Reader Profile: AF

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.

Next in the series is FMF reader AF. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am 24/m and single living in the Northern Virginia suburbs just outside of DC. I graduated from school in 2010 and have been working for a large financial firm for the last two years.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

Since I am single, I’m obviously the only provider for myself. I make $65k/year, which is ~$3500/month net income after 401k deductions and health insurance, and do my best to save as much as possible. Thanks to my generous parents, I am fortunate to have a debt free life with no car or school loans with my phone and auto insurance (for the time being) paid for by my parents so that I can continue to save. While my friends are off buying new cars and toys, I’m driving my ’02 Accord into the ground.

My current monthly expenses are as follows:

• Rent: $720
• Utilities: $80
• Gas: $100
• Food: $250
• Gym, Protein, Supplements: $50
• Discretionary Spending, ie: bars, sports tickets, random expenses, minimal shopping when I absolutely need something: $400
• Savings: Split between maxing my Roth, slowly adding a bit into my emergency fund to grow it beyond 6 months, and the rest into my Scottrade account for investing in stocks and index funds

My current assets are:

• Checking: $1500
• ING E-Fund: $11,000
• 401k: $9,100
• Roth IRA: $10,200
• Scottrade: ~$7000
• Car: ~$4000

What are the current financial issues you're facing (saving, paying off debt, etc.)?

The main thing that I’m worried about now is grad school. I will probably be paying my own way to grad school when I go back to get my MBA in a year or two. I’m not worried about buying a house now because I want to go away full-time to somewhere like UTexas, UF, Michigan, or UCLA to get my MBA. I’m trying to save like crazy and have been looking around at a few side jobs such as bartending to make extra money on nights and weekends so that I’ll have to take out less in loans. I figure the program will cost around $120,000 before any grants or scholarships that I might get and hopefully I’ll have to take out less than $50k in loans. I’m expecting a salary of $90-100k out of school and living extremely below my means I’ll have my debts paid off within 2 years if all goes according to plan.

My main issue now is what to do with my money. I could increase my 401k contributions, but then I would have less cash to pay for grad school. I know the earlier you invest, the more time it has to snowball, but I don’t know where to draw the line. I currently put the max that I’m matched (6%) into my 401k, max my Roth and have the rest in equities. I should probably be putting less money in equities now since I’ll need it in the short term except I’m definitely a risk taker. I’ve heard I should be putting a higher percentage into my ING savings and keep it liquid but to me, I’d rather gamble and take a chance at higher profits. Am I crazy? What should I do? If I save about $1800 a month, the current breakdown is $416.67 Roth, $383.33 ING, and $1000 into Scottrade where 80% of that goes to Vanguard’s Total Stock Market Fund and the rest I use to trade. Should I change this? I’d love to hear people’s opinions.

What are your plans for the future (retire early, build your career, etc.)?

My plans for the future are very family oriented. Even though I’m single, I’m the rare breed of guy that although I love being single and having fun with my friends, I can’t wait to be a dad and a husband. My long-term goals are to find a job that I love so that I can work for a long time since I love working and give as much to my family as my father did for his. I don’t want my kids to ever have to worry about money and for them to be able to do anything that they can dream of like I was given the chance to do.

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

I know everyone says it all the time but living below your means in so important. Can I go out and buy a brand new BMW like people I work with and have $800 monthly payments? Sure I can. These guys not only did that but also have the same amount in monthly student loans, live in a more expensive place, yet complain that they haven’t started putting money in their 401k yet because they need every extra penny they can in their paychecks. I would fight with my ex everyday because she would be constantly be buying starbucks everyday and have no problem spending $50 a night at the bars or even $100 on a new dress just because it was payday. She couldn’t understand why I didn’t buy anything when we got bonuses (besides taking her to a nice dinner) except filling my Roth with it. Everyone has different priorities, but the only way to reach your goals is to live below your means.

Comments

[Ro]

Sounds like a great start. If you go to Austin, you can really get by without using your car much, perhaps finding a place north campus. My apt neighbor was an MBA student and got away with no driving.

