Case Study: Just getting started

[mountains_o_mustaches]

Hello!  I'm new to Mustachianism (officially), but realized that I've (mostly) approached life from the same philosophy.  I already do a lot of the lifestyle recommendations (e.g., riding my bike to work / to go shopping, not spending lots of money on accumulating "stuff).  Reading the blog and the forums has given me great ideas about how to be even more badass. 

I'm at a point in my life where I'll be starting a higher paying job with no debt and I need to figure out how to actually apply all of the financial things that have been recommended.  We're currently renting, but plan to save to buy a house.  We also have a car that's on it's last legs - a 2000 Subaru Forester - we plan to buy a new-to-us car that's way more fuel efficient.  I'm wanting some advice and guidance as I get started - including the best way to save for the big purchases ahead of us and how to start investing in a smart way.  So here's my break down:

29 years old, married (SO is 30), no kids.  Joint monthly income is currently $4200/month; however, I will soon be starting a new job and our new income will be approximately $6000/month.

Gross Salary = $95K / year (combined for new job; currently is ~$70K).  No other side income or investments (other than DH's Roth IRA noted below)

Pre-tax deductions = $185/month for health insurance and plan to contribute at least 5% to TSP (similar to 401K, but for federal government employees - they match first 3% dollar for dollar and the last 2% at 50 cents to the dollar).  Currently I'm not eligible for TSP, but 5% will be approximately $315 / month when I start my new job.

Current Monthly Expenses = $2788.61
     Rent = $1100
     Electricity = $50 - average
     Gas (home)= ranges from $30 - 80; average is $50 (we have gas heating in the winter)
     Groceries = $350 (includes beer/wine - monthly total is ~$50 for booze)
     Water/Sewer/Trash = $50 (the trash / sewer part is a set price; our average water usage is less than 1/2 that of other local residents - goes up slightly in summer because we have a nice vegetable garden and fruit trees that we water)
     Gas (car) = $60 (this should decrease w/ DH starting new job closer to home)
     Car / Rental Insurance = $140
     Cell Phones = $70 (two lines through Cricket wireless)
     Internet = $60 (cheapest option - we don't have cool neighbors to share w/ like MMM)
     Netflix = $8.61 (It's a vice we haven't been able to give up!)
     Restaurants = $250 (another vice)
     Miscellaneous = ~ $350 (can vary quite a bit - for instance 2 months ago was around $600 because we decided to replace a few kitchen appliances/gadgets, was $75 another month)
     Donations (to church, charities) = $250

Assets:
     Old Car - probably could sell for about $2500
     Savings (currently in a Money Market Acct w/ 1% interest) = $22,698 (this is how we're saving for our house down payment, but am open to other ideas!)
     Checking - Average balance is about $5,000 - we transfer funds to our savings if it exceeds $7k
     DH Roth IRA = ~$20,000 - this is currently managed by Edward Jones - looking into not doing this
     Me - no retirement savings (eek), but did get a graduate degree w/ no student loan debt so maybe we can call this even?

Main questions - what are the best ways to invest / save money - especially given that my income will be increasing in the next few months and I'll be eligible for TSP?  What's the best way to save for big purchases like a house down payment and a new-to-us car?  Are there areas for greater savings that we're not thinking of?  I feel like I'm at kind of a clean slate place, but want to start growing my 'stache!  Any advice / recommendations are greatly appreciated.  I'll also try to be as timely as possible in providing any other information that would be helpful!

[Sailor Sam]

Best advice, when you start the new job set your TSP contribution at maximum. That's $692.30/check, assuming 26 checks per year. The jump from 72k to 95k is greater than the 18k maximum contribution. You won't even miss it, and you'll be maximizing your investment in one of the greatest investment vehicle ever created.

Once you max TSP, figure out how to max an IRA. In fact, your salary increase should cover 5k of this as well.

Once you max the IRA, start an after tax investment account with Vanguard.

When I add up your expenses, I get ~1600/month unallocated. Do you track expenses closely enough to know where this is going? If not, a great step would be to start tracking more closely.

Congrats on graduating with no debt. And on becoming a Fed. Way to go!

[mountains_o_mustaches]

When I add up your expenses, I get ~1600/month unallocated. Do you track expenses closely enough to know where this is going? If not, a great step would be to start tracking more closely.

Thanks for the advice! As for unallocated $ - it's been going into our savings account (how we ended up with $22k) and it covers unexpected costs  (e.g., unexpected car repair a few months back). The miscellaneous spending definitely fluctuates,  but looking at our bank / credit card statements there don't seem to be consistent superfluous purchases, like fancy electronics or Starbucks.

The savings account is where we're saving up for a new car and house down payment. Is this the best way to save for big purchases?

[Sailor Sam]

When I add up your expenses, I get ~1600/month unallocated. Do you track expenses closely enough to know where this is going? If not, a great step would be to start tracking more closely.

Thanks for the advice! As for unallocated $ - it's been going into our savings account (how we ended up with $22k) and it covers unexpected costs  (e.g., unexpected car repair a few months back). The miscellaneous spending definitely fluctuates,  but looking at our bank / credit card statements there don't seem to be consistent superfluous purchases, like fancy electronics or Starbucks.

The savings account is where we're saving up for a new car and house down payment. Is this the best way to save for big purchases?

The standard advice is to keep money you will use within 5 years in a savings account or money market account. When I was saving for a down payment, I used a money market account. A CD ladder would also be a very low risk vehicle.

BUT, at the end of the day the decision on where to store money (aka: asset allocation) is all about your emotional make up (aka: risk tolerance). If you have the stomach to shove it all into stocks you may be rewarded with a higher return. Then again, you might not.

[jaytomlinson]

The categories I would look at to save in are restaurants and the new house. Obviously, it depends on your location how cheap you can make your housing while still in a desirable location.

As for the new car you plan on buying, good gas mileage is great, but also consider the upfront cost of the vehicle. If you're spending $10k to buy a used car that gets great mileage vs. spending $5k for one that gets slightly worse mileage, are you going to be driving enough to make up that $5k difference in fuel costs?

[MDM]

Nice case study write-up!

Do you both have access to TSP/401k/etc. plans?

Having each of you contribute enough to traditional retirement accounts (TSP/401k and/or IRAs) so your AGI is low enough to get the first tier saver's credit seems worthwhile.

Whether you contribute to traditional or Roth beyond that amount depends on whether you think
 a) salaries will increase ~the same as inflation, so you expect to be in the 15% bracket for the foreseeable future.
 b) salaries will increase significantly so you will be in the 25% or higher brackets for much of your working careers.

If "a" then traditional is likely better than Roth.  If "b" then you might do Roth now (after reaching the saver's credit tier) and plan on traditional in future years.

See your favorite tax software or try the case study spreadsheet (see also the 'Investment Order' tab for more ideas) to evaluate what it would take to reach the saver's credit tier - it appears easily doable for you if I entered your numbers correctly.

See also https://www.bogleheads.org/wiki/Three-fund_portfolio, including the specific comments about the TSP there.

Good luck!

[mountains_o_mustaches]

Thanks for the advice everyone!  Yeah, DH set up the Roth IRA when he was quite young - we need to think about what tax bracket we'll fall into so he can make an informed decision for sure.  He doesn't have access to TSP/401k - he currently works a few part time jobs (that he loves).