Author Topic: Reader Case Study - Starter Advice for 24 year old  (Read 898 times)

fitfinancials

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Reader Case Study - Starter Advice for 24 year old
« on: February 28, 2019, 07:29:38 PM »
Life Situation: Single, but living with girlfriend, have not combined income or tax situation yet. Arlington VA.

Situation notes:
I have a cruddy 2000 jeep that has repairs every 6 months or so  for about 500$. I have $25k in student loans, $12k at 4.29% variable and 13k at 3.5% fixed. I would like to contribute the max to a roth ira too, but seem to not be able to fit it in. I also have no clue how to factor in saving for things like car/home down payments while paying everything else. I have $12.5k emergency fund. I like to be healthy, active, and I am a foodie thus money spent on food and gym.

Gross Salary/Wages: I am mainly concerned with my situation and will handle my girlfriend's separately. We will split expenses proportional to income mostly. I make $80k and she makes $50k. With overtime I make $100k, but as I said this will come to an end.

Individual amounts of each Pre-tax deductions:
I contribute 5% to my pre tax retirement with a 6% match. This match is also applied to my roth 401k which I am in at 10%, so I guess a total of 21%.

Qualified Dividends & Long Term Capital Gains: I have roughly $1500 invested in individual stock from when I was experimenting with investing, and also 1500$ in bitcoin bought at a time in the past. I contribute 10% to an employee share purchase program that gives me a 15% discount on stock which i sell immediately.

Taxes: I believe that I pay approximately 31% in taxes. It is tough to figure out because of my variable income.

Expenses: After move in in June with girlfriend: (keep in mind these are my expenses and my girlfriend will match or pay ~35% of total. listed numbers are what I pay, for instance girlfriend might pay $800 of rent for a total of $2100.)

Rent - 1300
Utilities - 80
Cable - 50
Health - 40
Car Insurance - 64
Food (grocery and eating out) - 500
Transportation (gas, repairs, parking pass) : 300
Savings - 200
Loans - 500 (238 to higher interest loan)
Leisure - 200
Gym - 126

I would like to know such things as how much is smart to contribute to my retirement plans, how much to pay in rent, how much to save, how much to pay to loans and how to make sure I can afford life expenses! If there is anything I forgot just tell me. I am not usually one to ask for this kind of help, but I am passionate about making a better future for myself and family, but need the guidance to start this journey.
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This was from my first post before being corrected:

Hi everyone, from time to time I have visited this website to read up on some personal finance topics. I like to combine my information from multiple sources, but I find myself here frequently. I am 24 years old and live and work in the Arlington, Virginia area near Washington D.C, making it a relatively expensive area. I am driven by the idea that one day I will be able to financially support my girlfriend and I, but also give back to both of our families.

Being 24 and having been in the workforce for 1.5 years, I have become much more comfortable with allocating money and budgeting. My main issue though, is that I am having a hard time making decisions in my own life because I never know if I am doing enough or too much. I would really appreciate some seasoned advice on how I can better set myself up later in life, and make my life/spending easier now. I having feelings of being overwhelmed sometimes that I am not going to be set up later in life or that I cannot afford things in the present.

I am fully ready to post my budget and other parts of my financial plan, just need to know what pieces are needed. For starters, I am making $80k salary with and my girlfriend makes $50k. There are other complexities to my situation that I can layout depending on what information people need. There are so many variables when saving, putting away for retirement, paying loans etc. that I am very flustered. I am mostly in a bind because right now I am blessed with overtime and thus make much more than my salary. I will be promoted soon (possible new salary of $87k) and will lose overtime, resulting in a loss of $13k per year. The life I am used to will cease to exist and I want to make sure I am ready. Any help would be greatly appreciated and I am excited to figure this out with all of you!
« Last Edit: February 28, 2019, 08:19:22 PM by fitfinancials »

ender

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Re: Starter Advice for 24 year old
« Reply #1 on: February 28, 2019, 07:32:10 PM »
Start by using paragraphs :-)

j/k, welcome to the forums.

Probably the best place to start is to look through the first post here - https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/ - and figure out answers to most of those questions. Capturing info/spending/goals on virtual paper is a really good place to start.

fitfinancials

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Re: Starter Advice for 24 year old
« Reply #2 on: February 28, 2019, 07:49:03 PM »
Thank you! Sorry about the formatting. I will repost with a similar topic. I am very confused by a lot of the spreadsheet, so I will provide a rundown of my situation in the format provided.

ender

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Re: Starter Advice for 24 year old
« Reply #3 on: February 28, 2019, 07:51:12 PM »
Thank you! Sorry about the formatting. I will repost with a similar topic. I am very confused by a lot of the spreadsheet, so I will provide a rundown of my situation in the format provided.

