Author Topic: Reader Case Study - Burnt out, but may skid across the finish line  (Read 1803 times)

mattpew

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Life Situation
 - 26 years old
 - single
 - no dependents
 - renting in Seattle

Gross Salary/Wages
 - $350k (IMPORTANT: Expected to drop off to ~$270k in ~3 months)
 - Max Backdoor Roth
 - Max Traditional 401(k)
 - Max Mega-backdoor 401(k)

Other Ordinary Income
 - ~$3k/year from bank bonuses
 - ~$1k/year from credit card rewards

Adjusted Gross Income
 - $318,000

Taxes
 - ~$84k
 - ~24% effective rate

Current expenses

 -$17k
   - ~$10,890 housing (1bdr split w/ girlfriend - includes rent, renter's insurance, utilities)
   - ~$2,270 groceries (was much lower back when I ate 3 meals/day at the office)
   - ~$2,012 hobbies (driving range, shooting range, video games, etc)
   - ~$990 takeout (always value-oriented, $5.99 for a Dominoes pizza can't be beat)
   - ~$900 transportation (insurance, gas, maintenance on a shared 2017 Sedan)

Expected ER expenses
   - ~$120k (down payment for a house, I'm going crazy without my own space for hands-on hobbies)
   - ~$18k car (need to get one of my own, maybe Joe will go in half on a new Chevy Bolt with me?)
   - ~$5k misc lifestyle inflation (will need home furnishings, will try to thrift most)
   - ~$5k moving (limited amount of "stuff" - but will likely bounce back to mom's apt before my next place, so 2x cost)
   - ~$200 phone (currently use employer-issued phone)
   - ~$30/mo data plan (for said phone)
   - ~$60/mo internet (currently expensed as I'm WFH)
   - ~$??? HEALTH INSURANCE (will I qualify for free ACA coverage if I stop earning money, even if I have assets?)

Assets:
 - $965k (current NW)
   - Asset Allocation
     - 08% Bonds/Cash
     - 33% Intl Stock
     - 59% US Stock
   - Asset Location
     - 16% Pre-tax
     - 21% Roth
     - 63% taxable
 - $77k (tech stocks vesting in next 3 mos)
 - $19k (max PTO - to be paid out upon leaving company)

Liabilities
 - none

Summary
I've enjoyed incredible earning power my first 4 years out of undergrad while keeping living expenses very lean.  However, it seems the latter has backfired, as my lack of real assets (no car, house, etc.) has made me incredibly vulnerable to inflation, which seems to be eroding my early advantage.  As for my current job, I have little desire to continue work at my current company.  I plan on leveraging the upcoming compensation drop-off mentioned above to slip out of the golden handcuffs.  Re-entry into the industry will, conservatively, put me back down to ~$150k/yr total comp - which I would welcome for a gig of either lower stress or more social value.  Location is still an open variable - I mention above I rent in VHCOL USA, but I'm only here because the job required me to pre-COVID.  Most places that appeal to me are ~MCOL (Colorado, Smoky Mountain region, etc.).

I come to the wise owls of the MMM forum to hopefully weigh in on the questions that have been nagging me as of recent...

Specific Questions
Am I foolish to begin pumping the brakes when my salary/NW ratio is only ~0.33?
MMM inspired me circa 2018 when I first discovered this blog with the idea that a lean lifestyle could be funded on a very small nest egg (~"I spend $16k/year, I can retire on $400k!").  However, a graphic in a more recent post of his haunts me: https://www.mrmoneymustache.com/wp-content/uploads/2020/08/diana-tech2.png. He suggests a tech worker should optimally save "several million", which seems to fly in the face of what was supported the first decade of this blog's entries.   MMM always upheld that your nest egg should be a function of your spending, but this suggests it's also a function of your earning power.  Has age brought MMM the wisdom that perhaps his early financial advice left bank accounts too lean?  Should earning power be considered when deciding whether or not to pull the plug?
Is it a bad timing to purchase assets that I've forgone up until now?
A shared Sedan and 1 bedroom apartment aren't what I want to retire to.  I've always known that there will come a time for me to "step-up" into a home of my own.  However, the timing seems like it couldn't be any worse.  Unprecedented supply crunches in both the automotive and housing industries have caused a spike in prices, which is believed to be temporary.  The Fed promising rate hikes to come soon, which will produce downward pressure on home prices, seem to suggest it's unwise to buy now.  I'd like to think we're more forward-thinking than your average consumer (which doesn't seem like a bold claim, as most people make these decisions emotionally). I figure I can take advantage of a higher interest-rate environment by putting a larger down payment on a mortgage if I wait just a bit longer... as I'm not dependent on the leverage like the typical homebuyer.
What if I quit now?
Will I even need to find another job, or is there enough buffer built in between my expenses (which are expected to rise) and expected investment income?  Is it important that I shuffle investments into more conservative funds (value stocks/worthless bonds) if I plan to quit soon in case of a market correction?  Should I rush the home-purchase while I still have W2 income?  Does my taxable/ROTH/pre-tax wealth distribution look unbalanced in any odd way that may be tough to work around?