[JimL]

You are making good money. Why not keep working and go to a part-time MBA program that is less expensive?

[Lance@MoneyLife&More]

You are doing very well for northern Virginia. I used to live in falls church and it is pricey. If you are OK with the potential of losing money scotttrade is fine otherwise I would put it in Ing. Would you be OK with it if the stock market went down 30% right before you go to school?

[Kurt @ Money Counselor]

At your age, income, and debt situation, I would make putting the maximum into all retirement accounts priority #1. And personally I'd take a lot less risk with the money I was saving for grad school, but this is a personal choice. If you're comfortable with the prospect of borrowing a lot more for grad school than you'd hoped--because your investments are down and you don't want to sell at a loss to pay tuition--then go for it. As you say, you may also do well and end up needing to borrow far less than if you accumulated grad school money in a 1% savings account.

[Bogey]

No offense AF, but you seem to be making judgements about your peers spending habits, but at the same time, your parents are paying some of your expenses. I wouldnt be so quick to judge your peers while your still partially living on mommy and daddy's dime.

[Leigh]

I bought a new car almost two years ago now. I didn't have a car before then, but my plan is to drive this one for 7-10 years. So don't discount the idea that your friends who are out buying new cars could have that plan too.

If you're working in finance, will your employer not pay for your MBA? When you're calculating how much the MBA will cost, you have to take into account the fact that you're also going to lose $65k of income each year for the two year program, in addition to it costing $120k for tuition and living expenses. So really, it would cost you $250k to do the program, which at an estimate salary difference of $95-65=30k would take over 8 years to make back, let alone the lost time investing in your retirement accounts. Is that worth it?

If you are really planning on going to grad school and paying for it yourself, I would be putting all of your money for grad school into an ING savings account, not into Scottrade. As someone else said above, what would you do if you lost 50% of your grad school fund? Stocks are for when you don't need the money for at least 10 years.

Your story about your ex reminds me of why I'm glad I make a high income as a software developer and not in finance. Many of the people around me are pretty practical and prefer saving their money over spending it.

[bonney]

Why not just ask mommy and daddy to pay for your grad school tuition as well? While you are at it, have them pay for your rent and utilities and everything else. Save every penny you make.

[Bryan B]

You guys are being a little harsh on him regarding his parents providing him funds. AF seems to be genuinely thankful and he seems to have learned some good money habits. And we lack the background.. maybe his parents are super rich and need a way to offload their wealth before estate taxes :P

That being said, AF if I were in your position, I would immediately start paying for my own phone plan and auto insurance.

Good to hear that your ex is an ex. I could never imagine dating someone very long where we have arguments over something like money.

I don't have much good advice regarding where to invest your money. I personally think the Euro will be devalued heavily by central banks soon so that might be a play.

[RichUncle EL]

I concur with Bryan, start paying for your phone and insurance. As for investing I think you should diversify your future money going into your scotrade account into a total bond index fund or municipal bond fund. That way if the total stock fund goes down you will not be heavily exposed. Keep it up.

[Kay]

Agreed on paying your own phone and car insurance... you've been out of college for 2 years, buck up and pay for them... you're an adult now!

I would NOT NOT NOT recommend grad school (even an MBA) without some sort of funding, either from your company, or in the form of assistantships that waive your tuition and pay you a stipend. If you work for a large company, there should be some type of tuition reimbursement you can get for taking classes at night or on the weekends, slowly, that allow you to earn an MBA in 3 years while still being able to save for that family you want someday, with a guaranteed job at the end of it!

Think about it from a company's standpoint when you go to interview with them after you've finished your fulltime MBA: "This guy had a great job working for FinanceFirm100, then quit to get his MBA. Is he really serious about working, or did he just miss college life and wanted to go back to party? NEXT!!!"

[Ben E.]

