Sanity Check/Advice on FI Plan?

[wing117]

Hello! I am on the way to mustachianism! I have been working on this for about 4 months now. I currently save 44% monthly, but plan on getting even better percentage in the next few months. I wanted to take a moment to make sure I'm on the right path and get any advice possible!

I am 25 years old and work as a Sr. Systems Administrator for a University.  I am currently supporting my SO while she works through some internships to get a better position in her industry and pay for about everything sans her car and car insurance. (She's 23, fresh grad in Graphic Design) Below is my current financial snapshot:

Monthly Income:
Pre-Tax                      - $7,243.74
Post-Tax                    - $4,628.6

Paycheck Withdrawals (per month):
Parking                       - $47.40
Retirement                  - $434.62
Federal Tax                 - $1142.82
Medicare                     - $104.34
Social Security             - $446.18
State Tax                    - $444.00

Total                            - $2,619.36 (ARGH!!!)

Monthly Bills:

Rent                           - $650
Car Payment              - $281
Car Insurance            - $90
Phone                         - $157 (!!!!)
Electric                        - $107
Water                         - $8
Internet                      - $25
Banfield Veterinary     - $25

Total                           - $1,343

Monthly Expenses:

Groceries                   -  $350
Dining                         - $350
Fuel                            - $135
Misc. Purchases          - ~$200

Total                          - $1,035

Investment Funds:

Tiaa-Cref Retirement Fund (Current Company)   - $1,439
Fidelity Investment (Old Company's 401K)          - $1,641

Current savings                                      - $5,249.59
Monthly contribution to savings account - $2,000

Car Loans                 - $9,916.08 @ 4.5%
Car's "worth"            - $12,500
Credit Card               - $0.00


My current plans to reduce my expenditure are:

Start Riding my Bike to work and sell the car, cancel parking pass at work. (~580/mo in savings)
Move over to Virgin Mobile plan for both our phones, reducing cost in half to 80/mo. (~80/mo in savings)
Stop eating out! Invest more in my kitchen (pots/pans, etc...) to make cooking easier and more enjoyable. (~350/mo in savings)
Reduce electricity consumption with optimizing heating/cooling, more efficient laundry loads, etc... (~25/mo in savings)

The SO and I car pool everywhere /except/ when going to work, so getting rid of the car shouldn't be difficult once I ride my bike to work every day (7.8 mile ride).

Any advice, is welcome! Thanks!

[jp]

Looks and sounds sane to me.  You know where the problems are (phone, dining, cars).  Other than that, you are looking good IMO.

If you continue at your current level of spending and saving, you should be FI in about 16 years in 2029 (spending $2000 each month and saving the same amount).  If you save more or spend less, it will happen faster.  If you sold the cars tomorrow, that would add trim your spending and boost your savings immediately, allowing you to reach FI about 5 years sooner in 2025 (adding the $3k in equity to your savings, and trimming your spending by $500 per month, while boosting your savings by the same).   

Either way, I think you are on the right track.  Either sell or pay off the cars, trim back your dining budget, and change cell plans.  Everything else looks pretty reasonable to my eyes. 

I was already mustachian when I was 25 also, but then I had kids and experienced some lifestyle inflation, and now, at 35 I am finding my way back.  I was supposed to be retired in 5 years.  Don't be like me.

[bevathome]

Your plan looks good to me, too!

Does the university provide your health insurance with no employee contribution?  If so, lucky you!  I'm guessing co-pays, medicines, etc. would be part of the misc. purchases, if needed.

[simonsez]

Is the retirement figure taken out of your check a pension plan or is it a 401k?  If it is a 401k type, I'd probably contribute more than the $5215.44 yearly amount you are on pace for and "save" less in your savings account (e.g. $1458.33 to the 401k per month to max it out for the year and $976.29 to the savings account each month, same total, just different allocation).  You're close to the 28% bracket if not already in it which means contributing additional dollars in the 401k could keep you away from the 28% bracket altogether.

[madage]

Move over to Virgin Mobile plan for both our phones, reducing cost in half to 80/mo. (~80/mo in savings)

You can do better than this. I'm paying less than $40 per month for two phones with data access, and that's still more than twice what I would pay if I could successfully trim my wife's data habit enough to adopt the $10 iPhone plan.

You can also check out:
The Communications Superguide
This other thread on Airvoice
Yet another Airvoice thread

[wing117]

Thanks for the replies!  Yes, the University takes care of my health insurance, so I don't pay that! One of the great things about this place. I don't incur many medical costs, so those are actually quite low in general right now. I expect them to rise as I get older. The "misc" costs are things like dog food and hobby purchases (I'm getting into hand-tool wood working).

The retirement plan is interesting... I've had long talks with the benefits director on this. The retirement is a 401K with matching, however it is an all or nothing contribution. I can contribute a (mandatory) 6%. Period. Something about the way the 'state does things'. I may need to talk to another benefits person. You can see the taxes are destroying me and would love to lower those.

