Hello World

[cwebjohn]

Hello Everyone,

I have been viewing this forum for quite some time now and I have finally taken up the courage to post a hello message.

Currently I am 25 years old and have been interested in early retirement ever since I was a young kid. Of course, I also thought I would be the next Bill Gates at that age. I am a big dreamer when it comes to life.

I have worked jobs ever since I was 15 at McDonald's and paid my own way through college, with the help of loans and grants. All my loans have been paid off as of 2 months ago.

I would really like to retire in my mid thirties to forties, but it will mostly be in my mid to late forties.

As far as my financial tools go, I use various tools like mint.com and networthiq.com to statistically model my growth over the course of my life. Perhaps I am just a geek that likes data points...

My finance structure is roughly as follows:

Income - 45k
50% to 401k (I max it out)
5% to stocks
12% to tithe + missions giving
33% to everyday expenses, cash savings

Net worth:

Stocks - 47k
401k - 59k
CD - 1k
Car - 4k
Cash - 4k
Total - 115k net worth

I am debt free with little to no payments, except for gas, a $10 cell phone bill per month, church tithe + missions giving. Right now I do not pay any rent at my parents house.

Also, I am looking at a house that I can purchase with little down and a 3.87-4% interest rate. My credit score is in great shape, so hopefully in the next week I will muster up the courage to find out what the bank can offer my in a mortgage.

Any help would be appreciated. As a single person I am finding it harder and harder to grow my net worth without a second income that everyone else is showing on their income statements.

 

[Midpack]

Welcome aboard. You are well on your way to FI, and that's what's important at age 25 IMO, from there you have all sorts of options. http://www.firecalc.com/ might be a helpful exercise for you if you haven't already tried it, it only takes a few minutes to run several scenarios to see what's ahead, what might be possible.

What path I may have thought my life would take at age 25, wasn't much like the actual experience, it was much better after all...

 

[MooreBonds]

Congrats on a solid start! I'm 35, so have a few years on you, but still have a ways to go before I can pull the plug. However, like you (and some others on this forum), I also started working hard at a young age (mowing grass at 10, caddying at 12), and also utilized the unbeatable rent and room/board at mom & dad's until I was a few years older than you.

As far as my financial tools go, I use various tools like mint.com and networthiq.com to statistically model my growth over the course of my life. Perhaps I am just a geek that likes data points...

Ah, yes, the initial years. I had many various data points from my balance sheets as well! Total Net Worth. Net Invested Assets. Projected Tax Liability on retirement accounts. Total Funds Added To Portfolio for the year. Etc., etc., etc.

Don't worry - as the numbers get bigger and bigger, you'll naturally become less OCD about it, and the columns/numbers you update and track will become fewer and fewer.

Some observations:

Income - 45k
50% to 401k (I max it out)

This looks like you're saying you put $22,500 into your 401k, which is only allowed by those over 50. The Under-50 401k limit is $17,000 for 2012.

Also, I obviously don't know the investment choices you have available, but MOST 401k plans are loaded with sky-high expensive funds. Check those fund literature booklets closely. Even if it's a good 'base' fund (like a Vanguard fund), they nearly always tack on excessive fees to bring the total expenses to 1% or well over 1%.

Does your employer offer ROTH 401ks? I am a big believer in diversification of both investments and taxes - no one knows what the future will hold, either for the country tax policy or for your income.

If I were in your shoes, I'd put a hefty amount into my 401k, but also make sure I max out my ROTH IRA (not only to diversify taxes, but also because you can keep your ROTH IRA in ultra low cost funds, and saving 1%/year in fees adds up over 40 years!!!)


Also, I am looking at a house that I can purchase with little down and a 3.87-4% interest rate. My credit score is in great shape, so hopefully in the next week I will muster up the courage to find out what the bank can offer my in a mortgage.

 

[ShortInSeattle]

I think you have made an impressive start!

 

[walkinwood]

You have a great start. Congratulations!

Don't get discouraged by the slow growth of your portfolio at this phase. It has a snow-ball effect over time as the portfolio starts generating larger and larger returns until you reach a point where it earns more money each year than you're putting in.

Stick to your plan & give it time.

 

[MDJO]

Great start. I remember starting my retirement savings at 27 by putting $20 per pay in our company 401K. Now at age 58 I wish I had put more away earlier, but it all worked out in the end. Good luck to you.

 

[obgyn65]

Welcome, John. Great start.

 

[MichaelB]

Any help would be appreciated. As a single person I am finding it harder and harder to grow my net worth without a second income that everyone else is showing on their income statements.

Hi cwebjohn, welcome. You've done well, so congratulations. You've paid your loans, have no debt, and are saving most of your income. This is more important that you appreciate. Another income may help, and so might assessing what you need professionally to increase your income potential. If there is still time, don't be in a rush to buy a home. This is a time of life when you need flexibility.

 

[pb4uski]

Welcome. You've done well and are far ahead of where I was at your age.

While I would encourage you to buy a home, do so because you need a place to live that you can enjoy, not as an "investment". If it appreciates in price and turns out to be a good investment as well, then fine, but I would advise that you not think of it as an investment (event though I will admit that I sold each of my houses for substantially more than what i had into them).

Continue to max out your 401k, Roth, HSA and other tax advantaged investments available to you and invest the money in low-cost, index mutual funds using an AA appropriate to your age.

While saving and investing for the future is important, don't become so preoccupied with it that you don't enjoy life. Splurge on yourself here and there and enjoy your friends and family.

Good luck.

 

[cwebjohn]

This looks like you're saying you put $22,500 into your 401k, which is only allowed by those over 50. The Under-50 401k limit is $17,000 for 2012.

