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April 13, 2012

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JV, sounds like you are very open about money with your parents. Are you as open with your boyfriend and do you trust what he says about his finances? I am curious why you say you'd like to afford a home on just your salary? Did you two agree to share all the expenses together? If so then why not just look for a home that is about 28% of your combined income? If this is not the case and you will be solely on the title, then I'd get a prenuptual agreement to protect your assets.

You should have a wedding fund as well as match your 401k with employer and add to your Roth as your budget allows. Index funds are the way to go, stick with stock funds and avoid bond funds. You have nothing to worry about risk because certainly in forty years this investment will have appreciated.

You are doing an AMAZING job for being 24. Man...I wish I had your common sense when I was that young (yeah, I'm only 27 but feel like I'm going on 40). :/

You should go hug your parents and thank them for letting you live with them still and raising you to not be a moron (like the majority of the kids our age).

Congrats on the job well done and good luck with the wedding - hopefully it comes soon!

I don't understand all these posts about having current debts on your credit report when you apply for mortgages. I would expect that having no required payment would be a better situation. Your payment history stays on your credit report for some 7 years (I think), so if you are planning to buy a house within 7 years (sounds like it), you should just pay off the student loans.

I would not be looking at $175k houses unless you include your boyfriend's salary and/or you have a very large down payment. However, I wouldn't buy a house counting on his salary unless you're married. Also make sure that you retain an emergency fund if you do choose to use that $25k for a house down payment.

I also would be maxing out Roth IRA contributions and making sure to take the saver's credit on your taxes.

Hey JV,

Thanks for writing in! As a single female in the Midwest myself, having graduated in 2010, I can relate to a lot of your situation! I'm making more money, but I also don't live at home anymore so our expenses and savings are about the same. Our student debt was even similar! We could almost be twins!!!

I WOULD caution you with the BF. I was in a similar situation - dated a guy through college for 4-5 years... when it came time to really get down and make decisions, things fell apart. I know you've talked extensively about marriage, but you don't mention that he went to college... and since you feel tied to your town where both he and your family are, I'm afraid you're limiting yourself in terms of life potential. What's to say that if you move to that city an hour away, you won't find a more fulfilling job, and maybe a BF with better job prospects? Or at the very least, try moving to that city and see if he's willing to move with you? For example, why are YOU doing all the saving for the wedding - what's your BF doing? That's what worries me the most.

You've obviously got a good head on your shoulders, and I commend you (and your parents!) for that. Just don't sell yourself short, career wise or relationship wise!

Great job on your savings rate! The key will be keeping it up as you go out on your own. Don't be afraid to invest... with the proper asset allocation and your time horizon you can weather any ups & downs that come along. Go w/ Vanguard or somewhere else where you can invest in low cost index funds. If you are unsure of what to invest in... just pick a target fund for now. It puts your investments on autopilot. Studies have proven asset allocation is more important than the investment decisions made within each asset class.

If staying in your home town is of vital importance to you then just realize you most likely will face greater constraints on you and your significant other's income potential. This site commonly talks about the importance of growing your career and the millions of dollars it can mean over the span of your career. You could easily double your income in a larger market w/ your finance/acctg education(I had the same majors in college). If you do choose to stay where you are, maybe you could open up your own accounting service for the individuals and small businesses in your town... this might give you the challenge you are looking for and give you more control over your income potential.

You are doing a wonderful job of looking ahead and setting a solid foundation for your financial life. Keep it up!

Hey all, JV here... thanks for all of the comments so far!!

@Luis - my bf and i are very open about our finances. He keeps his accounts at my bank so there is not much to hide. We keep our financial statements together and we even balance our credit cards together. We both pull our credit reports at the same time to make sure there is nothing weird on ours either. My boyfriend wants to start his own mechanic/trucking business so he is saving his money towards that... We have talked about it and we will be sharing our expenses when we are older.. I have older siblings and they have had them together and separate and both have seemed to work though. We will also both be on the mortgage together but don't want to be house poor, hence why we want to be able to afford it on the lesser income. I don't think I would be considering marrying my boyfriend if I thought we needed a prenup. I don't think it's an issue and I don't want to make it an issue. I did ask HR and they said I cannot increase my 401k until the end of the year so I will have to look at it then again... and you're right I should probably start saving for the wedding...

