Author Topic: Young mustache looking for advice!  (Read 3523 times)

Zeratul

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Young mustache looking for advice!
« on: December 10, 2016, 10:28:02 PM »
Hi all,

I'm a 24y.o looking for some advice. Not wealthy enough to need a financial advisor but I need some guidance and I don't like sharing any financials with anyone in real life, unless they were an FA (Is it wise to use F.A's these days?). Quick background of where I stand while trying to be vague, please don't ask me any personal details.

- Making 70k @ 21
- Making 110k @ 22
- Bought mid 400k condo. 2BR and have roommate. Did not have 20% downpayment so I did LPMI, 4.5% interest rate 30yr fixed conforming. Wish I chose PMI instead so I could take it off at 80% LTV.
- Making 150k @ 24
- Post tax/401k/stocks paycheck pulling in 6k/mo, plus 1.5k/mo from roommate. Mortgage/Bills/HOA costs $3k/mo. Only allow myself to spend $1500/mo on credit card, so $3k/mo goes to traditional savings.
- 70K in traditional savings.
- Aiming to have ~120k saved up by 2018 for 20% downpayment on next property w/ 3BR's, keeping existing condo to be a landlord. Hoping 2018 is when the market adjusts itself and property is cheaper.
- Roth 401K maxed @ company match. Estimated to have <28k/yr in 401k
- 5% salary going to discounted company stock purchase plan.
- 10k in Wealthfront
- No car
- Just paid off student loans today :)


I'm not sure what i'm doing to be honest from this point forward. I don't understand the specifics from investments (should read a book on investing) and i'm not aiming for retirement, I don't care about being rich when i'm retired!! I haven't played my hands in the stock market until buying company stock, and I think i'd make more money accumulating property and being a landlord than playing with stocks and investment accounts. But i'm no expert, at all, that's why i'm here!

I still live the same life I lived when I was making entry level salary, any pay raises go straight to my savings account. I also am getting screwed in the rear by taxes. Paying $50k a year in taxes. What do you people do!!!! HELP ME!!

Should I aim for that next property? Should I put my money in another account and not savings? Is there a way to pay less taxes other than just mortgage interest and itemized deductions?
« Last Edit: December 15, 2016, 09:27:12 PM by Zeratul »

mxt0133

  • Handlebar Stache
  • *****
  • Posts: 1559
  • Location: San Francisco
Re: Young mustache looking for advice!
« Reply #1 on: December 10, 2016, 10:51:39 PM »
Great fucking salary at your age!  Good job on the property with a roommate! Also way to keep your lifestyle simple and not succumb to lifestyle inflation.

My only critique is to max out the company stock purchase plan and then sell as soon as you are able to.  Depending on a discount you can get really good returns on it without any risk.  My advice would be to not hold too much stock in the company that you depend on for a paycheck.  If shit hits the fan you loose your job and your investments.

One other thing at your tax bracket you should be investing in a traditional 401k and not a Roth. See here for why:
 http://www.gocurrycracker.com/roth-sucks/
http://www.madfientist.com/traditional-ira-vs-roth-ira/

If you feel comfortable with rental properties vs stocks then I would learn as much about investing in properties as you can.  If you invest in something that you don't have any conviction in then at the first sight of trouble you will panic, sell and lock in your looses.  You need discipline and a plan for the long haul.

The site https://www.biggerpockets.com/ focuses on real estate investing.  Most here are passive index investing types, although some are into real estate.

You are off to a great start and it seems like which ever route you pick with your attitude and lifestyle you'll be financially well off.  Good on you!


former player

  • Magnum Stache
  • ******
  • Posts: 4530
  • Location: Avalon
Re: Young mustache looking for advice!
« Reply #2 on: December 11, 2016, 02:23:23 AM »
Welcome.  You are doing great, but you are right that you need a better tax strategy.

A 401k is not irrelevant to your strategy.  Firstly, it is tax-free savings - that is never irrelevant to someone on a high income.  Secondly, it is not as though as 401k isn't yours: it is, and the way you use it is to become financially independent before you otherwise would.

Imagine maxing out your 401k, plus employer match, for 10 years.  Put those amounts into a calculator at a safe average stock market return (ie 4%, for present purposes, or a bit less if you are risk averse) for the number of years until you can access it without penalty.  That gives you a lump sum at that age which will give you an income, calculated at your safe age, until end of life.

