings is probably adequate. YMMV, and plan that based on your own level of comfort, possible hits, and available credit.
3. *Lots* of room to reduce in the discretionary budget.
4. Do the math on new housemates vs moving somewhere else. You can talk to your landlord informally to understand your options if he is as sensible as you indicate. (might not want to mention the turd part).
5. How are your student loans distributed? The way you describe a weighted average indicates that some are higher and lower. If you preferentially paid off the high-rate loans aggressively, will this play out better in the long run than combining? Make some excel sheets.
6. Don't miss the forest for the trees. You seem to be over-detailing and trying to figure out a lot of things at once. Divide and conquer. Give yourself one or two of the things to think about and plan. Execute on those, and then worry about the next step. All of the individual parts come down to pretty simple math.

Good luck!

Dee18

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Re: Reader Case Study -- What next?
« Reply #2 on: March 03, 2015, 05:58:53 PM »
Two suggestions. If you decide to stay at your current place of employment, try staying at that location at least every other week-end.  Look for activities you enjoy and make friends through those.  If you truly are not willing to make a life where you are, then move.
When you go talk to your landlord, ask if he will release you from the lease if a new tenant can be found.  Avoid the phrase "breaking the lease." 

jml2307

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Re: Reader Case Study -- What next?
« Reply #3 on: March 03, 2015, 06:49:58 PM »
That was a long read. A bit more brevity would probably be appreciated and get more responses.
<snip>
Good luck!

Thanks for the great thoughts. I slimmed the original for brevity, though it is still long. I realized I am mainly focused on just the moving related aspects of this and the Case Study is really there to add weight to how much the move may help.

The SL's are split between several different rates and I am targeting the highest rates first with current payments.

SomedayStache

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Re: Reader Case Study -- What next?
« Reply #4 on: March 03, 2015, 07:33:40 PM »
If your employer keys you move there would they let you move back in a few years if you hate the new job?
You obviously want to make the move. It seems like a financial and social win. You are scared to do it because maybe you won't like the job?   How much do you like your work now?
I'd say go for it.  That's where you want to be.

firewalker

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Re: Reader Case Study -- What next?
« Reply #5 on: March 03, 2015, 07:36:38 PM »
.
« Last Edit: March 03, 2015, 07:38:44 PM by firewalker »

KittyFooFoo

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Re: Reader Case Study -- What next?
« Reply #6 on: March 03, 2015, 09:21:17 PM »
Currently, you have a savings rate of 47%: (4400-2108-768 + 12500/12) / (4400 + 12500/12).  This is a great start, and already puts you on track for financial independence in under 18 years, even with your negative net worth.  A couple of small adjustments could bump you to a 60%+ savings rate and FI in 10-13 years.

First, realize that even though your situation is great, you are playing long ball.  Paying off student loans and achieving FI takes on the order of a decade, unless there are rare circumstances.  For a single earner, it happens $3-5k per month, one month at a time.  It's hard to accept this with a NW that is a year or more away from even hitting 0, especially in this community where there are so many monster success stories (our NW is now -$45k, down from about -$130k, so I fucking know).  So, while you are optimizing your finances, you also need to set about arranging your life in a way that makes you happy.

Here's my opinion:
1) Spend a few months putting together an emergency fund.  In my opinion, the E fund is mainly there if you lose your job.  It's all well and good to use your credit card as an E fund when you have shitloads of stock you can sell to pay off the CC/heloc/401k debt, but to me it looks like if you lost your job tomorrow you'd be kinda fucked.  Your bare bones expenses are currently about $2k, so I'd save up $6k cash for a start, maybe scaling back my discretionary expenses for a few months to get this done quickly.  It will be a drag to delay paying extra on your loans for another few months, but you're trading a little extra SL interest for a huge increase in short-term flexibility.  You might be surprised by how this little cushion affects your financial stress.  If you really want to be frisky with the credit-is-my-emergency-fund-and-my-job-is-stable thing, you could invest this money instead of letting it sit in cash.

2) Yeah, probably move eventually.  I would take this nice and slow, because your current situation is not precarious, and you mentioned you just got out of a long relationship.  Take some time for yourself; avoid sudden changes for now.  When you're ready, have a casual conversation with your LL.  Maybe he'll let you out of your lease right away.  Maybe he'll list the place on Craigslist and let you out when it rents.  Maybe he'll let you out for a fixed buyout.  Maybe he'll be a dick and hold you to the remainder of lease (the law always gives him this option, though he must make good faith efforts to rent the place if you vacate).  I've broken an absurd number of leases in my 7 years of renting, and all of these are possible.  It doesn't hurt to ask, and breaking the lease can't affect your background/clearance in any way (short of just randomly terminating payments and getting evicted). 

Switching campuses near where you want to live does sound good, but you'll have to investigate all the details--is it really plausible to get transferred there?  How will your rent change there?  Exactly how much will it knock off your current travel budget?  How will it affect your career long term?  When you do move, you can optimize commuting by minimizing C(x) = 10x + 4(D-x), where x is your distance to work, and D is the distance between work and F&F town.  Guess which value of x makes C smallest :)

While you're taking your time on your time to think about (2), think about expanding your social life where you live.  There are lots of things you can do, but one great way to meet people as an adult, with lots of collateral benefits, is to join a CrossFit gym. The cost may tighten some Mustachian sphincters, but it is healthy, fun and highly social.  Of course there are lots of other avenues.

In general, I think you should be able to save $500/month on rent/hometown trips in this category, maybe more, at some point between now and one year from now.  This will kick your savings rate into the 60% ballpark.

3) I'd be VERY against buying a house in your situation.  Why shackle yourself to a permanent residence when it sounds like you haven't figured out much about your career and living situation yet?  See here: http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/ Also, homes and taxes in your state are notoriously high.

4) When you've saved up your emergency fund, I'd consider cranking your retirement contribution to the max.  Yes, this will slow your SL repayment, but it will save you a lot of taxes and get you more tax-free growth.  Remember, long ball.

See you at 0!