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March 16, 2012


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You are doing pretty good for yourself debt wise. I would contribute the 5k to Vanguard but not buy any stocks until the next bear market. I am more for index funds rather than ETFs because Vanguard's index fund expense ratio is really low and do not have fees on future contributions unlike the ETF. I'd keep the remaining 10k in a high yield savings account. There is nowhere else in this day to put money away safely generating higher yields.

In assessing your future, I would look at all possible outcomes and plan for them. Consider the possibility of being on permanent disability and having to support yourself as a single person. Padding your retirement early like you are doing now is your best course of action. An MBA in this case would be too risky, you may not see the ROI.

What do you think about building an annex to your parent's home sort of like a duplex if the territory permits.

It's tempting to think that because you're intelligent, you can make money day trading. You probably can't: there are hordes of equally smart, analytical people on Wall Street whose full-time job is to out-day-trade you. Instead, I'd recommend buying a few companies you believe in when they're cheap, and holding them for years until the thesis changes. It's not glamorous, but I've beaten the S&P by about 10 percentage points since 2009 this way. The Motley Fool is a great resource for research and advice on long-term stock investing. Whatever you do, don't trade at work: I've seen coworkers' job performance plunge after embracing that distraction.

On being underpaid: I bet you were overpaid last year, right? An engineer's value increases rapidly with experience, especially early on, and companies often fail to give commensurate raises. In my first software engineering job, I delivered great results, and I was content with a series of 5% raises for a while. Then I started looking for a new employer, and landed a 70% compensation increase. If you get some piddling raise out of this performance review, it's a sign the company won't respect all the value you've been creating for them. Don't hesitate to start interviewing: after all, if you don't find anything better, you don't have to leave.

You can open a Roth IRA and put the 5K into a money market fund until you know what you want to buy. You don't need to stocks immediately.

I second Sasha's comment. Put the cash in the Prime Money Market fund so you do not get too busy and "forget" to make your 2011 contribution. At the same time, you can put the money in for 2012 as well. It doesn't mean you have to invest any or all of it right away, but it is there for the ready.

You do not say why you want an MBA. An MBA is a lot of work and should not be some flippant decision, especially if you are going part-time while working. Do you want to continue possibly transition more to the business side of things? I am not familiar with engineering, but in any business I would imagine being able to understand the business side of things would help make you an more valuable employee.

Finally, I would recommend doing a little behavioral finance reading as a lot of your decisions seem to be hung up over loss aversion fears. I have done a lot of reading on this lately and it helps make you more self-aware of your decision making process and the rationality of it. One suggestion is googling papers by Terrance Odean (e.g. Are Investors Reluctant to Realize Their Losses? 1997, or Boys will be boys: Gender, Overconfidence and Common Stock Investment by Odean and Brad Barber, 1999).

One final comment I forgot - with your back make sure you have some long-term disability insurance either through your employer or separately. It is a annoying expense until you need it, then it can be a lifesaver especially if you never plan on marrying and can't rely on someone else's earning ability or assistance.

I handily agree with Andy's comment. You have no future if your most important asset, your ability to earn a living, is lost. Also, get rid of the car, and get a less expensive one. There are plenty of cars under $25,000 that are comfortable and you can also buy seat/back cushions separately to use to ease the discomfort in your back. You're too top heavy with car debt. Also, only put in up to what your employer matches and absolutely, without any reservation, fully fund a Roth IRA. RI's are money machines for young folk like you. The $15,000 should stay in the bank; in fact, with a chronic health condition, I would aim for three years worth of expenses. I really like your idea about buying a multifamily home. will you live there yourself and rent? Do you see this purchase as a long term revenue producing asset? Do you plan to stay in your present geographic area, especially if you get an MBA? Also, make sure you do your due diligence about the gain your hope to achieve by getting an advanced degree. You're very right in thinking about cost vs. benefit when it comes to an MBA. Good luck. You're a young man with your whole life ahead of you who is good off to a good start.

How the heck did you have a credit score of 800 at age 23/24? Do student loans alone really boost the score that high?

Contribute to the Roth now, even if you don't invest it. You can never go back in time to make more contributions, and you'll want the money when you do choose to invest it.

I second the comments regarding contributing to the Roth. I am also glad that Carol pointed out the car issue. You are spending roughly 25% of your income on auto-related expenses. Not sure what make and model car it is, but if you could swap it for a less expensive and possibly more fuel efficient model, it would be to your benefit and as Carol pointed out, many less expensive models provide a high level of overall comfort.

Noah - I too had a very high credit score when I graduated college. I bought myself a brand new car then (which I soon realized had been a fairly short-sighted move, but I'm fine with it now as I still drive the now-paid-off car and it's given me no problems still at 105,000 miles) and the loan officer said I had the highest credit score she'd ever seen for a 22-year old.

What did I do to earn the score? Honestly, I have no idea...I'd signed up for a credit card as a college freshman for a free t-shirt, and used the card regularly and paid it off in full every month. I also signed up for another card as a sophomore for a free subway sandwich (I didn't even realize I was signing up for a CC) and I never used that card as I must have thrown it away thinking it was an offer (and I had no need for a second card anyway). I had modest student loans, but only one had just started repayment at the time I bought the car. That was likely all that would have shown up on a credit report at that time...

