Author Topic: Recent Grad School Graduate New to FI Mindset  (Read 901 times)

tyler_jb

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Recent Grad School Graduate New to FI Mindset
« on: May 06, 2020, 12:02:04 AM »
Life Situation:
31 year old Air Force Veteran, no kids, one dog. Grew up lower/middle class in rural Kansas and joined the military to get my education paid for. Living in the Cincinnati area. Renting a very affordable 1 bedroom apartment. Brand new to the idea/concept of FI. Graduating in May with a degree in Health Services Administration. Started working (again) as a respiratory therapist in early April once I was furloughed from my co-op for graduate school. Currently, most hospitals and health systems arenít hiring administrative staff so my degree is the equivalent to a finance degree in 2009. Luckily, Iím able to live off of my VA benefits for the majority of my expenses.

Income:
$31/hour working as a PRN respiratory therapist. I am able to get close to 30 hours/week on average. Hours vary though, with some weeks being able to get into overtime. All very variable.
$1,900/month VA disability and compensation payments (tax-free)

Pretax Deductions:
401k/403b: 10% pretax, 10% Roth option
My current role as a respiratory therapist offers the 403b option while my coop offered the 401k option.

Taxes:
Claiming zero, Ohio state, Cincinnati local

Current Expenses:
Rent: 700/month
Auto: 640/month
Phone: 40/month
Charitable Giving: 350/month
Utilities: 80/month
Dog: 120/month
Food: 250/month
Auto/Renters Insurance: 1680/annually
- Note: I utilize VA health benefits so I do not pay for health insurance.
Entertainment: 200/month
Gas: 100/month
Licensure/Continuing Ed requirements: 500/annually
Total Monthly Expenses: 2,580

Assets:
Roth: 85,000 (6,000 contribution 1st of January every year)
Traditional: 29,000
401k Roth: 6,000
403b: 11,000 (Traditional) 2,000 (Roth)
Cash: 29,000
Cash back rewards: 1,400 (will use for trip to Belize once the world opens back up)
Total Assets: 163,400

Debt:
Auto Loan: 19,500 (3.54%) on 2019 4Runner (original loan was for 42,000)
Student Loans: 8,300 (4.1%) - in deferment until December 2020
- Used my GI Bill for Graduate school and took student loans out for undergrad
Credit Cards: Zero (Pay off every month to take advantage of cash back rewards)
Total Debt: 27,800

Thoughts, Questions, Goals:
1. I know my vehicle payment is high but I ďtreated my selfĒ after finishing the didactic portion of graduate program.
2. I am currently applying for numerous jobs as a respiratory therapist for full time positions until the administrative market opens back up.
3. Should I pay off the entirety of my truck and just be done with it? Thoughts? I anticipate it running for another 10+ years.
4. Since student loans are in deferment, should I even worry about those now? I could potentially see something happening with student loan forgiveness due to Covid.
5. Is it worth looking into converting my Traditional IRA into a Roth?
6. Big goal #1: be debt free this year
7. Big goal #2: buy a home
    1. I can utilize the VA Home Loan program and put zero down, pay no funding fees, and I donít have to pay PMI. I prequalified for a 300k home loan.
8. How much cash/emergency funds should I be holding right now?
9. Iím in no hurry to retire early, but I am invested in becoming financially independent. I do enjoy working but want to have that flexibility.
10. Any other thoughts, advice, commentary? Things I should be considering?

Please, roast me gently. And THANKS!

AardvarkPuppies

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Re: Recent Grad School Graduate New to FI Mindset
« Reply #1 on: May 11, 2020, 07:00:36 AM »
1.  Bro.  Sell that car.  Yes, it's a beautiful car.   Look how much that car costs you.  You borrowed $42,000, which would have been a large chunk of your money that you are worth.  You could be maxing out retirement funds OR you could be traveling internationally for fun and life experience.  (well I guess right now you wouldn't be).  Think about what you NEED, and what you want.  Treating yourself is taking yourself out for a nice dinner.  Not plunking down a pen on a $42,000 auto loan.  Also, look at how much insurance is.  I spend $400 annually on auto insurance for two cars.

3.  See the Investment Order https://forum.mrmoneymustache.com/investor-alley/investment-order/
If you aren't going to sell the car, I would considering focusing more on investing more if possible versus paying off a 3.5% loan.  But I understand what having that payment does mentally.  Personally, I would sell the car and take the proceeds to purchase a cash car that will suit your needs.

4. Are they accruing interest?  I would at least make the interest payments so your loan balance isn't growing. 

5.  Maybe.  What does your annual income usually look like?  If you expect to be making a whole lot more case once you become hospital admin, then most likely it makes sense to convert in a year when your income is low.  Think about what your income is going to look like in retirement and use that to weigh your options.

6.  Debt free is good. 

7.  The VA home loan program is great.  I would not buy unless you were planning on staying put for at least a few years.

8.  I wouldn't worry TOO much about having an emergency fund.  Your expenses are almost able to be covered by your VA benefits, especially if you discontinued charitable giving if things went sideways.  You also have your Roth contributions if you really needed in a pinch.  I don't see the point of having a massive amount of cash doing nothing in a savings account earning almost no interest when you have outstanding debts and an already decent safety cushion.

All in all, you're doing pretty good.  No CC debt, you already have 6 figures in retirement accounts, and your expenses are reasonable.  You are well ahead of the game compared to most.

SwordGuy

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Re: Recent Grad School Graduate New to FI Mindset
« Reply #2 on: May 11, 2020, 08:24:03 AM »
First of all, you're in an excellent starting position to build real wealth.  Congrats.   Based on 2016 data, the latest I have handy, you would be in the 78th percentile for net worth in your age range, and in the 55th percentile for all American adults from age 18 to 100.   So, temper the face punches to come with that happy news. :)   www.shnugi.com

How long will the VA benefits you're living on last?    You don't need a huge emergency fund until then.   You want that vehicle paid off before they expire because that's about 25% of your income.

