trying to retire early in SF with ridiculous rent?

[shkeem]

Hello Mustachians! I have been reading MMM's blog for quite some time, but one thing that has got me stumped is housing. I currently live in SF near downtown, so you can imagine with the tech boom/ silicon valley frenzy, my rent is pretty expensive. Thinking about purchasing a home is out of the question (Housing in SF is averaging over $1m). How can I still retire early? Am I just going to have to rent forever until my early retirement (if I ever reach that?). I'm totally on board with taking on a hobby that also generates money down the line though, so maybe that's a viable way to start a down payment and buy a nice, mustachian house out in the suburbs, away from SF? I also just joined the full-time workforce around mid-September and unfortunately didn't really save money for the first month and half, so before I dig myself into financial catastrophe I am seeking advice!

Life Situation:
- filing status is single, with 2 exemptions
- almost 23, no dependents
- living in SF, CA

Gross Salary/ Wages:
- $64,000/ yr before bonuses
- $3,860/ month after taxes
- tax rate is about 27.6% (inclusive of state and fed taxes)

Post Tax Contributions: TOTAL: $1,640
- $640/ month on company ESPP
- $800/ month on company 401k Roth (plan starts Jan 1, 2018) (company offers 100% match up to 4% of salary)
- $200/ month in plain ol' cash

Expenses: TOTAL: $2,220
- $1450/ month in rent for a single room in shared apartment (inclusive of utilities)
- $200/ month for car insurance
- $300 for groceries
- $150 for going out (includes bars, restaurants, movies/ tickets etc)
- $22 for subscriptions (netflix, hulu, spotify, prime)
- $75 for public transportation/ uber (I walk to work everyday, so this is for other times I need to go places)
- $23 for misc

Assets: TOTAL: $10,530
- 2015 Hyundai Elantra (since it's fully paid off) I'd estimate it at around $8k-$10k?
- checking account: $1.2k
- savings account: $500
- ESPP account: $960
- does crypto count? haha

Liability: TOTAL: $2,541
- credit card debt: $541 (currently no interest, but will start paying interest starting Feb 2018 at around 24% APR I believe)
- owe my parents $2,000

I do not have any student debt or car payments, as my parents spoiled me and paid for my entire schooling and car to ensure I was as debt-free as possible coming out of college. I know I am very blessed and am forever grateful to them! In addition, I don't have to pay for health insurance as all of that is covered by my company at 100% and am still on my parents phone plan. In addition to my housing dilemma, is it worth using my credit card points to reduce the balance on my card? I can directly convert my rewards points to around $200, or should I save those (or is it at this point that I start punching myself in the face and definitely use it towards my credit card balance?). Any and all help is appreciated! I am trying to save up enough money in my savings account to open up a vanguard mutual fund, as the minimum is $3k, so I know right now that having money just sitting around isn't earning me anything. Does anyone have a better plan for this?

[noplaceliketheroad]

Congrats and welcome to the workforce! Seems like you have a great first job and a great first salary!

Use your $200 in cc reward points then pay off the remaining $341 before February when the interest kicks in.
After that, set up a payment plan with your parents that works for both of you. It sounds like they are kind and generous people, so maybe they'd be okay with giving them as little as $100/month. Tell them your plan to max out your 401k and I bet they will be happier with that decision than getting their money back from you sooner.

Sell your car. SF is one of the most walkable places in the entire country. Their public transpo is also awesome. How much are you spending a month in gas? How much to park the car? Maintenance? It doesn't make sense to keep it since you don't have a commute. The BART will take you to the airport. Buses will get you around town. Rent a car a few weekends a year if you need to get out of the city. Use uber if desperate. Your insurance alone is costing you $2400/year.

It seems like there are a few budget categories missing. Clothing? Gifts? Travel? The above mentioned gas and car maintenance? Is this all included in misc?

I'm also from a HCOL CA city, and most people I know purchase their homes in their late 30s/early 40s because everything is so expensive and it takes years to save for that down payment.

SF is one of my favorite places, hope you are enjoying it!

[ysette9]

At this point your goals should be to keep your expenses as low as possible and save/invest as much as humanly possible. This will give you options down the line. What industry do you work in?

[PaulMaxime]

Sounds to me like you are doing great. I second the idea to sell the car. Where do you park it?

The key in your situation is to avoid lifestyle inflation. Put a large percentage of any raises or bonuses in to savings vs increasing your lifestyle. You may eventually want to move up in housing for example which is fine but don't do it at the expense of your savings rate.

I don't see that moving to the suburbs is necessarily money saving. Commuting is expensive both in time and money. Unless you prefer a suburban lifestyle don't feel like you have to do this.

You are just starting out. You are way ahead of most of your peers. Give things some time to grow.

[daverobev]

That rent is insane for a *room*!

I would look into some kind of contracting where you can work from anywhere (ie, home). Buy a duplex somewhere cheap, live in one half, rent out the other, work from home and sock a lot of money into your investments.

Well, unless you like city life of course :P

[former player]

Hello, and welcome to the forums.

Don't Panic!  You are young, with a good income and are starting early with investing and no debt: you and will do fine.

Housing:  yes, expensive, but it's pretty much the price of being where you are, and being where you are should pay dividends on your career and income.  Also: walking to work is an enormous benefit, well worth it in time and money in my book.  (You will be nostalgic about it when in many years' time you do buy somewhere out in the suburbs.)