Re: The phone/car insurance. It's pretty minor the in the grand scheme of things. Really, is it that big of deal? I'm not going to bite anyone's head off for that. God forbid your parents would every give you a 1k gift that you would use to pay the cell/car insurance.

Second, re:MBA. It can be expensive - if you can get some sort of scholarship or grant or partial payment from a company, that's the way to go. Leigh provided a well rounded cost-benefit analysis to consider.

I disagree with Kay's position about interviewing after a fulltime MBA. You have a couple years of experience, and are young enough to have some experience, but not so locked in that you can't branch out into other finance or business areas. Kay's argument is more risk adverse than mine at least.

I can't comment on whether a part time MBA is the way to go or if there's a stigma attached to it. From my perspective (as a young practicing attorney), some employers may have aversions to obtaining a night degree. Perhaps that's just my perception within the legal field though.

In any event, it looks like you're positioned to do quite well down the road.

[Ro]

I am furious at these folks here who seem to resent the parents have helped him out.

Perhaps he'll make oodles after his MBA and gets to help his folks with mortgage, etc. My coworker mentioned her former director made so much that he BOUGHT his parents a new home.

Quit the hating!

[EM]

@Ro: I totally agree.

The point of managing your finances successfully is to be smart about what you do with your income and assets. If your income happens to include money from some other source other than your own salary, that's lucky for you.

I don't think AF is judging his peers' spending habits unfairly at all. In fact, he could be using the fact that he is getting some money from parents as an excuse to buy a fancier car or live in a more expensive place, but he isn't.

Good job, AF. You seem like you have a good head on your shoulders. Someday, you will make a very good husband and father. I'm so happy to hear you look forward to honoring your parents that way.

P.S. I would guess that the harsh criticism is probably why more people don't offer their stories as reader profiles. I mean, you can refer to someone's parents but to say "mommy and daddy" comes across as deliberately mocking and judgmental. Unncessary, in my opinion.

[Jane]

Agree with Ro and EM.

I come from a different culture background. We folks are more closely tied together, and helping children/senior parents are default in our value system. I can imagine we pay for our kids' education and, if needs be, help further afterwards so the kids can have a good start in saving for their own financial stabilty. I would be very worried if our support goes to frivorous spending; however if the money saved goes to the above list in AF's post, I would be very glad he's got good financial habit. The biggest woe an unconditional parents support can spell is taking away kids' sense of responsibility and motivation to move ahead in life; however I think AF's parents must have done a pretty good job in their education so AF is appreciative and put the moeny into good use.

On MBA I have no comments, but at $120K price tag (and two year's earning potential) the decision needs to be weighed and vetted with knowledgeable people.

[Aaron]

@Bogey: My car actually died between submitting the post and replying now. I got a car with a $300 payment which I’ll drive for quite awhile. I am taking all expenses into account. I think the change in scenery will be good for me as I’ve lived in Virginia all my life and am willing to take on some type of debt for the time being.

@Leigh: Well, you just seem ignorant not to mention jealous.

@bonney: I’m very thankful and blessed for what my parents have provided. As for paying my cell phone and insurance, why waste the couple hundred dollars a month that my parents would rather me be saving while I’m cheaper on their family plan anyway.

@Bryan B: see bonney also, doing less trading now

@RichUncle see bonney also, my company offers $5000/year in tuition assistance but I’d rather go back to school fulltime and devote my time to school instead of not having any free time with work and school. I willing to sacrifice the earnings I’d be making while in school fulltime.

@Kay and @Ben E: appreciate the comments!

@Ro and @EM appreciate the comments and backing here. Maybe it’s just my culture but all of my friends’ parents believe that educating their children does not end at high school. I fully plan on continuing this with my children and will hopefully be able to pay for their grad school as well. Why put a $200k burden on each child when I can get them started on a much brighter, debt free future if possible. If myself or my children were simply wasting money, I think it would be a different story, but I think from my budget that you can see that that is simply not the case. I thank my parents every time I see them for how well they raised me and just hope I can be there for my kids like they were for me.

Thanks everyone for the comments including you, Leigh!