The reason the current account balance is so low is because I recently switched from a state retirement benefits plan due to a.) I wont be with the university long enough to gain benefit from the plan and b.) They would give me no information on how the money was being invested ("It doesn't matter how much you put in, it's how long you've been here"). I didn't like that - and it followed a very traditional retirement-age scheme. Sadly, I have to not work for the university for 60 days before I can transfer the money that was originally put into the state benefit plan (~4500). I'm not happy about that situation.

Should I migrate my old company's 401K somewhere? It's currently getting 16% returns.

I'll definitely check out those communication links! I rely quite heavily on my phone as I am a 24/7/365 on call and also use some of the server/vmware management applications with VPN and well... We gotta work on that whole data addiction thing. I'm not willing to take on that fight right now with the lady.

Thanks again!

[simonsez]

What do you mean by all or nothing?  Does this mean if you do contribute, that it has to be at least 6% or that it ONLY 6%?  If you don't like the 401k, look into 457 plans (you could possibly contribute 35k to a 401k and 457b in 2013) since you are a state employee or at least IRAs if you want more control.

What was the result of your long talks with the benefits director?  To put 2k/month into a savings account?

[wing117]

What do you mean by all or nothing?  Does this mean if you do contribute, that it has to be at least 6% or that it ONLY 6%?  If you don't like the 401k, look into 457 plans (you could possibly contribute 35k to a 401k and 457b in 2013) since you are a state employee or at least IRAs if you want more control.

What was the result of your long talks with the benefits director?  To put 2k/month into a savings account?

I can contribute ONLY 6%. The long talks with the benefits director was mainly to try to understand why I could not control my percentage contribution and why I was not able to migrate my contribution from the Benefits Plan to the 401K.  I've never seen it fixed like this. I talked with someone who has been at the university for 9 years, and they were given the same information and limitations on contribution.

The 2k/month is my attempt to build out a safety zone for myself (6/mo of expenses in the event of a job loss) and build up some savings to possibly invest (vanguard index funds, for instance).

[madage]

I'll definitely check out those communication links! I rely quite heavily on my phone as I am a 24/7/365 on call and also use some of the server/vmware management applications with VPN and well...

If you can get by on only 100 minutes per month ($0.10 per minute after that), T-Mobile has a $30 unlimited text, unlimited data prepaid plan. (scroll down, bottom left)

We gotta work on that whole data addiction thing. I'm not willing to take on that fight right now with the lady.

I hear that. Definitely check out the Superguide when you're ready to kill your communications bills.

[FlorenceMcGillicutty]

In my first read of your budget I thought your fuel expenses were pretty high at $135/mo. If you car pool everywhere, what's contributing to that line?

[wing117]

In my first read of your budget I thought your fuel expenses were pretty high at $135/mo. If you car pool everywhere, what's contributing to that line?

That's the Honda Element I own... I fill up once every other week (~19-20mpg). And occasionally pick up the gas tank for the lady's car. Some months that number is much closer to $70-$90.

She drives a Ford Fiesta (38-42mpg these days) 20 minutes to work every other day, but with her making almost nothing at her internship, her car payment and insurance can do her in for the month so that's an additional 35 dollar fill up. She is working on making more and actually quit a decent paying job so she could get more experience in the field she wants to be in. Which we both agreed was in our best interest for the long term.

Needless to say I can't wait to start biking and get rid of as much as that cost as possible (I'm going on my 'test' ride into work this Saturday to make sure I don't die halfway through of exhaustion).

[wing117]

What do you mean by all or nothing?  Does this mean if you do contribute, that it has to be at least 6% or that it ONLY 6%?  If you don't like the 401k, look into 457 plans (you could possibly contribute 35k to a 401k and 457b in 2013) since you are a state employee or at least IRAs if you want more control.

What was the result of your long talks with the benefits director?  To put 2k/month into a savings account?

I wanted to go back to this. I called up the General Assembly for my state and talked to a benefits person there. The TIAA-CREF investment is part of the MANDATORY retirement program and is fixed to the 6% with the University matching 6% as well - and I only keep the matching contributions after 5 years (I'm at 2 years). However! There are also two "Supplemental" retirement plans that I can also opt into:

401K and 457 Deferred Compensation Plan
403B Voluntary Retirement Plan

These programs have no artificial limitations as the Mandatory retirement and I'm going to look at the 457 plan and call the program adviser to work out all the details. Does it hurt me that I am separating my money out (across the two plans)? Should I also look into rolling over my old Fidelity account into the 457 when the time comes?

Thanks again for all the comments and critiques!

[extole]

Take advantage of the 457! It's pretty much the perfect investment vehicle for someone shooting for FI/Early retirement. Contributions lower your tax bill now, grow tax free over time, and early withdrawals aren't subject to the 401K's 10% early withdrawal. Whatever else you do, be sure to try and max out the 457 every year.

Don't worry about separating out into multiple accounts. You gain tax treatment diversification by doing so :)

Good luck!

[simonsez]

Does it hurt me that I am separating my money out (across the two plans)? Should I also look into rolling over my old Fidelity account into the 457 when the time comes?