Career: if you've only been in the workforce since September it is far too early for you to be thinking about contracting and working from home.  Instead, go to the workplace, learn about workplace cultures, make connections, get established in your career and begin to work out what interests you and what you are good at.  Are you going to want to be a specialist, and if so in what area of work, or do you want to be a generalist and go into management?  No need to answer any of those questions yet, just be aware of what the possibilities are and learn where your strengths will lie.

Investing: the forum's recommended order for investing money is set out in this thread -

 https://forum.mrmoneymustache.com/investor-alley/investment-order/

Think about how it applies to you, and come back with any questions.

[shkeem]

Sounds to me like you are doing great. I second the idea to sell the car. Where do you park it?

The key in your situation is to avoid lifestyle inflation. Put a large percentage of any raises or bonuses in to savings vs increasing your lifestyle. You may eventually want to move up in housing for example which is fine but don't do it at the expense of your savings rate.

I don't see that moving to the suburbs is necessarily money saving. Commuting is expensive both in time and money. Unless you prefer a suburban lifestyle don't feel like you have to do this.

You are just starting out. You are way ahead of most of your peers. Give things some time to grow.

I currently park my car at my boyfriend's place on the other side of the city where there's ample street parking! I do not want to sell my car though, as I'm currently in the process of finding a new place to live that's cheaper. Also I should have clarified! Sorry my initial post is a little rambling/ all over the place. I meant that I feel like it'd be impossible to buy a house within San Francisco, and I'd probably have to buy a house in a neighboring suburb/ city. Are there are pros or cons to just renting forever? (Aside from the whole spiel about 'throwing away' money every month as a sort of sunk cost with a zero return)

[shkeem]

@ysette9 I work in accounting! Yeah, not going to lie though, food is one of my biggest vices, and food in SF is pretty pricey

@noplaceliketheroad Ahhh I seem to have forgotten certain expenses such as dmv licensing/ renewal fees/ other things. Travel would be nice, but not a priority, and clothes I guess I forgot since it's not a "daily" expense like rent or food. I've gotten lucky where I can wear casual clothes to work (like the rest of SF haha), so I haven't had a shortage of "work" clothes either.

@former player thank you for that link!!

[ysette9]

What kind of career/salary growth can you expect?

[PaulMaxime]

I meant that I feel like it'd be impossible to buy a house within San Francisco, and I'd probably have to buy a house in a neighboring suburb/ city. Are there are pros or cons to just renting forever? (Aside from the whole spiel about 'throwing away' money every month as a sort of sunk cost with a zero return)

I call BS. You are paying for a place to live. The money you have tied up in a place could generally be used more efficiently in the public markets invested in index funds. That whole "Throwing money away on rent" is real estate propaganda.

https://www.iwillteachyoutoberich.com/blog/dumb-dumb-dumb-propaganda-to-buy-a-house/

Houses are also more expensive. You get a roof leak, that's on you. A washing machine - on you. A heater - you pay for it. People also tend to do things like buy expensive furniture and decorate and all sorts of other things.

So that doesn't mean that buying is always bad. I bought a place back in 2012, but it was at the bottom of the market here in SF. My "rent" has remained stable while real renters have had increases. But we also had to spend $2K to fix our heating unit and other expenses. Our place has gone up significantly in value, but investing the same money in the market would have also gone up a bit. I'm dreading the day when the condo association decides it needs to replace the roof and we get a huge "special assessment."

And real estate gains are strange. If I want to stay in SF and I sell my place to move, anywhere I want to move has also gone up in value, so it's kinda fake. The only way to realize those gains is to move to a lower cost area, and I like living here.

The other thing about a house in the suburbs is the commute. The costs in gasoline, wear on your car, and the most important one to me: time. For about a year I took the Google shuttle from SF to Mountain View. I spend 3 hours a day on that damned bus. What a waste of my life. Now, I am a 10 minute bike ride from work and I don't care how much you pay me, I'm not commuting. It's just not worth it. There's a reason that living in the city costs so much money.

https://lifehacker.com/5855550/the-true-cost-of-commuting-you-could-buy-a-house-priced-15900-more-for-each-mile-you-move-closer-to-work

[cats]

I also vote sell the car, sorry. You are barely using it if it's parked across town. If you move to somewhere that really requires a car, you can buy a used car for about what you estimate your car is worth. In the meantime you save hundreds of dollars every month.  Though honestly, you are young and healthy, you can probably move somewhere cheaper/farther away and still not need a car. Downtown SF connects to so much public transit, plus stuff like casual carpool.

If you won't sell the car, at least look for some cheaper insurance. Metro mile?

I would also ask about salary growth potential. Your current salary is not enough to justify living in SF, but if it has a lot of potential to increase dramatically in the next few years, maybe.

[hadabeardonce]

I would also ask about salary growth potential. Your current salary is not enough to justify living in SF, but if it has a lot of potential to increase dramatically in the next few years, maybe.

I agree. I would do some research, look around to see what incomes are like compared to the expenses of living in another area. Moving is a tough decision, but the bay area can be a tough place to save any amount of money, especially if you're on your own. Expenses are high in Santa Clara, where I live, but I feel like the salary and benefits I get as a part of my job outweigh them.

Since you're just starting out your career I'd recommend jobs with school districts or government. Unions keep wages fair, lots of paid days off, holidays, good health plans, vision, dental, pension plan(!), and having access to a 403b and 457 retirement accounts allows you to shelter $36k/yr.

I bet you could earn some decent money doing side work as an accountant or teaching others the ropes, since you're a recent graduate.

Best of luck!