@WorkSaveLive - I do thank my parents every day. My mom has worked in an FI for many years so saving is inbedded in me.

@JP - I don't understand credit reports either but I figure since it is what my mom does for her job if she says that's the way it's supposed to be then I guess that I will do that... My BF and I will definitely not own a house before we get married, and I know I need to save more in my Roth IRA.

@Kay - It's not taht we haven't talked about everything. We've discussed what our dream jobs would be, where we want to live, how we want to allocate savings, how to make his dream of owning a business work, children, religion. We've talked about everything imagainable..at least I think we have... Also I took the plunge and am studying for my CPA now so there are a couple good firms in town I would love to work for and have been networking for the past few years so I at least know the workers there and the partners of the firms.

@LR - I guess I'll have to look more at Vanguard - is there a minimum you need to invest there?? I seem to think you need like 3000 or something....
Also I understand that living in a smaller town will limit my earnings but I think my happiness will be much better for me than a better paying job...

FYI - MY BOYFRIEND'S INFO
He went to community college for diesel mechanics. His dad was a mechanic and he wanted to do that as well. He currently works on salary (40k which is low, but he is getting his foot in the door for insurance reasons) for a family member doing mechanics and driving whenever it's needed. He had some college debt (less than 6k)because he lost everything that was saved when his father died in a freak accident soon after we started dating. The only other loan he has is for his pickup which hopefully should be paid off in a year or so. The reason we haven't gotten married is because we want a better financial base first and we want to be closer to attaining our dream jobs.

JV:
You and your boyfriend are a most unusual couple for this day and age. You remind me of my own life when I was even younger than you. I met my future wife at 15 and we went steady for 6 years before getting married when I was 21 and she was 22 when we emigrated here from England. Marriages like I had and like the one that you will be having will really last and that's a big blessing for the future since divorces are often very damaging to your finances. This July we will have been married for 56 years and our happiness together has continued to grow the whole time. Your parents are to be congratulated on raising you to be such a sensible young woman.

You are also a remarkable saver for your age. Salaries are very related to where you live and moving to a big city would increase your salary but also increase your expenses so I would put that on hold at this time. Wait until you are married and ready to move out, meanwhile take advantage of your parent's generosity.

Have you thought of having a side job doing tax preparation, I think it might fit perfectly with your background. One of your local preparers might take you under his wing and give you some training.

At Fidelity Investments most mutual funds have a minimum purchase of $2,500 and have no transaction fee to buy and no cost to sell after you have held them for 60 days. They have a group of "Target" funds that go with the name "Fidelity Freedom". So far this year the best low risk fund in this class is Fidelity Freedom Income fund (FFFAX) with an annual percentage return of 12.02% this year and a worst possible drawdown this year of 0.85%.

Do what you want to do girlfriend. Get married, stay local, and get that CPA license! You've worked your tail for a double degree, a few more efforts to make it all worth it! Retirement funding to the max is something I would NOT do at this time. You have wedding expenses, CPA license to cover at the moment. With your lifestyle the threat of not having enough retirement savings because you didn't max is bleak! Give what you can now to the Roth IRA and when you are married and in a good job you can return to maxing those out!

One other thing I would not do is buy your parents a vacation trip. They are set financially, what they need from you is your love by actions not love by financial gifts. Like I said they are set and do not need financial gifts!

I think JV is doing quite well and has a good attitude.

I would not be afraid of stocks in general. Instead look at stock investments you buy for a 20+ year period. If you look at the market long term it always performs well in 20+ year spans. So with this attitude you don't have to worry about the next election or other short term things. And index funds are a great way to go as it gives you a good average without worrying about picking individual winners or losers and low expenses. Vanguard has some funds wiht $1000 minimum.

