Author Topic: Advice for a New Mustachian?  (Read 2569 times)

CulturedTechie

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Advice for a New Mustachian?
« on: December 18, 2016, 06:13:13 PM »
Long story short. Divorce, 50/50 custody of 6 year old son, and I’m starting from scratch. I decided to give up the home and car. The home has about 10K of equity and continuing to negotiate over the home will lead to legal bills exceeding that amount. Already spent 20K in combating an adulterous woman and I’m ready to start over. Keeping the home would have set me back and prevented me from reaching

Here’s the deal. I make $65,000 per year and work from home. I live in NJ where you really need a car, but with amazon prime, being a homebody, carpooling with friends, and Uber, I should be able to get around with ease. I’m signing my home away, and will go from paying $1800 a month to renting a 2 BR for my son and I for $1345. I’m leaving behind a water and gas bill, so the rental is definitely cheaper. Once I save up enough money, I can afford to buy a condo for about 100K or a fixer upper at 70-80k.

I will be free from legal shackles come January 18th. What advice can you offer a new Mustachian going forward? I want to do things right and on my terms going forward. My financial freedom is something I no longer want to compromise on. My expenditures are listed below.

Monthly I bring in $3,670:
Rent: $1345 (can’t move from my township due to child)
Electric: $150 – estimated average since everything runs of electric including heating.
Internet: $40 – Work from home and depend on this utility.
Cell: $40 – Paid for my iPhone outright. Use a prepaid plan for service.
Groceries/Home: $200 – Will probably spend less based on habits. I visit Aldis, Costco, or coupon lightly.

Alimony: $900 (on the hook for 4 years).

Non-important expenditures:
WWE Network: $10 – Son  and I don’t have cable but we enjoy bonding over wrestling. (usually buy discount iTunes cards at 20% off, so will essentially cost $8)
YouTube Red: $10 – I live on YouTube and commercials really annoy me. Plus, added unlimited music streaming is an added bonus. (see above remark regarding iTunes gift card).
Haircuts: $40.00 – Just under for my son and I. Use coupons when I can.
Uber: $60 – a just in case budget.

Monthly Savings: $875
Year Savings: $10,500

Bracken_Joy

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Re: Advice for a New Mustachian?
« Reply #1 on: December 18, 2016, 06:26:54 PM »
Well, on the surface this seems like a pretty slim and clean budget. A few missing things though

-debt? Car, student loans, credit cards, on the hook for any of the mortgage? Outstanding lawyers fees? Be sure you have your debt totals, monthly payments, and interest rates together.
-assets? Do you have retirement accounts set up? Investments?
-going forward: do you have a will and an advance directive in place? If not, this is a huge priority. Likewise, life insurance and short term disability insurance as needed.

Next step, tracking. Those numbers look nice on the page. But are they real? Set up Mint or Personal Capital and know for sure what you spend. Every penny.

Next up, MDM's investing order. It's on this spreadsheet: http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/ under the investing order tab. Or, here is a typed up version:
Note: 10yr treasury note yield currently 2.56%, so step 2 is 7.56% and step 7 is 5.56%
Quote
WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Roth or Traditional IRA based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: trad if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial

CheapScholar

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Re: Advice for a New Mustachian?
« Reply #2 on: December 18, 2016, 06:46:41 PM »
The most urgent objective, seems to me, is to investigate your 401K plan (if you have one) and put every dime you possibly can into that - for the tax benefits.

Also, get a general sense of a goal.  Can you be Finanicially Independent in 10 yrs, 15 yrs, 20 yrs?  Get a rough estimate of how you can build wealth and start chipping away like the rest of us.

Maybe consider a side hustle too.

myrrh

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Re: Advice for a New Mustachian?
« Reply #3 on: December 19, 2016, 12:00:05 PM »
Have you changed beneficiaries on your bank accounts/retirement accounts?
Do you have life insurance to provide for your son? I am not sure who the beneficiary should be if your son is a minor, but I assume you want him well cared for.

