Turning 24, dreams of freedom

[Scrooge McDuck]

Hello all!

I am a 23-year-old (for about two more weeks), single, college graduate living at home with parents.

I caught the "FIRE" bug pretty quickly after graduating in 2008 into our lovely economy, with $20,000+ in student loan debt and ZERO career prospects--the disadvantages of being reliant on an employer were pretty obvious.

When I did find a decent job with a govt contractor about a year and a half ago, I dedicated myself to living below my means and saved about 40% of gross income at 36,500 a year (gross recently increased to 38,000/yr after their idea of a "raise"). My dedication to the FI goal
only strengthened as I quickly came to hate my boring, unrewarding job.

Now I'm about to start a new job with a substantially increased salary (~51,000) and I'm hoping I can finally afford to move out of my parents' house while still budgeting for a respectable rate of savings. It's a big challenge, since it's pretty tough to beat (or even come close to)
$250/mo for rent/utilities AND food, at my parents'... I live in MD so cost of living not exactly low, unless I buy a rowhouse with no floors in Baltimore.

I'm also at the point where I've got the saving thing pretty down, and I'm looking to learn the investing side. I contribute 7-8% of income to 401k but the rest of my savings just goes in a high yield account for the moment. I just bought my first ETF this week--300 dollars in TIP.

So my top goals at this point are figuring out how to live on my own and still save, and learning how to properly invest. I'd also like to establish some alternative income streams (which probably goes hand in hand with goal 1 of moving out).

I don't know any other people in real life who share this dedication to building wealth and achieving financial freedom. I've been nicknamed "Scrooge" by some. Personally, I don't mind. I look forward to becoming the richest duck in Ducktown!


Okay, so some numbers and my current budget... since I don't start my new job until Aug 2, these numbers are based on my old/current salary.

BUDGET
Monthly Gross: ~3200... currently 7% allocated to 401k (no company match, this place sucks)
Monthly Take-Home: 2216

Student Loan: 215
Car Loan: 262
Car Insurance: ~175
Gasoline: 100-125
Credit Card: 25-50
Housing: 250 (live with parents)
Food: 0 (live with parents)
Personal Spending: 250
Savings: ~850

(Note that I usually overpay the student loan with some of the "Savings" so the actual amounts are more like 400 loan/600 saved or 500/500)

ACCOUNTS
401k: $3500, diversified over ~12 funds, I don't have the exact info off-hand but it should be weighed significantly (~75%) toward stocks
Roth: $750 in account, unallocated (not sure what's going on with this, grandmother gave me this account)
Brokerage (TradeKing) Portfolio: ~$300 in iShares Barclays TIPS Bond Fund (TIP)
Savings: $5500 (was higher but I depleted it for down payment on car)

LOANS/CREDIT
Student Loan: ~$12,200 @ 5.19%
Car Loan: ~$15,000 @ 0.9%, 5 year
Credit Card: ~$400 @ 11% (I keep this at 10-15% of my $3000 credit limit for crdit score purposes, costs me about $5 in interest a month)

I'm in a pretty bad position for FI thanks to the debt but I try to tell myself I'm better off than most folks my age.... with the main advantage being I'm at least COGNIZANT of my situation.

[Onward]

If it were me, and if I were FIRE-minded, I would continue renting at my parents' house, as long as it's acceptable to you and them. Then pay yourself the $1,000+/mo that you would have spent (on rent, food, utils, etc) by living somewhere else.

[ziggy29]

Quote:

Originally Posted by Scrooge McDuck I'm in a pretty bad position for FI thanks to the debt but I try to tell myself I'm better off than most folks my age.... with the main advantage being I'm at least COGNIZANT of my situation.

Welcome to ER.org! I don't think you're that much worse than a lot of folks as your student loan debt is a lot lower than it is for many recent graduates. And as someone who also started in their early 20s saving for retirement until I bled, I can say that this is going to be increasingly the only way to secure a retirement for many "young dreamers" as pensions vanish and the deal from Social Security will keep getting worse. I'm 44 now and I'm quite sure that given talk about increasing the SS retirement age and a tiny, frozen old pension, there's no way I could contemplate retiring before my mid-60s had I not done invested so aggressively in my 20s.

As for your comment about the credit score, I don't think consciously leaving a balance helps your credit score any more than paying it off every month. So if you're leaving a balance to help your credit score, you may be doing nothing but adding interest expenses to your outgo.

At 23 and living with your parents, there are so many likely financial goals you'll have before retirement, so while it's good to start retirement saving early you don't want to "starve" other goals such as when you move out of the house and if you decide to buy a home, get married and/or have children. Keep an eye on those goals, too -- which are likely to be more "intermediate term" savings and investments.