You do not have to have any current loans on your credit report to get a mortgage. If your credit score is in the 740+ range and you have a good history then you should be fine. If your credit score is lower then continuing to pay the student loan may help build it over time, so maybe thats your moms idea.

Jv

It sounds like you have a good head on your shoulders and should do very well.
The biggest concern I see is a lack of good career opportunities in your home town. It sounds like you are happy there, so you might want to look for career paths you can follow there, even if it isn’t a traditional financial services job.
> Really what I want somebody to do is to tell me what I should do.
Yes, but I suspect you will find that multiple people will tell you different things. Instead of telling you what to do, I am going to ask you some important questions that when you answer them you will discover what is right for you.
>I am a little weary of the stock market. I am not sure how this election is going to play out, but it could >cause a lot of changes.
That statement is true for almost ANY significant event. If you are afraid to invest in stocks because of the coming election when WILL you feel safe about it?
> I am also not sure where I should be investing. I am kind of risk adverse.
Stocks are risky- check out a graph of the SP500 over the last 5 years looking carefully at Mar 2009. There is a lot of volatility there. However, at 24 you won’t need that retirement account for ~ 40 years… Wouldn’t you be best off if the market crashed and remained abnormally low for years so you could buy low then sell high in retirement? Do you think a difference of a few % on your initial investment will be significant in 40 years of yearly investing?
Once you are older you can hedge against a big drop by holding both bonds and stocks.
> Are index funds really as good as you say?
Yes, yes they are! In fact I’m going to write a blog post about that because it is really too long for a comment. Check it out for my reasons.

-Rick Francis

All these positive comments? Here's mine: My first thought on reading this post was - Why did you go to college if you were just going to sit in the same FI customer service position afterwards?

I am going to challenge one assumption here: She is young and obvously intelligent. She also has a degree in a good field. The nearest large city is only an hour away. Why has no-one suggested that it might be interesting for her to move away from the small town for at least a little while? I think it would be a great tragedy and a very narrow life to be born, to live and to die in one small town without ever trying something different. (Even if it was the best financial decision.)


JV
Personally, even though the stockmarket was wonderful for me it was primarily because I took full advantage of the once in a lifetime dot.com Bubble that coincided perfectly with where I happened to be in my life. It happened in the 7 year period following my retirement (1993-2000) and coincided with the birth and coming of age of the Internet, the greatest development of my lifetime and maybe yours as well. Many of the people that use the "Buy and Hold for a long time" method of investing rode the Bubble UP and, because they didn't believe in or know anything about market timing, to their regret, rode it right back DOWN again.

Since your future husband is a diesel mechanic there could be a prosperous future in opening up his own business someday. Likewise, with your capabilities you might be admirably suited for investing in rental properties.

Don't fall into the mindset that the stockmarket is the only way that you can provide a great future for yourselves. The proprietary database that I use started on 9/1/1988, almost 24 years ago.

Over that period of time if you had been a Buy and Hold investor in VWLTX (Vanguard long term tax exempt bonds) you would have earned 6.71% tax exempt annual rate of return and the worst possible drawdown you could have suffered through would have been -11.97% on 11/21/1994.

Contrast that with the total stock market index where you would have earned a 7.57% taxable annual rate of return but would have had to suffer through a gut wrenching maximum drawdown of -56.61% on 3/9/2009, which is more than most people can tolerate.

My advice is: You haven't followed the crowd so far in your life so why follow the prevailing attitude that the stockmarket is the ONLY way you can become wealthy.

JV

If you are conserned about minimum investments- one possibility you should check out is TD Ameritrade. You can open a brokerage account with no minimum and they have 0 comissions on select EFTs- including a lot of Vanguard ETFs- I believ you have to hold them for a month or two but if it is for retirement that shouldn't be a problem.

I am also still with Mark (who must not have seen my first comment!)...