I did not expound on my 401k enough. I am currently putting 50% of pre-tax income into my 401k. Once I max out my 401k funds I will put the after-tax funds into a separate investment vehicle.

Also, I obviously don't know the investment choices you have available, but MOST 401k plans are loaded with sky-high expensive funds. Check those fund literature booklets closely. Even if it's a good 'base' fund (like a Vanguard fund), they nearly always tack on excessive fees to bring the total expenses to 1% or well over 1%.

There are two funds in my T. Rowe Price account that I am using:

One is VFINX - Vanguard 500 Index Fund (40%), an index fund with a low expense ratio of .17%
RPMGX - T. Rowe Price Mid-Cap Growth (60%) is the second fund with a .80% expense ratio.

Does your employer offer ROTH 401ks? I am a big believer in diversification of both investments and taxes - no one knows what the future will hold, either for the country tax policy or for your income.

If I were in your shoes, I'd put a hefty amount into my 401k, but also make sure I max out my ROTH IRA (not only to diversify taxes, but also because you can keep your ROTH IRA in ultra low cost funds, and saving 1%/year in fees adds up over 40 years!!!)

My company does not offer a ROTH 401k at this time. Once I max out my 401k I will put funds into my ROTH IRA.


Update:
I am contemplating an MBA program here in town. My job will be able to pay for it, and I have always been an entrepreneur minded individual. My desire is to start my own business in the future and I hope to glean as much information on the financial side of things as I possibly can.


Thanks to you all for your assistance! I am really learning a lot by reading about others and their early retirement paths.

 

[PennStateCLJ]

I would be careful maxing the 401k before the end of the year. If your employer offers a match you could miss out on the match and free money by reaching the finish line too soon. So if you reach 17k by say November you would miss out on two free contributions in December.

 

[cwebjohn]

I would be careful maxing the 401k before the end of the year. If your employer offers a match you could miss out on the match and free money by reaching the finish line too soon. So if you reach 17k by say November you would miss out on two free contributions in December.

I maxed out my 401k last year and they added the matching funds to my account that would have been included had I spread the 17k over the entire year.

 

[PennStateCLJ]

That's nice of them, most don't. Mine doesn't. No worries then

 

[jimnjana]

As you explore buying a home, you may want to temporarily cut back on your investing and build some more cash to make it available for any expenses of new home ownership.

 

[cwebjohn]

As you explore buying a home, you may want to temporarily cut back on your investing and build some more cash to make it available for any expenses of new home ownership.

That has been on my mind! However, I have two warring thoughts right now. At the moment it looks like the market is in a freefall mode, which is enticing me to invest as the market deteriorates.

On the other hand, interest rates for mortgages are at their lowest rates in the modern era.

Perhaps the best choice is to be balanced between the two?

 

[YoungSaver]

I am debt free with little to no payments, except for gas, a $10 cell phone bill per month, church tithe + missions giving. Right now I do not pay any rent at my parents house.

Also, I am looking at a house that I can purchase with little down and a 3.87-4% interest rate. My credit score is in great shape, so hopefully in the next week I will muster up the courage to find out what the bank can offer my in a mortgage.

Any help would be appreciated. As a single person I am finding it harder and harder to grow my net worth without a second income that everyone else is showing on their income statements.

We are kind of similar, except fast forward 5 years to produce me.

Personally, as somebody who came from your same situation, I would put off the house and live with your parents as long as possible. I love my house, but it has caused my investments to grow much more slowly. Also it's a huge commitment since you cant really pick up and leave.

 

[jimnjana]

That has been on my mind! However, I have two warring thoughts right now. At the moment it looks like the market is in a freefall mode, which is enticing me to invest as the market deteriorates.

On the other hand, interest rates for mortgages are at their lowest rates in the modern era.

Perhaps the best choice is to be balanced between the two?

Well hopefully you won't have to sell any of your investments to fund you new home purchase.

 

[martyp]

It's good to be thinking this way about your finances while your are as young as you are. You should also strive to make sure you enjoy your current job and reward yourself in the near term. If you don't learn how to enjoy life now then you might not know how to enjoy life after ER. All things in moderation . . .

 

[scrabbler1]

Cwebjohn, I am quite impressed with your progress at age 25. When I was 25 years old (in 1988), that year was a big transition year for my finances. I was debt-free at that time, having paid off my student loans the year before and was saving up to buy the co-op apartment the following year I still live in today. I was renting an apartment at the time but did live with my parents for a short time (less than a year) a few years earlier. The mortgage I got in 1989 had a 10+% interest rate but I did a refi a few years later to knock the rate "down" to 6%, saving me a lot of money.

I did not have the net worth you have, even after adjusting for inflation, but my income was about the same as yours after adjusting for inflation. I was not fully funding my 401(k) back then because I was saving up to buy the apartment. After that, I maxed out the company match part and would later add some after-tax dollars for a few years in the 1990s.

By the time I turned 35 I was debt-free, a big step toward my retiring 10 years later at age 45 (in 2008, 3.5 years ago).

But the year I turned 25 was one of the most fun years of my life. As I mentioned in another thread about "1980s stories," I had a lot of get-up-and-go and had finally managed to live in one place for an entire calendar year. Things were going well at my job and in my personal life and I was accumulating wealth, at least enough to buy the apartment.

Not to stir up a hornets nest, but a big reason I was able to retire so early was that I am childfree. I knew I was childfree when I was 20 years old, so it was not a financial decision but nonetheless one I was able to capitalize on to greatly help bring about my early retirement in 2008 at age 45. If you are also childfree, your chance of retiring in your 30s or 40s will be greatly increased. (BTW I am single, so there is no second income.)