Now, all the tax-paid stash that you are accumulating has to do is to get you to that retirement age (plus any retirement top up that isn't catered for by your 10 years of 401k).  That tax-paid stash can be a lot smaller, because it doesn't have to accommodate your old age needs.  So you are FIRED sooner, and less likely to be rich when you are retired.

Why don't more people buy discounted shares and sell immediately?  1) They don't have access to discount purchases,  2) They don't have spare cash to buy discounted shares with, 3) They don't have access to the relevant the financial information, or don't understand it, 4) They are too risk-averse.


chasesfish

  • Magnum Stache
  • ******
  • Posts: 3134
  • Age: 37
  • Location: Texas
Re: Young mustache looking for advice!
« Reply #3 on: December 11, 2016, 03:54:31 AM »
Hang out on these forums for a while.   Just like you can't brag about your income in your mid 20's, there are plenty of us on here in our 30s that can't go and tell family/friends that we have enough money to not ever work again.

How much equity do you have in your Condo?  If its more than 20%, I think you should refi into a 15 year that should be between 3 and 3.5% and chunk some more money at the principal balance before the next property.

Don't let investing intimidate you, its more important that you do it, then the options once you decide to do it aren't bad.   You can build up wealth front, you can buy vanguard index funds, you can buy rental property, you can prepay your mortgage.   All have benefits over blowing the money.

Joel

  • Pencil Stache
  • ****
  • Posts: 774
  • Location: California
Re: Young mustache looking for advice!
« Reply #4 on: December 12, 2016, 09:07:51 PM »
Kudos on the salary at your age. What career path did you choose? I'm curious as it's a great example for young college bound kids.

You should absolutely switch your 401k contributions over to traditional instead of roth for the tax savings. Aside from that, there's only so much you can do to avoid taxes when you make that much money...

Mattzlaff

  • 5 O'Clock Shadow
  • *
  • Posts: 99
  • Age: 28
  • Location: Alberta
Re: Young mustache looking for advice!
« Reply #5 on: December 13, 2016, 03:41:06 AM »
Welcome to the board Zeratul.

I have little to offer on the USA investment plans as I am Canadian.

but I struggled with your same dilemma, I was making over 100k a year(with overtime) at 22. I had found the MMM blog/forum a saving grace when it came to this. It is hard to talk financials with my friends who weren't gaining the same momentum as I am. The guys I work with are spenders who one up each other and don't have any FIRE plans for themselves, 2/8 are 30+ experience year guys who are still spending on the newest toys and retirement at 60 is the norm. I actually got laughed at the other day because I told them instead of spending 2500+ to go to Jamaica that I would rather invest that money...

These guys on this board know a lot of stuff, hell there's even some Canadians here to help me out. Take their advice and make small moves if you're not comfortable changing your whole life over. I'm still not where I want to be but I started changing slowly. Welcome to the board!

Heroes821

  • Pencil Stache
  • ****
  • Posts: 566
Re: Young mustache looking for advice!
« Reply #6 on: December 13, 2016, 07:55:51 AM »
Entaro Zeratul,

Welcome to the forums, everything I was going to say was already said. Except for I love your name!

Zeratul

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Young mustache looking for advice!
« Reply #7 on: December 13, 2016, 09:21:06 PM »
Welcome to the board Zeratul.

I have little to offer on the USA investment plans as I am Canadian.

but I struggled with your same dilemma, I was making over 100k a year(with overtime) at 22. I had found the MMM blog/forum a saving grace when it came to this. It is hard to talk financials with my friends who weren't gaining the same momentum as I am. The guys I work with are spenders who one up each other and don't have any FIRE plans for themselves, 2/8 are 30+ experience year guys who are still spending on the newest toys and retirement at 60 is the norm. I actually got laughed at the other day because I told them instead of spending 2500+ to go to Jamaica that I would rather invest that money...

These guys on this board know a lot of stuff, hell there's even some Canadians here to help me out. Take their advice and make small moves if you're not comfortable changing your whole life over. I'm still not where I want to be but I started changing slowly. Welcome to the board!

Thank you!! It's amazing isnt it -- I can't imagine any of my friends have a decent savings account based on their spending habits, and they all are very open with me about their income. Thank you for the advice and i'm definitely getting my value with my time here on this forum. Wish I had discovered it a bit sooner though!!

Entaro Zeratul,

Welcome to the forums, everything I was going to say was already said. Except for I love your name!
En Taro my friend :D

CU Tiger

  • Bristles
  • ***
  • Posts: 462
  • Location: Mid-Atlantic USA
Re: Young mustache looking for advice!
« Reply #8 on: December 13, 2016, 09:34:53 PM »
You should hang out on the Real Estate board on this site.

