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September 17, 2013

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First some clarification on Government positions and pay. The position you were hired for is a full performance GS-12. You were likely hired as an intern GS-9 and put against the position and provided your performance is good you will get the jumps from GS 9 to 12 as described. The raises you mention are not 3% raises. The federal payscale has been frozen at 2010 levels for the last three years. The increases you are getting are step increases on that payscale and follow a pattern of 3 at 1 year, 3 at 2 years, and 3 at 3 years. So you will get a step increase each year until step 4, then every 2 years until step 7, then every three years until step 10. Though I don't think you plan on spending 20 years at that position :-).

Additionally it should be pointed out that the salary for DC includes a locality pay increase over the base rate of something like 20-24% and is one of the highest in the country. Most places get less with many getting just the base rate. Also of note is that while GS-12 is often the typical max staff position for advanced degree required jobs in major cities, commands, and headquarters the bulk of positions across the country top at GS-9 or GS-11, just to put it in perspective.

That said, congratulations on your upcoming wedding. Move and marriage, lots of excitement and changes in store.

I would reassess counting on your wife to make money. It could take her many months to get a job as Government is currently shedding positions and that is impacting contractor support in the area. Meanwhile your expenses are going up after she arrives. You can likely count on the pay increases with the Government but need to be careful. This is potentially you and your wife's greatest opportunity to spend less than you earn and banking that difference. Your salary will go up over 25% ($63K to $80K) in five years while your wife could be earning $30-40K on top of what you're making. Even if you just keep your earnings in check, you could bank at least an additional $10K a year. If you can bank all your wife earns at a potential of $20-30K of takehome, that could be awesome. All this is before the second job, taking a higher paying position in industry, or making money off investments, etc.

I see you are planning on building up the emergency fund to about six months of expenses, which is good. Getting rid of debt follows. With respect to Vanguard, probably a good bet for an index fund with some of the lowest fees, I believe they want $2500 to open an account, but you should get the prospectus from them to find out the details. As with anything you plan on investing in, understand what it is you are putting your money into and decide before you invest what your reaction and actions will be if things take a turn for the worse.

You are in a lot of flux now with major transitions occuring. I would plan on eventually putting more like 15% of my own money away for retirement (and even more in other investments if you want to gain financial independence). One way I did that was with every step or COLA taking a percent and added that to my retirement. So for example, right now you are putting in 5% to the TSP. When you get your jump to a GS 11 add 1%. Jump to 12, add another percent. After two steps you're up to 9% plus the matching 5% for 14% plus the anything else you're saving and you've suffered no serious pain to your lifestyle. If you want you could make one of the larger jumps a 2-3% bump to accelerate that. Point is you do this regardless of job or where you are specifically saving and you get to 15% plus matching by your early thirties. It one realatively painless way to do it, but certainly not the only way. Find your own balance and may it be better than mine.

Best of luck.

Hi WC:
Congrats on all the good things that have happened thus far! You are young, engaged, have a nice job for $50K in DC and you are thinking about your financial future early in your life... and THAT is a huge advantage.

I think initially you should take a look at FMF's two recent postings on NET WORTH and how to attain WEALTH. If you follow his advice-- you will end up a rich man.
At this point-- you are doing just fine.

When things settle down after your honeymoon you need to begin a lifelong strategy of living below your means and investing the excess in a properly allocated portfolio. You are on the right track using Vanguard and sticking with low cost index funds too.

You will hear different opinions about paying off debt vs investing -- but I think for you, the best thing is to get into the habit of saving and investing. Do this in your retirement accounts and in after tax accounts as well. You will benefit tremendously from compounding interest starting at your age --and the joy of seeing your balances grow larger each year will help solidify your commitment to lifelong saving and hopefully hook you for life.

Once you have a comfortable amount in your emergency fund and portfolio-- you will have the luxury of options. At that point you can begin to pay off the debt at a faster clip if you want. This may be a good idea if the rate on your loans is higher than your investment returns. I am a fan of being debt free--- but at your age--- there is time for that yet and the amount of debt you have is not too bad in my opinion.

Other than that-- make sure you always take advantage of any "match" available-- and ratchet up your 401k contributions every year so that you max out asap too.

Good luck !

