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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: busybusybusy on September 29, 2014, 04:47:36 AM

Title: The first step!
Post by: busybusybusy on September 29, 2014, 04:47:36 AM
Hi Everyone!

Long time reader, but this post is about me putting my money where my mouth is. I finally decided to quit being poor and decided to take real measures to jump start the entire process of badassity. I recently left Austin to take a teaching position in Saudi Arabia for nine months. So far I've been here a month, and everything is running smoothly. If the rest of the year goes as well as this past month,  I plan to renew the contract this coming May. At 30 years old, I now feel that I should consider buying my first duplex/condo to rent once I get enough money for a downpayment. However what I feel I should do and what I should financially do are different things. Right now and for the rest of my life I want to be cautious of my financial position because I never want to go back to being poor. Ever.

Brass tacks: I will have around a projected $25,000-30,000 of tax free income by May 2015, what should I do with it? The cost of living here is low because food is subsidized and there isn't a lot of entertainment to squander my money. I gauge that I can live off of $200 a month on groceries, the rest of my time will be spent trying to increase the profits from my online business that I started a little while ago; the website makes around $300-500 a month which all goes to student loans.

Income: $3,200 a month, tax free. My first paycheck comes this Sunday!
Current expenses: Student Loans - $30,000 ...this is being paid off $300-$500 a month right now with profits from the online business. I'm currently trying to increase this to around $1,000 a month. This is do-able, I just need to put the time in to get everything to that level.
Expected expenses: Groceries $200 , Transportation $0 (we're bussed to and from school), Living expenses $0 (rent, utilities & Internet are paid for the year). The girlfriend and I just hang around the apartments and keep to ourselves... so there isn't much that we can go out and waste our money on.
Assets: $1,000 cash
Liabilities: $0 - I'm 30, in good health, with no children and no credit card debt. (ĦĦhigh five!!)

 I really appreciate any guidance you all can throw my way and thanks for all your help!
Title: Re: The first step!
Post by: deborah on September 29, 2014, 11:06:07 PM
I think your name says it all - if you have an online business and you are teaching OS, why would you start to invest in property? You probably don't have the time, knowledge or location to research your inventment properly. Go into indexes, concentrate on building your website and your teaching. If you have time left over, learn about property investing so when you finish working OS you could have enough of an idea about property to start investing in it.

Your student loan amount is a liability, and your net worth is assets - liabilities, which may equal -$29,000.
Title: Re: The first step!
Post by: frompa on September 30, 2014, 06:10:11 AM
Ditto what deborah said.  Not everyone is suited to using real estate as an investment vehicle.  You want to carefully assess your motivations (the more emotional your motivations, the greater caution you should exercise) and analyze your skills (if you intend to do the hands on work of keeping up a rental yourself) or the finances of engaging a management company (if you intend to pay for the maintenance.)  Especially while you are geographically remote from your possible rental holding, perhaps you'd be better off sticking your savings into a low cost index fund such as Vanguard offers.  What you should most appreciate is that whatever investment option(s) you choose, your best bet is to do the research FIRST and thoroughly.  There's a lot of sense in the notion of not putting all your eggs in one basket.  So perhaps you want to do:  some plain old cash (like 3-6 months of living expenses) in an easy to access account, then some index funds, and only later some real estate (if that's where you feel you must head.)  Appreciate that unless you really know your real estate and rental market, buying real estate ties you down in a big way, because your value is not easily accessible (not liquid), it's subject to downs as well as ups, rentals always have issues to deal with, and maintaining your value in real estate requires you to shell out money for taxes, insurance and probably a mortgage and interest, whether or not your renters are making their rent payments on time.  So go slow with your eyes open.  And GOOD LUCK - it sounds like an exciting time in your life.
Title: Re: The first step!
Post by: busybusybusy on September 30, 2014, 03:45:06 PM
Deborah & Frompa,

Thanks for your honest opinions. I believe that I have just hit that mental life marker at 30 where I'm wondering if I'll ever have a permanent home base. I believe it's why I'm inclined to jump into the housing market. However, both of you bring up a good point that the decision to get into real estate seems more emotionally based.

As for Vanguard Index funds, I'll do my research and head cautiously. I definitely have a lot of reading to do with my free time here.

Thanks again!
Title: Re: The first step!
Post by: WESTOFTHEHUDSON on September 30, 2014, 03:55:10 PM
Would it not be advantageous to use the income to increase your cash savings and then wipe out the student debt with the remainder of the income? Then you can plan your next adventure and focus on growing your online business without any impediment.
Title: Re: The first step!
Post by: studentdoc2 on September 30, 2014, 04:36:54 PM
Would it not be advantageous to use the income to increase your cash savings and then wipe out the student debt with the remainder of the income? Then you can plan your next adventure and focus on growing your online business without any impediment.

I was thinking the same thing. What is the interest rate on your student loans? If 5% or higher, I would definitely just take all your income (after saving up a bit more of an emergency fund) and crush that student loan debt. Actually, I'd probably pay it all off even if the interest were <5% just to be totally debt-free for whatever future opportunities may arise, but that's an emotional decision, not a financial one.
Title: Re: The first step!
Post by: little_owl on October 01, 2014, 03:17:49 AM
A more detailed budget would be helpful (monthly) since there certainly have to be some living expenses that you are incurring, like soap / shampoo, doctor visits, transportation, gifts?, flights / trave?, entertainment like books / movies?  Anyway, that type of list could help us give you best advice.

However, based on what you said, I have the following recommendations:
- Please avoid the property stuff unless you are seriously interested in becoming an expert.  Even then, I know it is a popular way to generate income, but I recommend people stay away for the most part.  There are a lot of things that need to go right to make that strategy work.
- Open an investment account ASAP.  A separate post could give you several recommended vanguard funds to research, but get money in the market yesterday to start making money for you.  Most funds require a $3k minimum, so save that up and invest regularly with each paycheck.
- Pay off that student loan.  My recommendation is split your extra money 50/50 between the investment fund and your student loan until you get the loan paid off.  Any raises or unexpected income, I would put towards the investment and not the student loan, assuming the loan is at 5% or less.

You also need to bulk up your liquid emergency fund.  It is great that you have some, but that seems like a very low savings if anything were to go wrong.

Congratulations on having a big epiphany and taking charge of your financial life, you will not regret it.