I understand your BF wants to open his own business, but he can be a mechanic ANYWHERE. Don't limit yourself to your small town when bigger and better opportunities (for both of you, it sounds like) are only an hour away.

Like @Mark--Congrats to JV for not getting into debt! However, I was freaked out by her plans for the future.

I would advise JV to think carefully about what she wants long-term out of life, and make realistic plans to get it.

Right now, it seems like she is thinking only about spending--on a house, on a wedding. But it's important to note that she only has the $ to spend now because her parents have been supporting her.

Once she starts supporting herself, with her plans for buying a house and staying in her small town, she could soon have little savings (it all went into buying the house), little chance to build more savings with the poor job prospects in her small town and maybe she won't want to work once she has children, and she could be saddled with a house & a mortgage in a town where she can't find a decent paying or interesting job and she can't move unless she wants to lose money by selling her house for less than what she paid for it.

Are you satisfied with the jobs available where you live? Will this type of work satisfy you 30-40 years from now? What do you really want to do with your life? If you expect/hope to eventually have a more satisfying job/career, you need to start now to make that happen.

It's fine that you feel your income now is OK. But $32K/year isn't much fun to live on once you've moved out of your parents house and you're paying for your own housing/utilities/food/gas etc. If you marry your $40K/year boyfriend, even your combined incomes is not much to support a family no matter where you live. What about 20 or 30 years from now--will that be enough? You two likely won't have much increase in your income to look forward to if you stay where you are. Do you want kids and might you want to stay home with them?--then your guy will have to be able to make even more money to support you. Do you want be able to pay for your kids' college educations, just like your parents did for you? $70K/yr is unlikely to go far if you try to do that. What if your kids move away when they grow up (as kids from the rural midwest usually do)--would you have the money to be able to move with them if you want to, or to travel frequently to see them?

So, my advice is YES spend the $ and effort to get your CPA. YES make the effort now to deal with the culture shock and move to a larger town so you and your BF/husband can grow your careers and figure out what you want out of life. Sure, get married but don't spend all your savings on that. Do not buy a house at all until you "have to"--ie when you have kids.

Be aware: trying to sell a house in a small rural midwestern town is a nightmare--small towns are losing population and if someone does move into town they will want to buy a new house because they're cheap--they will not want to buy your older, used home. Basically, you shouldn't ever buy a house in a small town unless you really know that you want to live there the rest of your life.

I personally didn't advise JV on moving primarily because aside from wanting a home and the yearly vacation, the reader appears to live a basic life and wants to live in a place she loves. She doesn't seem to have other aspirations as I took from this comment, "I also want to increase my investing as I have no real use for the money once I get enough for a substantial house payment."

JV has a lot of money saved (over 40k) and even after she is completely independent from her family her compounding interest will help her immensely with retirement. Couple with a basic life and living where she loves I don't think she needs to move to a big city to satisfy her retirement and career goals.

Hey JV,

I am a 25 year old licensed CPA. I used www.yaegercpareview.com studying for the exam and passed the first time with an 86 87 88 and 89. I thought it was a great option to becker and much cheaper so at least look into it. The CPA license will open all sorts of doors! Study hard and it will pay off.

Lance

Great job! Definitely keep it up!

For the credit report thing, you are correct to keep a balance out there. FICO will want to see that you are current on some kind of loan, and a student loan is the perfect vehicle. You also may want to close any outstanding revolving credit loans, though -- having too much money available to you can look bad on your credit, even if you've never used it. But since you talk about pulling your credit score regularly, it sounds like you must have good to excellent credit already.

Once again, great job! Keep up the savings goals for your wedding and house!

Hey JV here again....

@Kay - my BF being a mechanic does not mean you can work anywhere. You can work at a Jiffy Lube anywhere. You can't open up a truck service station just anywhere; it's all about who you know. It's networking just like any other job. Moving to a whole new area - while sounding like a lot of fun - would just not be feasible and that is okay.