When you're first starting out it's a good starting place to just think about all the things (and ask questions about those that are not clear).

One of the most important is figuring out your goals. Given you posted on this forum I would guess earlyish retirement is a goal.

fitfinancials

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #4 on: February 28, 2019, 08:41:49 PM »
My edit should clarify these things. I would like to retire somewhat early of course, but it is not my main goal. I would be happy retiring at 50-60, but also 35-50! I just want to make sure I can live the life I want to live and save accordingly.

Freedomin5

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #5 on: March 01, 2019, 12:57:50 AM »
Welcome to the forums!

Your rent is high, especially if that figure is only 65% of what you and your gf pay in total for rent.

Also, what are the interest rates on your loans? Consider paying off anything with more than 5% interest rate. If you have multiple loans, pay off the highest interest loan first before moving down the list of loans.

You should be trying to max out your 401k and other tax-advantaged funds.

For further info, look at the Investment Order thread: https://forum.mrmoneymustache.com/investor-alley/investment-order/

Then come back with specific questions once you start working your way down the Investment Order list.

MrThatsDifferent

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #6 on: March 01, 2019, 01:15:13 AM »
There’s a case study section

fitfinancials

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #7 on: March 01, 2019, 06:33:22 AM »
Thank you Freedomin5, I am going to reevaluate my loan payment situation and decrease to minimums for my 3% and see if i can refinance my 4.5% down. My main other question is how do I allocate my ESPP money that I obtain every 6 months, and where does saving for down payments play into that investment order? If I am maxing my roth that leaves little to none for savings.
« Last Edit: March 01, 2019, 06:50:07 AM by fitfinancials »

seemsright

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #8 on: March 01, 2019, 09:34:11 AM »
Your ESPP will be a great gateway to savings. You will earn 15% on your money. Maybe you sock away that ESPP money for saving for down payments etc.


I think you need to take some time and get on the same page as the Girl friend...this will be important if you end up married. Your head is spinning on all of the things that could be done.

If paying back loans is important then you are going to have to make some choices...ie find a cheaper gym. And then put that difference towards a loan. Your Rent is high.

You can do a hell of a lot with $25 if you are focused. Figure out what order is most important. With keeping note of how VITAL compound interest is put as much as you can into 401K etc.

Hirondelle

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #9 on: March 01, 2019, 10:29:49 AM »
I'll have a try on your expenses as they seem rather high to me on various fronts. Be warned. Facepunches are coming:

Rent - 1300
Sounds high considering your total rent is $2100. What kind of place are you renting? You are just two people so a 1BR apartment should be enough. Only excuse to get something more expensive is if it allows you to live car-free or comes with other giant perks which you don't seem to have. This is a big opportunity for savings.

Utilities - 80

Cable - 50
Do you really need cable?

Health - 40

Car Insurance - 64

Food (grocery and eating out) - 500
Is that just for you??????? That's insane! Cut that budget in half overnight. If you also pay part of your partners groceries due to the income discrepancy, how much is your total combined food spending?

Transportation (gas, repairs, parking pass) : 300
So all this + insurance gets your total car expenses to $364 a month. That's a ton. First of all, why do you have a jeep? That sounds like a very inconvenient vehicle in an urban area like yours (note: I'm European so basically any car in the US looks insanely big and excessive to me). How long is your commute and how much is your parking pass? Any options you can optimize your commute and go by public transport or bike?

Savings - 200
Good :)

Loans - 500 (238 to higher interest loan)
Also approval for that one.

Leisure - 200
What's included in this? Considering this is not the gym or eating out I guess travel might be included here? Concerts/theatre?

Gym - 126
Eek. You can get fit for way less than that. Why are you going to such an expensive gym?

I don't see any line items for clothing, travel (maybe under leisure?), general shopping (appliances, household items), presents/charity. Are these included in any of the other line items, haven't you had them in a long time or have you just not thought about them?

fitfinancials

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #10 on: March 01, 2019, 11:45:36 AM »
I acknowledge that I may be spending more than I need to, I find it hard to give up the life that I am used to. :( Maybe I will gain that understanding through these talks.

seemsright:

This does sound like a great way to use my ESPP, thank you. The issue with the gym is that it is a specialized rock climbing gym which is something I like to do in my spare time. Rent at 2100 is actually very cheap for my area and even 1 bedrooms are 1900-2100. I play instruments and have a lot of active gear so space is vital. That is a difficult one to lessen, and I feel that I will grow into the price with raises, etc.