Frankly at your income level and with no company match I'd contribute to a Roth IRA instead of the 401K. The usual guidance is that the first investment dollars should go to a 401K to the extent of the full employer match, but in your case that's zero so I'd tend to prefer a Roth.

[seabourne]

I'd agree with ziggy on a points:

for credit utilization, use a credit card with no fee and cash back, and just use it for groceries and pay it off each month. Since you'll have a balance (that you're not paying interest on) you'll show credit utilization. not worth carrying at interest.

For your IRA - you're making under 50 right now, no matching. Screw the brokerage account and 401k, put it all into a RothIRA until you hit your 5k/yr. You will probably never have this low an income tax rate again, so use that. By all means, if you want to invest your brokerage in TIP, do so within the Roth - your bond interest payments will be tax free (so avoid tax-advanatged funds in there).

I would say that your cash savings is in the right area - you might increase it a bit, but it's about in line with your current budget. I would try to increase it to at least 3 months of your proposed expenses before you move though. It's going to be a lot easier before than after.

I think that you are moving in the right direction, and I can certainly understand the desire to get out of your parent's home (and think it's a good thing that you are paying them something for the privilage of living there). Recognize that, because of this, you have more flexibility in finding your next home that almost anyone else. USE THAT. I'd recommend finding a good roommate or two, and looking at what you can afford in tandem. you also have the chance to have your pick of places to rent - you can decide on the minute, have cash for deposit, and can move in whenever it's free. So use these advantages to get exactly what you need, because you can use it to lessen the financial cost of getting what you want.

[TromboneAl]

You sure have the right idea. Have you searched for blogs of extreme savers? There was a link to one here recently -- some guy that ate mostly tuna fish, beans, and ramen noodles.

For example, if you can get by without a car...

[Onward]

Quote:

Originally Posted by TromboneAl There was a link to one here recently -- some guy that ate mostly tuna fish, beans, and ramen noodles.

Early Retirement Extreme: — written by Jacob Lund Fisker, Freelancer

[Scrooge McDuck]

Thanks for the replies. Yeah, I found that site through this forum the other day as well. That guy is good! Sadly I can't do without the car. I work in too bad an area of Baltimore and would not want to live in walking/biking distance--much less walk or bike!

I definitely want to live closer, as right now I drive about 70 miles a day; and new job is in nearly identical location.

New job starts next week, and 401k (Thrift Savings Plan) contributions WILL be matched to 5%, and I believe there's no waiting period. Should I still prioritize Roth at expense of 401k?

With new job I estimate I'll be taking home ~2500/mo (technically every four weeks) after tax/benefits/5% 401k contribution. That only throws an extra 300 into the ring for housing and food in addition to the 250 I pay now. Even if I needled food expenses down to 100-150 I still need something in the 400-450 range to break even with current savings amounts--nothing habitable in that range.

I would rather moonlight than take a roommate. In fact, at this point procuring additional income streams is probably my number one goal. I've been considering donating plasma (which I hear is ~$50/week for two visits), but it's probably a pain in more ways than one.

So it's a tri-lemma between staying with my parents longer, finding a way to increase my income, or saving less than I want to. I guess I prefer option 1 until I can get away with option 2. At this point, to me, moving out is THE next big step toward legitimate financial *independence* (I mean, who wants to be dependent on their parents?), but I still gotta do it right and stay true to my savings plans. At least living at home would boost my net worth by about ten grand by December.


Regarding credit cards, I had read they like to see balances between 10-30% of the limit. Gas is a big expense, so I've been looking at signing up for the PenFed Cashback Visa Card with 5% back on gas. If I can pay it off immediately after each charge without a hit to credit, all the better. What should I do with my current card? It has no real benefits but an okay rate. I also read they penalize you for closing credit accounts.

[HornedToad10]

Quote:

Originally Posted by Scrooge McDuck I would rather moonlight than take a roommate. In fact, at this point procuring additional income streams is probably my number one goal. I've been considering donating plasma (which I hear is ~$50/week for two visits), but it's probably a pain in more ways than one. Regarding credit cards, I had read they like to see balances between 10-30% of the limit. Gas is a big expense, so I've been looking at signing up for the PenFed Cashback Visa Card with 5% back on gas. If I can pay it off immediately after each charge without a hit to credit, all the better. What should I do with my current card? It has no real benefits but an okay rate. I also read they penalize you for closing credit accounts.

I lived with roommates after college/grad school and it really wasn't too bad. As long as it's a two bedroom apartment and the guy is decent then it always worked out for me.