Look, I'll be frank.   A $42k truck is a waste of money.    Do you even use it AS A TRUCK?   Is it used to transport cargo to and from job sites on a daily workday basis?     Because if it isn't, it's a waste of money.  Lower gas mileage, higher insurance.     If it's used to transport cargo on an infrequent basis a $300 folding trailer from Harbor Freight will work admirably.   Total cost for mine, including the trailer, wood for the bed and railings, a permanent license tag and a trailer hitch on my sedan was less than $1000.   (And I was actually renovating two houses a year when I bought it, so I used it a lot compared to most folks who aren't construction workers or farmers.)    Cheap, convenient, only acts as a drag on gas mileage when it's used, and don't have to pay insurance on it.      Even better, when I wear out my car it only costs about $300 to have a hitch put on the replacement car.   I figure it will cost me about $100 a year spread out over its lifetime.   That's a damn sight better than $640 a month!

I've never had a car payment higher than $285 a month or a loan over 5 years long.   The most expensive vehicles we've ever bought were a pair of $18k low mileage, one year old SUVs.    The hatchback is convenient for smaller loads of lumber so I don't have to hook up the trailer.    We waited until we had a net worth in the millions before we treated ourselves to such an expensive car.   The car I replaced was a 2001 that I bought in 2008 with 24k miles on it.  (And we waited until after we FIRED to splurge on such expensive cars.)

Personally, I would trade that vehicle in for a low mileage used sedan or small SUV (with good gas mileage!) and have no car payments.   But that's me.   If you decide to keep it, drive it into the ground.   Trade it in when it's no longer safe or reliable and the dealer won't even give you a $500 courtesy trade-in.  (If they'll give you $500 for it, you haven't driven it long enough!)

Housing, vehicles, and food are the three big expenses that most people get wrong.   You've got 2 under control.   Get that third under control.

I think it's great that your charitable giving is what it is.   Thank you.   Your financial situation easily supports that level of giving.   

Other than your insanely high vehicle expenses, you're doing great.  Once you're fully employed you'll be FI in no time if you resist increasing your expenses at the same rate you increase your income.  Good job.

Best of luck!


Much Fishing to Do

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Re: Recent Grad School Graduate New to FI Mindset
« Reply #3 on: May 13, 2020, 08:38:24 AM »
I agree with others that truck stands out as a real money suck.  I was worth $2M before I spent that much money on a vehicle. 

Looks to me like you get rid of that and don't go crazy high on your house and you can easily be at a 50% savings rate.  I think a 50% savings rate is the ultra-speedy way to FI as it gets you to a pile of money in a hurry and it takes care of any longevity concerns on your huge portfolio you will then have (because a SS check taken at 70 for someone with that high a savings rate would probably fund all your expenses, so the money only has to last that long).

clarkfan1979

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Re: Recent Grad School Graduate New to FI Mindset
« Reply #4 on: May 15, 2020, 10:41:36 PM »
First of all, you're in an excellent starting position to build real wealth.  Congrats.   Based on 2016 data, the latest I have handy, you would be in the 78th percentile for net worth in your age range, and in the 55th percentile for all American adults from age 18 to 100.   So, temper the face punches to come with that happy news. :)   www.shnugi.com

How long will the VA benefits you're living on last?    You don't need a huge emergency fund until then.   You want that vehicle paid off before they expire because that's about 25% of your income.

Look, I'll be frank.   A $42k truck is a waste of money.    Do you even use it AS A TRUCK?   Is it used to transport cargo to and from job sites on a daily workday basis?     Because if it isn't, it's a waste of money.  Lower gas mileage, higher insurance.     If it's used to transport cargo on an infrequent basis a $300 folding trailer from Harbor Freight will work admirably.   Total cost for mine, including the trailer, wood for the bed and railings, a permanent license tag and a trailer hitch on my sedan was less than $1000.   (And I was actually renovating two houses a year when I bought it, so I used it a lot compared to most folks who aren't construction workers or farmers.)    Cheap, convenient, only acts as a drag on gas mileage when it's used, and don't have to pay insurance on it.      Even better, when I wear out my car it only costs about $300 to have a hitch put on the replacement car.   I figure it will cost me about $100 a year spread out over its lifetime.   That's a damn sight better than $640 a month!

I've never had a car payment higher than $285 a month or a loan over 5 years long.   The most expensive vehicles we've ever bought were a pair of $18k low mileage, one year old SUVs.    The hatchback is convenient for smaller loads of lumber so I don't have to hook up the trailer.    We waited until we had a net worth in the millions before we treated ourselves to such an expensive car.   The car I replaced was a 2001 that I bought in 2008 with 24k miles on it.  (And we waited until after we FIRED to splurge on such expensive cars.)

Personally, I would trade that vehicle in for a low mileage used sedan or small SUV (with good gas mileage!) and have no car payments.   But that's me.   If you decide to keep it, drive it into the ground.   Trade it in when it's no longer safe or reliable and the dealer won't even give you a $500 courtesy trade-in.  (If they'll give you $500 for it, you haven't driven it long enough!)

Housing, vehicles, and food are the three big expenses that most people get wrong.   You've got 2 under control.   Get that third under control.

I think it's great that your charitable giving is what it is.   Thank you.   Your financial situation easily supports that level of giving.   

Other than your insanely high vehicle expenses, you're doing great.  Once you're fully employed you'll be FI in no time if you resist increasing your expenses at the same rate you increase your income.  Good job.

Best of luck!

I love the shnugi.com website.