Here is someone that sounds like they have info you could use:

SmarterLandlording
With over a decade of experience in real estate investing, Kevin Perk has learned first-hand what it takes to be a landlord. SmarterLandlording is a recommended read for new landlords who are just getting started.

Pylortes

  • Stubble
  • **
  • Posts: 177
Re: Young mustache looking for advice!
« Reply #9 on: December 16, 2016, 08:13:27 PM »
Wow, great job so far! I concur that you need to switch from Roth 401k to traditional to help your high tax situation.  You are already maxing that so bravo!  The question then becomes where/how to invest the excess.  Most people either go the stock/mutual fund route or the real estate route.  Personally I invest in stocks but I think real estate is a great avenue to if you have the time/interest.  Go read every book/blog you can about real estate investing (bigger pockets is a good suggestion).  If you also want to invest in the stock market start with index funds and read up on anything you can there. Now is the time to build your real estate or stock market IQ- before you have a ton of money and could make a massive mistake.  At some point in the coming 10 years your real estate or investing decisions will likely dwarf  your job income.  Learn as much as you can now so you are not making uninformed decisions with 6 figures of money.

Playing with Fire UK

  • Magnum Stache
  • ******
  • Posts: 2589
Re: Young mustache looking for advice!
« Reply #10 on: December 17, 2016, 12:43:06 AM »
I'm not sure what i'm doing to be honest from this point forward. I don't understand the specifics from investments (should read a book on investing) and i'm not aiming for retirement, I don't care about being rich when i'm retired!! I haven't played my hands in the stock market until buying company stock, and I think i'd make more money accumulating property and being a landlord than playing with stocks and investment accounts. But i'm no expert, at all, that's why i'm here!

You might make more money from landlording but you could also make less. There is (IMO) much more to learn about being a landlord than about index investing. There is a near infinite amount of learning involved with trying to beat the market, but many of the true experts (including Warren Buffett) advise against trying to beat the market and using index investing instead.

To start investing, evaluate your risk profile, have you ever seen your company stock drop and been tempted to sell it? Are you saving for something in particular that you would have to pay for at a specific time?

The only thing that really matters with individual risk is how likely you are to sell a lot at the bottom of the market. Reasons for this are:
Needing to buy something at a specific time that you can't control (eg paying for college, replacing your only non-reliable car, buying a house in the next few weeks)
Wanting/emotionally needing to sell because you have paid too much attention to news and become scared. People who get scared aren't bad or weak people, but they should manage how much news they see and consider buying different investments. This is a bigger risk for new investors than experienced investors.

If you are not interested in investing, this can work in your favour. You are so young (massive props on getting your shit together so quickly and working well to get such an impressive salary), and you don't have any big expenses that you are committed to. Based on only this (and I'm not a professional), I would buy the S&P 500 at as low a total expense ratio as I could find and as tax efficiently as possible (I'm in the UK so can't suggest). Set up an auto invest of some thought and don't look at it.

FIREby35

  • Pencil Stache
  • ****
  • Posts: 611
Re: Young mustache looking for advice!
« Reply #11 on: December 17, 2016, 09:16:43 AM »
Echoing all the others - great job so far.

I have a high income as well. My philosophy is that when you have a high income, you don't need another job. You simply need to manage your current high income producing situation effectively.

What does that mean? For me, your real estate investing is simply unnecessary. I perceive real estate and landlording as a job/business that can produce additional income. It is great at creating income. But, it is not passive. It requires work. It is ideal for a low/moderate (like a teacher) looking to boost income. It is not so ideal for someone already making 150k in their early 20's because income is not your problem.

You seem like a candidate for passive index investing. I recommend you consider "The Simple Path to Wealth" (Link below). The benefit to you on that is you can take your funds, invest them, forget about it and continue to focus on your current job. After all, it is your current job that is producing excess capital. If you take the simple path to wealth then you will wake up one day a millionaire and totally financially independant before you turn 30.

BTW, you will be great either way. I know many people who have made lots of money in real estate. So, I am not disparaging it at all.

In the short term, max your 401k, IRA, Company stock purchases, then invest in index funds. If you decide to use your "cash" for investing in real estate you can use your unrestricted Vanguard Funds at any time.

A simple path to wealth: https://www.amazon.com/Simple-Path-Wealth-financial-independence/dp/1533667926