For credit score, if you pay it off monthly then it'll still show up on the report as under <30% utilization due to the differences between when the credit cards are paid and when Experian and the like check the balance. There certainly isn't a reason to keep a balance for credit score purposes, the goal is to keep it below 25-30% utilization. I have around a 790 credit score and I've never paid interest on my credit cards.

Best of luck with the savings. I'd focus on:
1. 401k up to match
2a. Roth if possible.
2b. Student loans payoff
3. General savings

With focus, once the student loans are paid off you should be good. And then just plan on keeping the car long term (~10 years) and keep funding 401k and Roth.

[Dawg52]

Saving and living on a budget is a good idea, but don't forget to enjoy life. I admire your goals, but there is a balance. Good luck!

[jwkde]

Welcome and good luck. Nice to see you are thinking ahead.

Do I understand this correct?
"401k: $3500, diversified over ~12 funds"

That seem way to spread out for that small amount of money. Diversification is one thing but this is way more than necessary IMHO

[Coderguy]

Hello,

Don't worry; most of us have lost our company match :-) ... and right when we need it the most. Nice to know our employers set bad examples by chasing performance.

I wanted to mention that I graduated with $22,000+ in credit card debt (sigh). You said you had about 20k+ in student loan debt. I paid off my CC's in just under 3 years by paying $500 a paycheck to them. You're in a great position; your debt will melt faster than you think!

Best of luck with your Roth/401k (I also think 12 funds is too much); at your age you will enjoy the math when you run firecalc/etc!

Oh, and as a young guy... you might consider getting out of the parents house; FIRE is great, but you are young - remember to enjoy it.

[Scrooge McDuck]

See, I had less than stellar roommate experiences through college, and now that I'm done with it I'd rather not tempt fate again. I guess that was college and things might be different now, but I dunno, the way I see it I already have "roommates" in my parents, and at least I'm used to them, they don't steal food I buy or keep me up on work-nights or foul up the bathroom, etc. Next step for me from here is "life without roommates".

It's worth mentioning that I have an in-law suite in the basement, fairly spacious, separate entrance, etc. So living at home isn't exactly painful, besides the commute and the principle of it.

And yeah, I do try to stay aware of the opportunity cost that every dollar saved is a dollar not spent now when I'm young. But I actually live pretty well on the 250/month I allocate for personal spending, and often don't spend even that much. Many of my friends live frugally also, the difference being they NEED to because of choices they made such as taking on mortgage (in 2007 no less), taking out too much in student loans, buying too overpriced a car, etc. Of course some have different priorities including wife, family, but I am not interested in that anytime soon. On the other side, I also know others who are living at home but spend large portions of their income on new iPads and X-Box games and I feel even sorrier for them. Aside from the "experience" of living on my own, I don't feel like I'm missing out on much at this point...


The 401k is spread over 13 funds. My thinking at the time was to have each fund represent no more than 8% of total portfolio, so I just put 4% in a bond fund and then chose 12 other stock-oriented funds that appeared to have variety in their market/allocations/strategy. No real strategy beyond that. Honestly, I'm a newbie to investing, period. Learning that is one of my bigger long-time goals.

Right this moment, though, I'm not overly concerned with the 401k as I suspect it will be rolled over into the TSP at my new job, at which point I'm assuming I will re-allocate all the funds anyway. (?)


This site looks like it's going to be a great resource. I've already gotten quite a reading list from here so I'll be hitting the library soon. Thanks for the welcome all!

[Coderguy]

Quote:

Originally Posted by Scrooge McDuck This site looks like it's going to be a great resource. I've already gotten quite a reading list from here so I'll be hitting the library soon. Thanks for the welcome all!

I a noob here too; and I'm working through the reading list. The Bogle and Bernstein books (especially "The Four Pillars") are absolutely great books.

[seabourne]

Quote:

Originally Posted by Scrooge McDuck The 401k is spread over 13 funds. My thinking at the time was to have each fund represent no more than 8% of total portfolio, so I just put 4% in a bond fund and then chose 12 other stock-oriented funds that appeared to have variety in their market/allocations/strategy. No real strategy beyond that. Honestly, I'm a newbie to investing, period. Learning that is one of my bigger long-time goals. Right this moment, though, I'm not overly concerned with the 401k as I suspect it will be rolled over into the TSP at my new job, at which point I'm assuming I will re-allocate all the funds anyway. (?)

My suggestion would be to look into dated retirement funds (such as Vanguard2050) that are created and rebalanced to diversify funds for you, without you having to be right on top of it. An additional advantage with your currently small investment is not running into any fees or restrictions based on low individual investments. They aren't perfect by any means, and if you want to take more risk than the furthest out you'll have to add it yourself, but as a 80% solution for 10% of the effort, it's a great starting point, especially if you are going to be rolling everything into a new account shortly anyway.