No.
Why not?  Just make sure you check out the fees and rules for rollovers with your plans.  You don't have to rollover but can't hurt to look into it.

If you want your money all in the same place later on, that is very doable.  But given your 6% constraint (hey, at least 6% matching is good and you still have options) I'd go the separate route for now at least until you separate from state service.

What is the difference between the 401k deferred compensation plan and the 403b voluntary retirement plan?  If these are both outside of the 6% TIAA-CREF investment, I don't know the difference.  Maybe different providers?

[wing117]

UPDATE:


So I've made a lot of progress since this thread started, and I am starting to think more about passive income ideas. Ultimately real estate is something i'm interested in pursuing (as I've noticed a lot of people here are). First! An update on my standing:

-------------------------------------------------------------------------------------
Monthly Income:
Pre-Tax                      - $7,243.74 $7,303.74 (not sure how this went up)
Post-Tax/withdrawals                    - $4,628.6  $4,688.72

Paycheck Withdrawals (per month):
Parking                       -$47.40  0
Retirement                  - $434.62 (+$495.48 employer)
Federal Tax                 - $1169.68
Medicare                     - $104.34 105.9
Social Security             - $446.18 452.82
State Tax                    - $444.00 452.00

Total                            - $2,619.36 2,674.95 (Odd that this number went up...)

Monthly Bills:

Rent                           - $650
Car Payment              - $281
Car Insurance            - $90
Phone                         - $157 19.00
Electric                        - $107 104 (The truth here is 107 was budget billing. 104 is the real bill, and has dropped significantly)
Water                         - $8
Internet                      - $25
Banfield Veterinary     - $25

Total                           - $1,343 1,202

Monthly Expenses:

Groceries                   -  $350
Dining                         - $350 80
Fuel                            - $135 15 (I put in a half tank every month now Bicycles!)
Misc. Purchases          - ~$200 (Will reduce - is the "hobby money" for outfitting the bicycle, getting cooking equipment, etc...)

Total                          - $1,035 645

Investment Funds:

Tiaa-Cref Retirement Fund (Current Company)   - $1,439 4806.35
Fidelity Investment (Old Company's 401K)          - $1,641
Vanguard Personal ROTH IRA                              -$6,533.16
Vanguard Rollover Traditional IRA                        -$1,183.88

Current savings                                      - $5,249.59 5,511.09
Monthly contribution to savings account - $2,000-2250 (Currently varies as I've had some surprise onetime expenses)

Car Loans                 - $9,186.36 @ 4.5%
Car's "worth"            - $12,500
Credit Card               - $0.00

Total NetWorth (according to Mint) - $21,591.12
-------------------------------------------------------------------------------------

So! Progress! Awesome! I plan to pay off the Car loan by December of this year (hopefully November) and then we will sell the S.O.'s car and become a 1 car household. After that, being completely debt free, I'll open a brokerage account with Vanguard to start socking away 2,250-2650 a month. We are also working on being able to live on solely on my income and the S.O. socks away as close to 100% of her income as possible as well.

Now, what I'm interested in doing is starting in real estate. The SO and I have a little dream to run a bed and breakfast in the mountains and possibly have a vineyard as a hobby when we retire, and I think Real Estate/Land Lording would fit nicely with that dream of ours.

So the question is, with my current standing and my stated 6 month goals for debt elimination, what would the next steps be? Purchase my own house first before getting into land lording? Keep socking away money into brokerage/IRA and forget about homes/real estate for a while? A combination? Something else entirely?

I have a lot of learnin' to be done about real estate (and, arebelspy, I have been grabbing a lot of book titles from your posts), but just making sure my next steps are solid. Any other advice on where I should go from here would be much appreciated as well!

[kkbmustang]

I can't speak to the change in pre-tax income but the after-tax income (and tax amounts) likely changed since you cancelled the pretax parking.

[thrifted]

you're doing awesome!  keep it up!!

banfield veterinary monthly bill question: i have a 7.5 yr old dog and am debating insurance.  what kind of pet do you have and how do you like the insurance? what savings do you get from it?

[wing117]

banfield veterinary monthly bill question: i have a 7.5 yr old dog and am debating insurance.  what kind of pet do you have and how do you like the insurance? what savings do you get from it?

I have a 2 year old Aussie/Chow/Elkhound/Bloodhound mix (SO got a DNA test done...). She was a rescue from a high kill shelter. She had parvovirus, 2 types of worms, mange and more as a puppy and our vet bills were outrageous as you can imagine, so that's why we started looking at Banfield.

The 25/mo is not insurance, it's a contractual plan for a set of services - if you use it, it's worth every single penny. I've used the equivalency of $2500 in services there this year, and have only paid 225 dollars to them over 8 months. Physicals, shots, office visits for "I don't know what's wrong", illness screenings and more is all included. I've had good luck with it and is a bill I don't mind paying. Definitely check around different Banfields in the area, one may not have a good reputation, while others have fantastic vets.

http://www.banfield.com/Optimum-Wellness-Plans

(Note: I am not affiliated with or making money from Banfield)