« Last Edit: November 11, 2021, 10:51:48 AM by mattpew »

Askel

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #1 on: November 11, 2021, 06:14:49 AM »
Wow, dude- you're killing it.   I think my biggest asset at that age was a motorcycle. :D 

I only have one bit of advice, I was also at the same age where I transitioned from renting to buying my first house.   And man, I wish I knew then what I know now. It wasn't a bad financial decision at all. It's just that the next 10 years of my life proved to have some of the most radical and fundamental transitions in my beliefs and values. The house often didn't fit into those. 

Lots of doors are open to you right now. A house will open a few more, but it'll close quite a few too. 

Best of luck! 

Blackeagle

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #2 on: November 11, 2021, 07:27:04 AM »
MMM inspired me circa 2018 when I first discovered this blog with the idea that a lean lifestyle could be funded on a very small nest egg (~"I spend $16k/year, I can retire on $400k!").  However, a graphic in a more recent post of his haunts me: https://www.mrmoneymustache.com/wp-content/uploads/2020/08/diana-tech2.png.

Keep in mind the context of that particular post is trying to convince folks who have achieved that multi-million dollar level of material success, "You've won the game!  Does it really make sense for you to keep playing?"  Based on your case study, you're in a very different spot in life.  If you choose to continue in your current, high-paying industry for another decade or so, then you'd be in the target audience for that post, but you've got many other roads open to you.  Don't let a single post that's not really aimed at you close off those other possible futures in your mind.

Watchmaker

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #3 on: November 11, 2021, 08:09:37 AM »
First off, congratulations, you've done incredibly well. And you're right to say you are more forward-thinking than your average consumer (let alone the average 26 year old). Yes, you've got some decisions to make, but that's because you've given yourself opportunities through your hard work and planning.

I think you'll need to a bit more work understanding your fire expenses. Healthcare for example: you may qualify for ACA, or you may fall into Medicare coverage (but you can also control your income to some degree by doing things like Roth conversions). In your shoes, I'd nail down those costs and make sure I had a withdrawal strategy that worked before pulling the plug.

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Is it a bad timing to purchase assets that I've forgone up until now?
It's not an ideal time to buy a vehicle because of supply chain problems, so waiting a few months if you can may be a good idea. Hunt for a good deal and don't overbuy.
Housing is much more regional (are you comfortable revealing what city you live in?). But I'd also say: don't buy too early. I bought a house when I was 23 but, in retrospect, I should have rented longer. You could always rent a house if you need more room. Are you certain you want to stay where you are after you fire?

Quote
Am I foolish to begin pumping the brakes when my salary/NW ratio is only ~0.33?
Not if you've got enough.

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What if I quit now?
Will I even need to find another job, or is there enough buffer built in between my expenses (which are expected to rise) and expected investment income?  Is it important that I shuffle investments into more conservative funds (value stocks/worthless bonds) if I plan to quit soon in case of a market correction?  Should I rush the home-purchase while I still have W2 income?  Does my taxable/ROTH/pre-tax wealth distribution look unbalanced in any odd way that may be tough to work around?

You'd probably never need to work again. If you did end up working, you'd have the freedom to choose lower stress work. Regarding your investments: are you invested in passive index funds that track the total market? I wouldn't advise rushing a house purchase for any reason.

LifeHappens

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #4 on: November 11, 2021, 09:10:58 AM »
I'm the wizened old age of 44 and I have only 1 piece of advice for you: slow down.

You have a metric shit ton of money. You obviously have a skill set that is highly valued in the market place. Based on the tone of your writing I am guessing you are a very focused, very intense person.

If you were my little brother, I'd tell you to take a gap year and just enjoy the fruits of your labor for a minute. Do whatever it is you find fun, explore places you might want to live, build your relationship with your partner (or find out it's not a long term thing) and just... take a breath.

Rushing to buy a house, buy a car, figure out if you can stop working forever is too much. You don't need to do everything at once. Even if you had to reenter the workforce at the tiny, tiny amount of $150k per year (I chuckled) you're going to be fine.

mattpew

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #5 on: November 11, 2021, 11:02:31 AM »
Lots of doors are open to you right now. A house will open a few more, but it'll close quite a few too. 

love this quote - thank you :)

I'd nail down those costs and make sure I had a withdrawal strategy that worked before pulling the plug

makes perfect sense - I'll refocus my FIRE energy on this

You don't need to do everything at once.

a welcome reminder, much appreciated!

mattpew

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #6 on: November 11, 2021, 11:05:12 AM »
are you comfortable revealing what city you live in?

(added to the OP, as well) Seattle - but it's not completely relevant as I want to leave for more sun, and lower COL.  As for what city I end up in, it's kind of an open question at this point.

Watchmaker

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #7 on: November 11, 2021, 01:31:42 PM »
are you comfortable revealing what city you live in?

(added to the OP, as well) Seattle - but it's not completely relevant as I want to leave for more sun, and lower COL.  As for what city I end up in, it's kind of an open question at this point.

