Back on the RE train

[chrisb71]

Hey everyone
Chris here

I am a computer programmer, and do comedy in Chicago for fun.

At 29 yrs old I was on track to retire at 45, thanks to reading the Fool, Retireearlyhomepage, etc. that was only after cleaning up my act at around 26 (when I read the Millionaire Next door and realized hey I gotta pay off this debt and start saving).

Then I quit my job at 31, for awhile tried my hand at my own business (digital surveilance/security) though without a business plan it did not work out well. During that time period I sold a car and liquiated my 401k (26k at the time) for food money (well I could have spent less).

Anyway, got a job about a year ago, and am closing on a house this month and just going over my finances again and I'm just starting to save again. And I just realized how far behind I am on so many goals esp. financial ones.

Here are my numbers:
age:33
cash: 42K (about to drop 14750 on 5% down for loan, plus another 4K in closing costs plus 2.2K in what we in chicago call "Daley's Tax" which the seller pays everywhere else :-) )

credit card debt:
3500 at 0% (for a few more months)
9500 at 1.99% for life of loan

investments:
all are in Roth IRAs:
US small cap: 8500
Emerging Markets: 2500
Other international: 2800
Cash: 750

The 750 cash is in my Schwab SIMPLE account for work it costs so darn much to trade I have to wait till i get 1000 so I can buy a fund without cost. (That is provided by my company).

That's it. This is also my first house. I am kinda freaking out about that too :-)

I am kinda lost as to what to do. I know I need serious asset reallocation :-) I am opening a BrownCo account this week and going to transfer the IRAs there since that's the cheapest and I get pretty good research from Schwab already. But as far as how to reallocate (or even how much I can afford to save) I am thinking of either using Financialengines or Morningstar.

I figure after paying my mortgage & bills I have maybe between 900 - 1200 a month to invest and pay off debt (I don't pay utilities now, so I don't have much of an idea of what I need yet, I only started using Quicken to track expenditures again about a week ago).

But since I work for a little company who just lost one client (out of 6 that we had) I figure 21K in an emergency fund is the first thing I should do. That should cover about $3300 a month. I was going to pay off the debt but that would leave me with only $10K or so and I don't feel safe, esp since I have pretty low rates on the debt that helps a lot.

One question I have, what do you think about using a ladder of 3x3 month cds for the emergency money? I figure will I really need the money that day, or couldn't I wait till the end of the month? It is not to get a higher rate as much as I want to keep it slightly more difficult to get to since I have dipped into my emergency funds before. Just wondering what others think.

[Nords]

Quote:

Originally Posted by chrisb71 Anyway... am closing on a house this month and just going over my finances again and I'm just starting to save again. One question I have, what do you think about using a ladder of 3x3 month cds for the emergency money? I figure will I really need the money that day, or couldn't I wait till the end of the month? It is not to get a higher rate as much as I want to keep it slightly more difficult to get to since I have dipped into my emergency funds before. Just wondering what others think.

Welcome back, Chris.

Unless you had the world's best home inspector (and even then) you'll probably find several ways to spend a thousand or two on the house after closing. And I'm just talking mechanical/electrical infrastructure problems, not curtains & decor. So keeping a cash stash is a wise idea.

If you're freaking out about the house because you haven't had it inspected yet, then spend the $500. It's worth every penny when the inspector says "Uh, oh..." before something falls apart at 3 AM. And change the locks the day you move in.

We lived for a couple years with a year's expenses in a money market account and a second year's expenses in a one-year CD. It gradually dawned upon us that we weren't likely to need that second year's cash unless the market really sucked that first year, which we expect (hope) will only happen once or twice a decade. So we put the second year's money into a five-year CD with a three-month early withdrawal penalty. You may want to consider something similar if your ladder has an abysmally low rate or if that early-withdrawal penalty is an effective deterrent.

Conventional wisdom says to have 3-6 months' expenses in cash, but you might take a look at what your expenses would really be if you were unemployed. Would you spend at the same rate you are today, or would you cut back to Ramen & showering at the office? So you may not need to tie up the full $21K. Quicken will also help identify the "fat" in your budget and that combination might free you from debt sooner. Not that there's much to worry about with your debt interest rates.

For a 33-year-old your Roth IRA allocations look fine-- plenty aggressive. Maybe someday you'll care about commodities funds or REITS (after they both get cheaper) or large-cap domestic value or even bonds, but for now your challenge is going to be making the full Roth deposits every year.

I think M*'s membership is cheaper, especially if you get it through Schwab or Brown, and M* occasionally runs "Free Portfolio X-Ray" days for a one-time check of your asset allocation & overlap. The posters at M*'s Hands On or the Vanguard Diehards boards can probably help predict when the next freebie rolls around. Otherwise FinancialEngines is $40/quarter (I don't know M*'s pricing).