I agree on the car. You should not have as much tied up in a car at your age. Secondly, pay off the student debt asap. If you prove yourself at work, as your employer to pay for your MBA. Otherwise, in a few years, I suspect you will be in a position to look for opportunities that pay more and also cover the cost of the MBA. After you get out of student loan debt and car debt, max out the Roth and 401k. If you follow this path, you will be way ahead of the game.

$65k is a pretty normal starting wage or a Chem E with a BS. You've only been on the job 3 months. I wouldn't be expecting a giant raise right off the bat and working long hours is often more of an expectation than not. You may very well deserve a raise over some time but I wouldn't get upset if your first raise isn't as much as you feel youve contributed.'

I think you are off to a great start, congratulations! I'll echo the advice on Roth Ira as a top priority. You can slowly put this into index funds, or exchange traded funds over time, at any time. Vanguard seems to have the lowest annual fees at around .2 percent a year.
My second advice would actually be to max out your 401k, at the full 17k this year. I think you will be surprised how well you can adapt, especially living at home, and the money you have leftover. I'd hold off on the housing personally, and think about renting down the road.
If you can adjust to the roth and 401k now, keeping it up over time will be a piece of cake. Living at home gives you a HUGE edge. The compound interest from such a large amount at a young age every year will work incredibly hard for you. Look at motley fools foolish calculator to see what a difference it makes to you. Good luck!!

Sounds like you're doing pretty good at this point in life. Good job! I echo other peoples advice to ensure you've got good disability insurance coverage. Back problems is something that can go south real fast - and can take a long time to heal. Make sure you've got adequate disability coverage and you'll sleep better at night.

@jim I could be reading it wrong, but I think he's been with this company since sometime in 2010, and started the new assignment 3 months ago. If you're a top performer, it should be evident after a year. I assumed that was why they gave him this challenging task.

Hey. Answering some questions/comments.

I've been with the company for a year and 4 months while the current position has been almost 4 months. Initially I was very underpaid at 55k in a different position but that salary lasted only about 4 months. I've had 3 roles with the company so far but I see my current role lasting 2 years or so.

I didn't know I could put money into a Roth IRA but not invest right away. I'll look into that some more. This has been the most useful advice from posting this.

The reason why I'm interested in an MBA is because long term I don't see myself working in a plant as a senior engineer. I can use my skills and apply it to the business side of manufacturing. Many of these positions like plant manager, VP of manufacturing, etc are held by engineers with business degrees. My company's current policy is to pay 1k per semester if someone where to get an advanced degree which is absolutely pathetic.

My back is nowhere near bad enough to think about disability. It's something I've been living with for over 10 years. Starting now the progression will be that it stays the same and will gradually get worse over time. I'm still very active though and am in great shape otherwise.

I know getting the car was a poor financial move but it's not going to be that much of a burden. All my cars I've had were old and broke down on me and I wanted something new. I'm not mechanically inclined and the last time I got screwed buying a used car.

I've had a credit card since I was 18 which now has a 10k limit. Got a new credit card 2 years ago which has an 8k limit. Both have always been paid in full automatically each month and of course the student loans.

I don't want to tie up a full 17k in a 401k because I don't like waiting until 60 to get into it. Roth is different since I can take it out. If I do 5k in Roth and 6% in 401k every year until retirement that's going to be plenty. I want any extra going towards investments that will generate income either through real estate or stocks.

Your credit score is impressive! I would suggest paying off the student loan debt and then saving to go out on your own. If your parents are agreeable, take another year to live with your parents so you can build a nice cushion and afford to move out.

On the MBA - a lot of the jobs that require MBAs, and therefore compensate for the 75K of education costs, also require travel. Perhaps heavy travel. Is that something your back would be able to handle?

Your engineering career is well on track and portends to be very a successful one.

I also had a wonderful engineering career, made a lot of money and invested it well enabling my wife and I to have a great life, 20 years of retirement so far, and to do lots of travelling to exciting places all over the world.

Looking back there's nothing I would change, however, now at the age of 77, I will tell you the single step that has made my life so pleasurable and satisfying throughout was that I have made the journey within a loving and caring relationship since meeting my wife when I was 16, and marrying her at 21.

Don't just focus on work and money - it's essential of course, but you will find life rather empty and at times very lonely, without a soulmate to share the ups and downs along the way.

I'm pretty late on posting here, but that credit score WOW! I am at 850, but that was cuz I always had cash to back up by credit card purchases. (So that I never carried a balance). I also want to say, it looks like your like/love your job so that is good. I had read about a guy who worked in a hated job for 16 years to amass 900,000 in savings. I dunno if it was worth it to lose his spirit like that for the almighty dollar. At least he did get to quit for an alternative with that savings! For the previous poster, I don't think many folks commented on marriage/kids as we all know these days, that institution isn't as all worthwhile as it should seem as we've seen broken homes nowadays. The values upheld yesterdays is dying out.

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