@MC - My parents are providing me a place to live because they enjoy the company, I have offered to move in with an acquaintance but even doing that would only cost me $250 all inclusive so I would still be saving 1000 a month. As for poor job prospects, there are multiple accounting firms and numerous global companies located in my town that I could do accounting work for. My town is now dying, in fact it is growing... so much that from the 2000 to 2010 census it grew 17.4%.
I would never be a SAHM. I just want my kids to benefit from being in a daycare where they can interact with other children.
I am working on getting a more interesting job. I have moved up in responsibilities and am now in a transitional period in the FI. Once I get through a probational period I get a new review and will probably see a significant raise.
I am satisfied where I live, and although I ultimately want to do accounting I know I may not get that job right away and that is okay. It is not about the money. It is about the happiness of living in a town close to my family.
Next, my parents did NOT pay for my college education. I had to work 20-30 hour weeks throughout HS and college and save about 80% of that in order to get through.
BTW selling a house in my town is a cinch. As long as its not a short sale (which there are only 2)they seem to get sold before they get listed. In order to even learn of a new house you have to have all of the realtors contact you personally when they hear of a new one otherwise you lost out. If you just had to look at my town you'd swear there was never a recession.

@Lance - that would have been nice to know but I already purchased Becker so hopefully I have the same awesome score you got :)

Thanks again everybody!!

There are a great deal of benefits from living in a large thriving and busy community and these benefits can take on even greater importance as you get older and are well into retirement. In the current housing market it's better to rent until you reach the point in your life when you want to start putting down roots and are done with switching jobs, even then don't be in a big hurry to buy a house unless you plan on keeping it ten years at the very least. We didn't buy our first home until 1963 when we had been married for 8 years, and had two kids and a third on the way and it worked out well for us. In my line of business which was Defense and Aerospace, I have always lived in good sized cities such as Toronto, Canada, then Denver, Colorado, and finally in Silicon Valley, California. Like many Americans you can't expect to stay in close proximity to your relatives your whole life if you want to have a successful career and maximize your net worth. Eventually you have to go where the money and the opportunities are the best for your career. Everything else being equal though I would definitely place a high priority on spending your life in a great year round climate and stay well away from the Tornado belt.

@JV A decent job, a professional career ahead, lots of savings, close family ties, and a solid future husband? Congratulations all around!

IMO, The city boosters in this thread are way off base. Your careers are tailor-made for rural America: I suspect moving to the city would increase your expenses more than your pay. $66k/yr is plenty to start a middle-class family in a town like yours, and your income is only going to go up as you establish yourself. As for the cultural benefits of city life, I guess it's a matter of taste. I think they're real but overrated, while the benefits of small-town community are real and underrated. Regardless, you're in the right place for you, and that's what counts.

I think everyone that is recommending JV move out of hee town is missing the few things she said she DOES want. She WANTS to stay in her home town. If down the line she decides to move, they can sell the house and do so.
Knowing you want to do something at X amount of years when you're so young is almost impossible.
Financial freedom is timeless. That's the ONLY thing you can know for sure you want to be for the rest of your life. You can be "passionate"about something for a very long time and then just lose that flare.

JV, you're doing an excellent job. Keep it up.

Would you stay in your small town if you and the boyfriend don't stay together?

Not trying to be negative here, however don't limit your possibilities until you get that ring on your finger.

After 5 years the b-friend needs to sh*t or get off the pot.

DA

Housing:
When I read your initial post of a 1bed/1bath house for around 100k, my first reaction was: Geez, that's expensive! Reading your description of how one has to buy a house in your town explains a lot though. You're right, your town doesn't have a housing recession.

100k in my town (in West Michigan) could easily get you a 3bed/1bath. But my neighborhood has a 6-10% foreclosure rate.

But this is beside the point (except to say that you can firmly disregard any pressure from folks who are calling this a "buyers market" for housing; you can buy according to your marriage and livelihood instead).

I would advise you to buy a home based on one salary. That's what we did, and it has worked out great. You may have less of a house or, as in our case, more of a fixer upper, than if you purchased a home based on two salaries, but the piece of mind is fantastic.

