26 y/o, single, hoping for some guidance and clarification.

[v104]

Hi MMM Community,

This is my first post here, but I felt compelled to join the MMM forums.  Over the last year or so, I've developed a surprisingly deep interest in managing my personal finance in the hope that I'm preparing well for the future.  However, a lot of people my age (26) aren't interested in talking about investing/saving/maximizing... (and that's okay).

While I've been doing my part by making good choices (I think) & educating myself in my down-time, I'm fully aware I am no expert.  I have so much to learn, but I am excited to do so.  However, I'm not overly confident with my current standing.  Therefore, I'm hoping you might allow me to lay down my current stats to form a bigger picture regarding my situation & in return, maybe offer some guidance or any room for improvement?  I would genuinely appreciate it!

Age: 26
Marital Status: Single
Kids: 0
Education: B.A. from University of Washington
2016 Income: $70-75k
Total Debt: $0

I currently work a government job which pays hourly, offering mandatory/voluntary overtime blocks (4 hrs each at 1.5x pay).  I pay a lot in rent, but I live 2 blocks from work and I can walk everywhere.  I do not pay for parking in the city, so I probably only fill my gas tank once a month.

Monthly Spending
Rent - $1680
Eating Out/Groceries - $300
Phone - $102 (Discount through employer)
Insurance - $90
Gas - $60
Utilities - $50
Internet - $0 (Apartment bldg provides free WiFi)
Cable - $0
Total: ~$2300

Now, for the more relevant stuff:  I bank with USAA, moved my savings into an account with Ally (1.0% interest rate), and use Vanguard for my VSTMX as well.  My job utilizes Deferred Comp instead of a 401(k) and no employer match.  If I stay long enough at my current job, I would also be grandfathered in to a rather generous pension plan at retirement.  That said, I don't recall the exact specifics at this time, and at only 2 years in, I do not see myself staying at my current job for my entire career.

As for what I currently have in the bank:

Ally Savings - $15.2k
Retirement Contributions (from paychecks, through Prudential) - $12.6k (incl. interest)
USAA USSCX (Science & Technology Fund) - $4.4k
Vanguard VSTMX (Roth IRA Brokerage Account) - $3.2k
Deferred Comp (also through Prudential) - $2.6k

...and another $1k or so in my general checking account.

I try to save anywhere from $500-1000 of my monthly income.  I'm fairly certain I will have maxed out my Roth IRAs by April 2017 (I purchased VSTMX in May).  I contribute $100/month to the USSCX fund and $200/month to my Deferred Comp.

My Deferred Comp portfolio is:

 - Vanguard Institutional Index I (Large Cap Stock - Blend) (38.65%)
 - Vanguard S&P Mid-Cap 400 Index I   (Mid Cap Stock - Blend) (30.05%)
 - Vanguard S&P Small-Cap 600 Index I (Small Cap Stock - Blend)   (31.30%)

I'm also curious to know your thoughts on the USSCX.  The expense ratio is 1.17%, which I'm not thrilled about, considering Vanguard's considerably lower rate (0.16%).  Should I keep it? Transfer it into VSMTX and build into VTSAX next year?

Overall, I think I'm doing fine.  I won't be having children any time in the near future, I'll be selling my car next year, and I like the freedom/flexibility in not owning a house.  More than anything, I'd be interested in pursuing grad school options as a big purchase! 

All in all, however, I would like a bit more direction in how to make the money I've saved *work* for me.  Once I've maximized my Roth IRA, should I just keep tossing money into my Ally account?  My yearly Deferred Comp limit is $18k, but it's all deducted through paycheck & it's a bit of a process.  I think I'm doing okay on the groundwork, but I want to figure out what I can do to properly assist in the growth.

If this is all a confusing mess, I apologize.  I've been doing a lot of this work on my own, trying to get all my ducks in a row, and while I think all of them are accounted for, I definitely do not always feel organized.

Thank you so much if you read this far.  I'm really looking forward to any input!

- V

[pbkmaine]

The best way to get a masters is to work somewhere that pays for it. My DH convinced his company to pay for his, which qualified him for a much better job within the same company.

[powskier]

wow! You are in a great position for such a young age, well done.

I have only one comment and that is I remember turning up my nose at a few positions with pensions many years ago because the positions lacked appeal. Fast forward 20 years and I see friends in their mid 40's retiring with nice pensions to look forward too and a small stash to tide them over until the pensions roll in and realize that is actually a pretty smart way to go....

[slugsworth]

Congratulations on being in a good spot!

I agree tuition reimbursement would be an awesome way to do grad school.

On the topic of pensions, when you do look into it, you should see if your 457 can be used to buy additional years of service, and if that makes sense.

Do you have access to an HSA? Have you looked at traditional IRA vs Roth? I think traditional may make more sense in your situation.

Also your phone bill is very high, have you logged at republic wireless or Google FI?

If you don't get rid of your car in a year you might consider getting a more fuel efficient one, a $60 tank of gas is rough!

[Frankies Girl]

Very confused... if you make as much as you say you do, then there is a huge amount of missing income. A monthly spend of ~2,300 equals out to around 27K a year. Where is the rest of your money? With that kind of spend rate and income, you should have much, much more in savings/investments.

And your budget spending doesn't include things like haircuts, clothing, personal items, toiletries, entertainment, etc... there is a huge amount of spending you're just not seeing or accounting for, and that is dangerous for someone wanting to get their financial ducks in a row as it were.

So my first suggestion is the get a handle on your expenses/spending so you know where every bit of it goes - in and out. Suggest looking at Mint or Personal Capital to help with tracking.