[retire@40]

Quote:

Originally Posted by chrisb71 Then I quit my job at 31, for awhile tried my hand at my own business (digital surveilance/security) though without a business plan it did not work out well.

If you still want to retire at 45, you are behind.* I don't think you mentioned how much you are earning at your current job, but it sounded like a small operation with 5 clients, so not only is it a risky place to work, but you may not be getting paid a lot in terms of wages and benefits.

I would suggest that you try again at setting up your own business, but this time with a detailed business plan.* You also want to consult with a lawyer and CPA after your first draft of your business plan to review it with them BEFORE you go into operation.* If you can transition from your job to your own business, the sky is the limit as far as earnings go and you can get from the caboose to the front car of the ER train a lot quicker.

[chrisb71]

Oh I am just freaking out in general over the house (well, condo) since it's my first

I did not even think about changing the locks, does everyone do that? Man I am too trusting I guess. I just got a car radio system stolen out of my storage unit where I live.

Yeah 45 is not doable anymore. I feel like I made a lot of mistakes. Buying a "toy" car (2000 Mustang convertible) which I had to sell, not controlling spending enough when I had nothing coming in, etc. I am making the same income now that I was back in 2001, in the mid 70s.

I am more and more leaning towards index funds the more I read about EMT. In the past I spent so much time picking fund managers that were great even over 10 years, then suddenly they were dogging it when I bought. I am kinda getting tired of that. With indexing at least I will feel like "oh well I am making the market" and it may be easier to stay in, trusting the market rather than trusting some manager.

So now my big question is, do I do Vanguard funds at Vanguard, or Vanguard VIPERS (& iShares) at Brown&Co? The cost is not bad there ($5), and with only ~$15k right now, i'm looking at between 60-80 /yr at Vanguard in low balance fees (3 or 4 indexes), or 30-60/yr trading fees at Brown&Co but VIPERS have .1% lower costs. eh, ETFs do seem kinda "scary" and "new" though so I might do better at Vanguard just because i won't be tempted to touch it or move it around.

regarding income, I am in the 28% bracket, but with the house it will push me down into 25. So I'm making decent money right now. I just need to get rid of my debt and sock as much away as I can while I'm making it, (I have a 6 year old subaru which is still doing well) and also be prepared for my future by reading/studying/practicing new ideas in my field. Being in IT staying ahead of the curve is essential if you want to command top dollar and don't want to get outsourced to India. I guess that's true in all fields though.

regarding the company I'm at, whether to start a new business, that's what I was alluding to in my "other" goals besides financial. I need to take some time to seriously re-evaluate where I'm heading.

Well the first thing I think is to do a better job at the one I have now. I have been discouraged and not all that happy here since I'm not doing what I thought I would when I was hired. But then since there's so few of us I could just step up and excercise some more leadership as far as the direction of new development. I notice I am happier when I work harder and am more productive. (not online like I am now)

[SLC Tortfeasor]

Quote:

Originally Posted by chrisb71 I notice I am happier when I work harder and am more productive. (not online like I am now)

I totally know how you feel!!* When I'm being productive, I don't think about retirement, because I'm happy with my job.* But when I start procrastinating and surfing the net, that's when my self-esteem and job satisfaction drop, and I start fantasizing about early retirement.*

Stop reading this board and get back to work!!

[cute fuzzy bunny]

Quote:

Originally Posted by chrisb71 I did not even think about changing the locks, does everyone do that? Man I am too trusting I guess.

Yep. Odds are at least 10-20 people have had your keys or made a copy to do work, make inspections, show the property, and if its been owned before, maids, pet sitters, relatives, etc. You just need one of those folks to start having a bad life and come across your key and wonder if it still works and if you have anything worth stealing.

Do it youself. Go to the hardware store and look for lock change kits usually in the same aisle with the door knobs. They include a couple of keys and the materials to change 3-5 locks. Kits for each manufacturer of lock are available. I think I paid ~$5-6 for a kit to change 5 locks.

Follow the instructions carefully, and I mean carefully. First one I did I dumped all the lock cylinder parts all over the table and had to spend 15 minutes putting it back together, after that it was ~2 minutes a lock to change.

You insert your old key, then slide an included tool into the cylinder which releases it. You remove the old key cylinders (little tiny metal bits) and put in the new ones, which are color coded as to the order to install them. Insert the new key and remove the cylinder tool, reinsert the lock cylinder into the knob or bolt case until it locks. Rinse and repeat.

Fancy front door locks can be done with the same kit, but may be a little trickier than a simple doorknob lock or deadbolt lock. I did mine, it wasnt that hard...taking the cylinder out just took an extra minute or two.