I didn't see any medical (co pays, prescriptions, dentist, eye doc, eye glasses, etc).
Also missing clothes, kid expenses (both school and non-school related), vacation, gifts, charity. Other than that it seems like a pretty good budget.

Kitsune

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Re: Advice for a New Mustachian?
« Reply #4 on: December 19, 2016, 12:20:57 PM »
I didn't see any medical (co pays, prescriptions, dentist, eye doc, eye glasses, etc).
Also missing clothes, kid expenses (both school and non-school related), vacation, gifts, charity. Other than that it seems like a pretty good budget.

I was gonna comment on this, yeah. Gifts, especially, when you have a kid... both of the 'oh crap you got invited to this birthday party' variety (if it helps, I keep a box of bought-on-sale art supplies and the like, things that are gender-neutral and can be put together in a nice useful non-clutter-y gift basket for basically any kid between ages 4 and 10, for not more than 10$/party) and of the 'Christmas and birthdays happen every year and are not a surprise, you should plan for these' variety.

Vacation: are you taking it? Who is paying (or providing) childcare when school is closed? Is this in your divorce agreement.

Clothes: for the kid, that should be in your divorce agreement (check how it's worded - you don't wanna be paying for 50% of designer jeans because your ex wants them for the kid) but clothing wears out and needs replacing. Also winter boots and snowsuits are expensive and get grown out of every year or two, kids will unexpectedly lose one sneaker (HOW???), etc. If you like thrifting, that's a minimal budget, but if, like me, you're in a place with minimal thift stores (or stupidly priced ones), then check out, say, Old Navy online (it's the best I've found in terms of new clothing quality vs price) and see what a wardrobe would cost for a season, and split it out by month. (Also learn how to patch/darn things, it saves the clothing budget, no joke)

Also: life insurance? Are you required to have any in your divorce settlement? Do you WANT to have a small policy, to care for your kid if something happens to you? Renter's insurance - depending on your ability to set yourself back on your feet in case of, say, a fire and total loss of all your posessions, might be worth 20-30$/month (especially if you work from home and your earning ability relies on expensive computers).

Looking at my family budget, other things that I see as absent in ours: restaurant (not that you necessarily eat out much, but a pint out with friends once a month adds up. Not a lot, but it exists. Unless you loop that into your grocery budget - basically make sure you plan for money to cover your ACTUAL expenses, not just your planned looks-good-on-paper expenses). Medical co-pays? I mean, we're in a place where we get public system coverage for EVERYTHING, basically, but we still count 20$/month for general 'health' spending (cream for that rash, a new bottle of advil, a bit towards glasses replacement, cough syrup when needed, prescription if needed, etc - it adds up). If you're in the US, you're likely to need more. What's your monthly average of health-related spending over the past 2 years, say?

Finally - how do you count your household goods? Cleaning supplies, ziplocks, replacement sheets when yours get threadbare, picture frames or random decor if you care about that, furniture, appliance repair/replacement, etc - again, it adds up. And what about unexpected things? Like, oops, our sheets just ripped, and we need new ones NOW? Or the fridge just broke, repairs are $$? We put 100$/month into a YNAB 'unexpected spending and house set-up' category, though we have a large house that we just built and so the set-up needed was considerable. We typically spend 20-30$ on decor/furniture/paint (yay Craigslist and carpentry skills...) and the rest goes into a 'when the fridge breaks' fund. Depending on what you care about a what you're responsible for (aka: if the fridge is your landlord's problem) you might need more or less.

Do you have any decent view on what your family has actually spent over the past 2 years? Sure, some of that is your Ex or is housing-related, but going through it and making sure that you've got a good idea of what your lifestyle actually entails might be a good starting point. You don't wanna hit summer and be like "shit! summer camp! 500$!" for example. You wanna know what you usually pay NOW so that you can eitehr budget that 500$ OR set expectations that it ain't happening this year.

 

Wow, a phone plan for fifteen bucks!