If one of you suddenly can't work (job loss, physical accident, or one of you wants to stay home with the kids), your mortgage isn't at risk.

JV again...

@DA - I would stay in my town even if I was not with my boyfriend. I had that mentality that my BF should propose because it had been so long but we talked it over and decided we'd rather get closer to our dream jobs first so that way we aren't dirt poor when we get married. I know it is probably not the conventional way, but with his schedule I see him a lot on weekends and he's gone a lot during the week so it's just easier this way for now so I wouldn't have to take care of an apartment/house by myself.

@jonmyers - that was what I was trying to say when I wrote my post, that it will be based off of my salary so that way we are not house poor by purchasing how much we could together. The BF's job is considered a high risk job, and I can see how horribly it can go with what happened to his father. So we are definitely taking caution when we do stuff.

I have to agree with 08graduate....While I personally would never want to live in a rural area, a lot of large metro areas are the worst of both worlds. You can get all the stress and costs of a large metro area, but not that many of the benefits, especially if you're in a typical soul sucking suburban tract house neighborhood. Not much going on in those neighborhoods, and you have to drive, drive, drive all the time in a ton of traffic.

66K seems like a decent income to live in a moderate cost area of the Midwest. That's above the median income of the US. I think a lot of posters here forget that the median household income in the US is around 50K.

@JV: One thing I'd caution, though, is that sending kids to daycare can cost a lot and eat up a lot of your paycheck. It seems both of you working and raising kids at the same time would be kind of stressful. Because you're in a low cost area, you're in a position to where you could be a stay at home mom. It may sound boring, but it's a lot less stressful than 2 parents working full time. A lot of people in more expensive areas don't have the luxury of one parent staying home...so it's something to consider.

Keep up the good work, and the definition of the future.

Now, WRITE it down, with meaningful, measurable goals.

I sat on a dining table when I was 23-24 and kept putting things down, and now 20+ years later, I look at those pieces of paper, and I have exceeded every goal that I wrote down, and revised over the years.

Even better, now you have MS Word. Write down what you want, and in sub-bullets what you are doing to achieve it. If you have an Android phone, transfer that file onto Android, and review/modify it when you are bored/have-free-moments.

I would add/reconfirm:

1. New High Powered Job
2. Leave the area if you have to accomplish #1
3. Buy a home after you settle in a new area or are married
4. Ensure that your Boy Friend is in the same zone of thinking and aligned with his goals (and understands yours)
5. SAVE, SAVE and SAVE
6. Put the max in 401(k) (must-do) and After-Tax-IRA (if you can)
7. Start thinking House, Marriage, 2 Cars, Kids, Kids Education Plan etc, and things will start falling in place
8. Create a Spreadsheet of ALL of your One-Time-Expenses for the next 5 years including marriage (however wrong, do it and revise)
9. Make sure your BF is saving also otherwise the boat is going to start tipping on your side
10. Thank your Parents IMMENSLY for what thye are doing for you. Pay them RESPECT more than any gifts, and agree with them more than disagree. Sacrifice to understand their views since you are living with them. You will get 200% return on that aspect, and way more than your 401(k) savings.

Good luck.

Ken

Get that CPA. The cost and the effort will pay off manyfold in the following years. It increases your flexibility in the job market or for self-employment. Get it done.

Mike, CPA

@Kay: I saw most of your comment as a warning about the BF. Sorry I missed the "spread your wings and fly" comment.

@Therman: Financial Freedom may be the only thing that is timeless, but that's precisely why she should experiment while she is young, free and in good health.

@JV: You said "we talked it over and decided we'd rather get closer to our dream jobs first so that way we aren't dirt poor when we get married. I know it is probably not the conventional way". Totally non-financial flag here - why don't you guys want to build a life and establih yourselves TOGETHER? You want to make it first and THEN marry.

I'm sure that it is cheaper and easier to live with parents, etc., but I think a huge part of building your relationship comes from starting dirt poor TOGETHER.


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