Hirondelle:

See above for some answers. The food budget is just for me, I can see lessening that by eating in more on weekends. Cable really means internet/subscriptions to netflix, etc.

The jeep is paid and was bought many years ago, thus costing me little to none in payments. I am willing to go car less, but it would be difficult for my girlfriend to do so because of her commute. My commute is 15 mins by car, I am having a hard time understanding how I can get to places that are not accessible by public transport (like hiking, home in Maryland, etc.), therefore I justify having a car. I do pay for a parking pass at 125 per month. I am thinking that since my car could go up in flames at any point, that I will not get another car. Is uber something that would be more cost effective?

Other items like clothes, entertainment, shopping, travel are factored into leisure.

This money then that I am saving, use it in line with the investment order?

Thank you all for this insight, it really does mean a lot to me.
« Last Edit: March 01, 2019, 12:33:26 PM by fitfinancials »

seemsright

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #11 on: March 01, 2019, 12:40:13 PM »
The MMM lifestyle is not about giving up everything you want.

But you need to figure out what is important. If you say your gym is important, your apartment is important, this is important etc...not everything is important at the same level.

You are young and in the prime time to save to get compound interest to work in your favor. Live streamlined now and in 7-14 years you will thank yourself.

We as internet strangers can tell you what to do. But only you and your partner can really figure out your priorities. I suggest to make a weekend date and pull all of your bank accounts and your partners bank accounts and figure out where you money is going and why. Then you can really see the patterns and decided together what is important. Maybe the rock climbing gym is more important than trying that new restaurant every weekend.

IMO it is the simple shit that everyone does not think about that prevents most to get to FI. It is grabbing coffee out because you were not prepared to make it before you left in the morning. It is grabbing lunch because you did not have a freezer full of pre-made sandwiches to just grab. Take some time and organize your life so that that small things do not suck your bank account dry.

Finding 'just $25' a week will make your life so much better in the long run...Then you find $50 then $200 etc. You do this by not buying coffee out, you call your insurance companies and find the cheapest for what you need etc. This mentality is how hubby and I got to be debt free and I got to FIRE at 31. Hubby could Fire now...but it would be tight we think in our 90's so he is waiting a few more years and he enjoys his job.

Just looking at your numbers there are easy ways with a quick shift in thinking will get you to a couple commas in 7-14 years. Becoming rich is easy from a money point of view. What is hard is turning off all of the society BS that is blasted at you all of the time...buy this...do this..be this.

I am a huge nerd when it comes to this type of thing and I want everyone to see how easy it is when you decided a couple commas is more important than a friday night out. You choosing to spend your friday night in, with homemade pizza and a glass of cheap wine you enjoy (because you spent the time finding just the right bottle under $8...yes there were many duds but it was a fun time to find it.)

GizmoTX

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #12 on: March 01, 2019, 01:47:18 PM »
Use a financial app with forward looking budgeting, such as YNAB or Every Dollar Counts. These are essentially electronic envelopes; you want to allocate every penny of your income in this app as you get it & before you actually spend it. If you have a bigger than usual expense coming up in one category, these apps make it easy for you to choose where to reduce in other categories. YNAB has a lot of good material on its website to explain concepts.

Do not mingle bank accounts or buy assets with anyone until you marry that person. The one possible exception is a joint account for shared operating expenses, but keep it funded just for the current month.

You need an emergency fund, minimum of $1000, ideally equal to 6 months to a year of expenses. This should be stored in an online money market account, now earning around 2%, & linked to your personal checking account.

fitfinancials

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #13 on: March 03, 2019, 02:25:43 PM »
I understand this a bit more and really like what you said about some being more important that others. I can definitely cut my food costs, and evaluate only having 1 car or no car. I will have to drill down my budget to be more specific. Thank you all for your help!

Freedomin5

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Re: Reader Case Study - Starter Advice for 24 year old
« Reply #14 on: March 03, 2019, 04:37:21 PM »
Regarding the car, if you only need it for occasional hiking trips and visits home, you could always rent a car for the weekend. Do the calculations based on how often you do this type of long distance travel and see if it  costs less than your current monthly spending on your car.