Good job on the no debt thing, and great that you're taking an interest in your finances now. Your future self is going to be really pleased. ;)

I would dump any fund that had expenses over 0.50%, like that USSCX. You have access to Vanguard? Then there's your answer. It may not feel as exciting to invest in an index fund, but investing should not be where you get your thrills from. Boring is good. :)

[2Birds1Stone]

You are indeed in a good spot, the most important thing is that you are about to get some amazing advice from the people here that will catapult your future savings/investments to another level.


I agree with the above posters about minimizing investment costs and using ETF's

Check out Bogleheads 3 fund portfolio, my total expense ratio for a 6 figure portfolio is just .14%

As Frankies Girl mentioned, you have a tremendous amount of unaccounted spending to figure out.

Figuring out where exactly it is that your money is going and getting a handle on it will make tremendous impact on your financial independence.

Haircuts, clothing, toiletries, travel, gifts, health expenses, subscriptions/memberships, vehicle reg/maintenance/depreciation, entertainment, booze, sundries, replacing electronics and other non food items that wear out, etc.

Out of the expenses you listed I see a few areas of improvement.

The biggest one is your rent. That sounds absurdly high. Granted you are within walking distance to work and it might not make sense to move right away, I would see if you could cut that down significantly and maybe ride a bicycle. Imagine cutting that by 1/3 or even 1/2 and getting a bit of exercise every day. 

Phone, I am hoping that $102/month is BEFORE a discount/subsidy...otherwise it's insanely high. Check out Google Fi, Cricket, or other available MVNO's in your area. No reason why you should be paying any more than $50/month for a smartphone plan with plenty of data and unlimited talk/txt.

You are in a GREAT spot income wise. Just buckle down and figure out where your money is going.

You should be making about $60k/yr or $5,000/month after taxes (especially with the IRA/deferred comp plan)

A 50% savings rate means spending under $2,500/month and I think you are spending much more than that without realizing due to unaccounted for expenses.

Here is a MMM blog post to help you visualize the power of savings rate. It certainly changed my life.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

[v104]

Thank you all so much for your replies so far! I'm really happy I made this post. This outside perspective is allowing me to discover mistakes I've been making already.

So, the first move I'll make (as mentioned by some of you) is to get a budget tracker like Mint or Personal Finance.  The $70-75k/yr income is accurate.  However, you're right -- I rushed when compiling my monthly expenses & did not account for additional, random/impulsive Amazon purchases.  It's dangerous to me that I skimmed over those somehow.  I need to account for those, & at least see how much I'm spending on them in addition to my listed bills.

The second move I'll be making is rolling over my USSCX with the high expense ratio.  Is it as simple as calling Vanguard to roll it into my VSTMX?  I like the idea of having a total expense rate being as low as possible, obviously, so thank you for guidance on that & the links you've provided.

The third move I'll be thinking about is what to do about rent/where I'm living.  The great part about my current building is being able to walk 2 blocks to work, free Wi-Fi, not needing to deal with traffic.  The bad part is, yes, $1688 is very high!  My lease isn't up until January 2018, so I have time to think about it.

I'll look into Google Fi & Cricket for my phone plan, too.  $102/month is after the discount.  I'm not well-versed on phone plans -- my current one with Verizon is a result of getting off of my family's plan after I graduated college.  I had no idea I was paying so much more than I needed to be, as my dad is usually pretty good about getting good deals.

Again -- I'm very thankful for your patience & input.  I have a lot to work on/think about.  Up until now, this has been a very independent process.  Thank you guys!

[dess1313]

If you consider moving you need to think of a few things
Parking passes and gas costs, or transit passes if you move farther away
Getting internet since yours is included
Spending more time in transit when you could be doing other things.  20 mins or 40 mins each way add up.  also it could be even worse if you have to drive at peak times in traffic.  car wear and tear will also go up along with car maintenance

Depending on what the area renting costs are around you is like, those added costs may eat up a large chunk of your budget if you have to add them in. 

Also YNAB takes a bit of learning but it is AWESOME at holding you to account for what you do.  I had been trying to track things manually for a while but always forgot something.  there is no forgetting anything if you set up auto import in YNAB

[Davids]

$102 per month for phone is alot. You should be able to get a prepaid plan for $30-35 per month. Restaurant expenses are high but you are young and single so I can understand why it is high. Overall you are doing real good for your age.

[MustacheAndaHalf]

I'd agree with switching out of USAA Science & Technology fund owing to it's over 1% expense ratio.  That fund is about half tech stocks, one quarter health care, and the rest various stocks that are neither science nor tech.  I discovered that by searching "USSCX" and clicking on the morningstar link - I'd strongly recommend you do that to examine potential funds.  Even if you wanted to keep a higher allocation to tech or science, I'd suggest using Vanguard sector ETFs instead (Vanguard Information Technology + Vanguard Health Care).  But if you're convinced to buy a total market index, so much the better.

I think gathering your details in one place will also help you.  Others pointed out that you're missing likely expenses, and you've agreed with that.  A budgeting program might help fill those details in, while also letting you see the big picture of your spending.  Similarly, you found your $2.6k investment important to list in detail while giving much less attention to your $12.6k account that is 5x larger.  You might want to gather all your investments in one place, and at least get a summary broken into: U.S. stock (or more detailed), international stock, bonds, cash.  You can exclude your emergency fund, but otherwise having too much cash is a big detriment to investment returns.

So my main suggestion is to seek out some tools to help you see the overall picture of both your investments and your spending.

[MDM]

It's dangerous to me that I skimmed over those somehow.  I need to account for those, & at least see how much I'm spending on them in addition to my listed bills.

You don't need to account for every stick of gum, so it's ok to have some "miscellaneous" spending - maybe 2-3% of your non-rent expenses.