The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.
If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.
Also, please leave constructive comments, questions, and so forth. Simply telling someone what a mess they have, how they have made poor decisions, and so forth is not helpful. There is a way to say, "That was a mistake, but here's what you can do to correct it" that both acknowledges the problem and offers a solution. It's this sort of feedback that this series is intended to solicit.
Next in the series is FMF reader EA. He answered my questions (in red below) as follows:
Please tell us a bit about yourself.
I'm a 27 year old single male living in a metro area of about 380k in the Midwest. I currently work for a large Fortune 500 financial services firm, having previously worked for a smaller consulting firm headquartered in Chicago. I left my relatively high paying consulting gig about 18 months ago to take a position closer to my friends and family. My last job required extensive travel and uncertainty with long term employment... but the six figure salary, which I had since graduating in 2009, was nice. I also purchased a foreclosed home about 6 months ago which has been an exciting and expensive project. I have a bachelor's degree and my MBA, both from public universities in the state system.
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).
$3,400 - monthly take home, after taxes/insurance/401(k)/etc from my job. I contribute 4% of my salary to get the maximum match from my employer. My base salary is currently about $60k with bonus potential of around $8k, which is relatively secure but could drop to $4k in a down year (very unlikely). A $4k bonus (annualized) would add about $200 a month but I don't count it in my cash flow.
- $1,150 - mortgage payment (including taxes and insurance)
- $315 - car payment
- $300 - food (groceries, restaurants, fast food, etc)
- $250 - utilities (electric/gas/water/garbage/cable/internet)
- $200 - gas/auto maintenance
- $115 - student loan (2.99% fixed, approx 7 years remaining)
- $75 - cell phone
- $65 - car insurance
- $50 - personal/household (haircuts, dry cleaning, etc)
- $30 - 529 plan (for my future kids, or myself)
- $400 - various 0% credit cards (used to fund some home improvements, amortize 12/2014)
- $150 - gifts/charity/travel
- $300 - house expense overflow/entertainment/misc
- $3,400 total expenses
- $155,000 - home (2,400 sf home on 1/2 acre lot in an established subdivision, 10 min from work)
- $20,000 - vehicle (5 year old SUV, purchased 3 years ago)
- $37,000 - investments ($27k Roth IRA, $4k brokerage, $5k 401(k), $1k 529 plan)
- $1,000 - cash (severely depleted due to home purchase & remodel)
- $130,000 - home mortgage (29.5 years remaining, fixed at 3.75%)
- $13,400 - auto loan (2.79% fixed, 4 years remaining)
- $8,500 - "student loan" (refinanced grad school loan to a 2.99% fixed credit card offer, good for life of loan)
- $6,000 - home improvement loans (technically 0% credit card debt, scheduled to be paid in full 12/2014)
- $5,600 - line of credit (final home improvement items, receiving $5k from parents to mostly pay off shortly)
so about $50k net worth, currently. I've put about $30k into the home so I would expect the appraised value to improve.
What are the current financial issues you're facing (saving, paying off debt, etc.)?
By far my biggest issue has been the house purchase and remodeling, which of course was way over budget (and still lots more to do). I used essentially all of my cash for my house downpayment and remodeling, but I should note over $30k of my investments are liquid & can be withdrawn without penalty and I have access to about $50k in unsecured credit ($25k at 8.25%). I still have about $30k in improvements to complete over the next 24-36 months, so that's on the back of my mind. I may look to get a new appraisal next spring and try to get a HELOC to help support other improvements.
I need to rebuild cash and pay off the home improvement loans and line of credit ASAP which would cut out $400+ of monthly cash flow. The student loan balance is fixed at 2.99% so I'm not as concerned, but would still like to get out of debt the sooner the better (started at $50k student loan balance, so the end zone is in sight). While earning a six figure salary for 2 years, I applied most of that money towards my student loans & investments but I also purchased an SUV ($40k) and other fun stuff like trips, concerts, etc.
What are your plans for the future (retire early, build your career, etc.)?
Short term - Possibly get a roommate. My house is huge for a single guy and I can easily get $300/month to rent a room. The extra cash flow could help cover the home improvement loans, plus cut the utility expenses & help rebuild cash.
Medium term - Complete the home remodel. The house is by no means extravagant, but it needs basic updates & should appraise north of $200k when complete (mortgage will be about $125k at that point and possibly $20-30k in HELOC).
Longer term - Eventually I'd like to get married and have children, so I'm slowly preparing for that (house, 529 plan, retirement accounts). I work for a great company and group of people, so I'd like to continue to develop my career in this area. Retirement seems so far off, but I'm trying to get a jump start now so I can relax later in life.
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?
"Pennies make dollars" is a phrase one of my older family members used to say. At the time I thought it was just an excuse to be "cheap" but its so true in my daily life. It makes me think about the purchases I'm making and thinking how they add up over the course of a month, year, lifetime.
I would also plead with younger people to understand the importance of credit at an early age. Open a credit card when you get your first job (hopefully before, if you're responsible) to start establishing that credit history. I see so many talented, hardworking college grads who can't get a car loan, mortgage, or even a credit card (or get charged a lot higher rates) due to no credit history or prior banking relationship.