In that case, since you'll be moving, I'd double down on the recommendation not to buy yet. I'd always recommend renting in an area first to make sure you want to stay there.

joe189man

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #8 on: November 11, 2021, 02:04:49 PM »
I think @LifeHappens and @Watchmaker are spot on. At 26 I had a negative net worth and slept on an air mattress for comparison. I would recommend maximizing your time in seattle at the current gig then peace out for a gap year. Try out Fort Collins (i think this was on your location list from another post), rent a place close to downtown. There are lots of opportunities for your hobbies there and you can still explore the state from that home base. With nearly $1m in your stash at 26 you have lots of options. Foco also has lots of tech jobs and Colorado State University is there.

After your gap year see what lights you up. Hell you could probably barista fire working at REI.

cannotWAIT

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #9 on: November 11, 2021, 02:25:39 PM »
If you buy a house then there are a lot of ER expenses you're not taking into account. You'll have homeowner's insurance, property taxes, and a lot of maintenance and home improvement expenses (oh yes you will!).

I have your same NW but about $300K of it is in a paid-off house in a LCOL area. I also have your same amount of current expenses, but I don't spend anywhere near the same amount on hobbies, takeout, etc.--not that I wouldn't like to, but roughly that amount of money goes toward feeding the house beast. However, I'm a lot older and getting close to calling it quits for good so being able to control my expenses is important to me and having the house paid off is a key component. Once I quit, I will be able to manipulate my income to maximize my ACA cost sharing subsidies because I don't have to generate income to pay a mortgage. These are issues you'll want to investigate before deciding whether to buy a house, although my personal opinion is that you should keep as many options open to you right now as possible. You're so young. I second the idea of a gap year.

NaN

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #10 on: November 11, 2021, 05:39:49 PM »
Burnt out? It happens. You are in the lucky position through the job salary, bitcoin, and even knowledge of things like a MBR at 26 that you won't just 'skid' across the finish line but hover over it like Marty McFly in BTF.  At 26 I was backsliding into graduate school burnt out in a job that paid 1/6 of what you make. Damn, kid. I'm jealous.

So to your questions:

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Am I foolish to begin pumping the brakes when my salary/NW ratio is only ~0.33?

What do you mean 'pump' the brakes? You are 26 with $1M networth. You should be doing whatever the f*** you want. You only get to be 20s once and the $1M should make you think much differently than other people at 26. You should not think about like pumping the brakes, but a great time to accelerate into a life you want using that Hoverboard. If you want to stay in tech, well, consider hiring a life-coach that specializes in that field. Might give you some perspective on your routes.

The other questions: yes, rent, do not own now if you plan to leave Seattle. And if you quit, albeit a completely fine thing to do. But do not quit without a plan. If anything use the advice above and consider yourself a badass that has so many open doors. At your age you are allowed to still do something that doesn't work out so well. You should read about @FIPurpose and his Peace Corp adventure. Wild story. It is okay to have a bad situation. Take some risks. You not only have plenty of time to recover, you have many finish lines ahead of you.

Abe

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #11 on: November 11, 2021, 07:17:25 PM »
Youíll be fine at $150k in a lower cost of living place, regardless of inflation. I agree you should leave your job when ready (seems like soon). Then chill out for a bit, find yourself, and then decide what you need. Donít buy a house right now, youíre not in the mindset for that.

bayareafire

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Re: Reader Case Study - Burnt out, but may skid across the finish line
« Reply #12 on: November 23, 2021, 06:33:44 PM »
It's uncanny how similar our situations and general thought processes are.  In case it's helpful, here's a little bit about my situation and how I've personally thought about some of these questions:

I'm a little older than you (mid-30s) making $300K/yr at a $1.5M NW ($1.27M equities and savings) in a HCOL area.  Own my own home with my spouse, and we keep finances separate.  I've despised some of my jobs previously (law will do that to a person), but I transitioned to a much more sensible legal environment last year (now work at a company rather than at a law firm with a strict billable hour).  The change in type of legal job has made all the difference for me.  My busiest days now are still better than my average days at a law firm.  While I am FI now and I still greatly desire RE, I've decided to work at least another year and then reevaluate from there.  Maybe I'll end up working 1-3 years, but haven't made any firm decisions.  Of course, I want to be cautious and guard against perpetual OMY syndrome.  But it's tough to pass up the opportunity to potentially grow my stache another ~24% (assuming 7% returns) if I work another year or nearly 50% in 2 years.  These are seriously outsized returns.  It could be the difference between a stache supporting my lifestyle vs a good likelihood the stache support my lifestyle and additionally continue to grow.

So what about your situation?  Well, like others have said, you could quit now (whether it be a sabbatical or longer term) and likely be fine.  Though taking a sabbatical would seriously lower your earnings upon reentry, like you mentioned.  So my recommendation would be to get a new job, and stick it out for just another couple years and then reevaluate.  A new job will hopefully be a better work environment (where you may not feel as burned out) and maybe you could get a salary increase too.  The increase in savings would provide a ton more opportunities for just another couple years, and think it's worth it. 

Don't have as much input on possible asset purchases. 

Best of luck!