Amazing start to what looks like a great life ahead for you, WC. Wishing you all good things, as you and your new wife begin your new life together. There is a 'stress test' developed by Holmes & Raye, which might be of interest to you and your new wife. http://www.mindtools.com/pages/article/newTCS_82.htm It measures the potential impact for life events (moving to a new city, marriage, new job, etc.) You are both quite accomplished as individuals, and you may find it helpful to keep in mind that you will really need each others' support and will be able to accomplish so much more together.

Just two thoughts...1) pay off your parents immediately from your emergency fund, and take them to a nice dinner to say 'thanks' for everything they have sacrificed to give you a better life. Clearly, they have succeeded. 2) Don't tell anyone that you have a "low-stress" government job that started you at $51K; even on an anonymous PF board, nothing good can come from that revelation. Good luck and continued success to you, WC.

I'd not count on salary increases. I have several friends who are with various govt offices in DC, and despite being high performers and being asked to do the work of the position above them, they have not been able to get a formal promotion and the next GS for several years now. Furloughs were a possibility even though they ended up being avoided, they would have meant a pay cut, not just a non-increase.

Best of luck to both you and your fiancé as you begin your lives together. Perhaps your wife should aim for a job that includes tuition reimbursement as a benefit if she is considering returning to school so soon.

Your gap is more than $300 isn't it as I do not see the car payment listed in fixed expenses. Your near term finances will be mostly impacted by the income provided by your future spouse. With a Government job and with her income, I would suspect you have a somewhat level of security, so I would focus on debt repayment. It is always a tough situation to owe money to family. I would pay that off immediately. If your future spouse finds something that pays a similar salary, you can pay off the car within a year and then put total focus on the student debt.

As for her Masters, I would encourage her to find a job that offers tuition reimbursement. You will not be able to afford the additional cost of her education.

Like others, I would caution you not to count on future wage increases being exactly or maybe even close to what you're expecting them to be. Unless you're in a government position where you can vote to raise your pay, government jobs are no longer as secure as they once were. I'd certainly hope for the mentioned increases, but don't count on it, especially not to the point of making questionable financial decisions because you're "going to be making a lot more soon anyway."

Along with your income-outflow ratio being incorrect as JimL noted, you also made a mistake on your net worth assessment. Presumably the car that you owe 19K on is not worth nothing, so whatever its present value is should be included in your assets.

Also, you mentioned tithing in your five-year goal plan. If you believe in tithing but can't "afford" to tithe now, I think that's an issue you should try to address sooner rather than later. There are always things that will keep you from tithing (or other charitable giving) if you let them, so I would try to get things in order, exercise your faith and commit to it as soon as you can, and then stick with your commitment.

Congrats on your upcoming marriage!

As Kman mentioned above, I also agree that if tithing is something you want to do, it would be best to start as soon as possible. I'm assuming you are a Christian, as most non-Christians don't refer to their charitable giving as a tithe. The tithe in the Bible is considered a "first-fruit" tithe - meaning it's the first thing you do with your money after earning it. That's one of the reasons it is such a big deal. In the days that the Bible was written, many were farmers and therefore gave their first crop - they didn't have a guarantee that the rest of the season would go swimmingly. Giving your first and your best indicates a trust that God will provide for your needs (not necessarily wants) and will bless your obedience.

I would challenge you to immediately begin tithing if you are a Christian - if you do, I think you'll find that your other expenses will still get paid, as you work through what you actually need and how you can do without other things. On the flip side, if you always spend your money before tithing, you probably will never get around to tithing ever. Your heart and priorities today are very indicative of your heart and priorities tomorrow and 10 years from now, and there will always be more things to spend money on.

I do think contributing as much to your 401(k) that will be matched is a good idea, but would advise you to hold off contributing above and beyond until your debt is paid off, particularly what you owe to your parents - I would try to pay that off as soon as possible! You can only plan to a certain extent, but if something were to happen and you were no longer able to work, it would be better to have less debt, and therefore require less monthly income, than to have loads saved in a 401(k) or IRA, which can be tricky and expensive to tap into in an emergency.

Good luck! (And sorry this was so lengthy...)

Hi WC,

Congratulations on getting married soon.

You should start to work some details on how you would execute your 5 year plan- are you counting on making a move into the private sector? If so then I think $100k a year or more is quite possible. Otherwise this may not be possible to achieve while working for your current employer.

-Mike

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