I've also posted this to Reddit. I don't know if there is an anti-crosspost policy.
How’s my plan looking? I’ve been conscious of my spending for about 3 years, but never run the math by anyone else.
Single, 23 years old. Gross Income at 57k + 5k bonus.
Employee matches 401k 50 cents on the dollar for the first 6% (3%). They also add an additional 6% of gross income, no signing up required. Whoo! I’m personally contributing 14%, around $7.7k. Total employee match 5k annually (9%).
I contribute 10% (the max) of my gross income (but purchased post-tax) to my ESPP, (15% reduction in price, bought in lots twice a year) as I feel like it’s a no-brainer. I work for a Fortune 500 company with strong financials and don’t see it going anywhere anytime soon. Stock price has been increasing consistently YOY. My mentality right now is to hold on to them for the long term, even though I’m condensing my eggs into fewer baskets. Similar to my other investments, I would consider it even without the 15% benefit.
- 15K in Roth IRA (just contributed this years 5.5k this week)
- 10K in 401k (Was just eligible to contribute starting last year)
- 105k in taxable accounts, invested. Source- saving a bunch over the years with scholarships during school. 13k is a gift of IBM shares from grandmother with a cost basis from back before World War II. I don’t even know what decade. (gifted before she died, so that tax hit will be huge if I sell).
- About 5k in cash. I know this is a slimmer liquid emergency fund than recommended, but I’m always itching to invest more and more. Having cash sitting around bothers me.
Zero debt. Yay.
Additional Income – I’m getting dividends of around 250 a month on average. Reinvesting them automatically, as I’m in “asset growth” mode.
Spending: 1,200 a month and an additional $100 pre-tax for transit. So..1280ish? I don't think about the public transit at all.
Quick math says I have around a 65% savings rate, 1-(1200/(2244+600+430+250)).
As I understand the calculation, it’s my spending/net income+401k+espp+dividends. But that’s probably not right.
My investing philosophy is focused on what the company does, and their dividend. In that way, I can ignore the swings of the market, and rely more on the specific value the company offers. I’m not just chasing after highest div yield, I’m currently mostly invested in the ‘aristocrats’ currently, as I’m looking for the lowest maintenance, long-term growth.
I have multiple questions:- How should I be calculating my savings rate? I know it’s not the end-all number, but I’d love to be able to compare my rate to what I read on MMM.
- How/should I look into selling by IBM shares? I don’t see much downside holding onto, but that cash might be put into higher yielding dividend companies. As I type it out, that sounds dumb. They’re a good fit for my appetite.
- How can I better optimize my allocation? I know I’m not maxing out my 401k, but that’s currently for piece of mind. By selecting the 30% or so percentage needed to get to the 17.5k, I take out possible money that I want more liquid, and invest in companies more to my liking. And to be honest, I haven’t figured out if I have the income to max it and keep my spending consistent.
- How long until I can be FI? MMM would give me 10.5 years at zero assets, so it’s less than that.
- I’m currently covering about 20% of my annual spending with dividends – what’s the best way to increase this?
- Is solely dividend investing a good idea for FI? I hear about the 4% withdrawal rate, but by relying on dividends, aren’t I in a way ignoring this because I’m not ‘withdrawing’ my current position, I’m just taking out the future position? I’m not sure how to really compare a dividend yield with the withdrawal rate. Especially since I have an average yield of 3% nominal, that’s definitely less than 4% real. How do I make that apples to apples?
- Should I have different investing philosophies between taxable and IRA accounts? Is there a perk to putting dividend income in one or the other? How is dividend income treated in an IRA? (I’ve googled this, but haven’t found anything that compels me to do so)
- What else should I be looking at?
Any insight is much appreciated! Thanks!