Reader Profile Update: BB

Here's an update from BB's Reader Profile posted last July.

A lot has happened since my original reader profile (I'm a 25 year old guy with almost no responsibilities, I guess it's expected). Skim my original profile to get the background! In short, I have been very lucky and owe so much to my family for how my life has turned out.

The comments on my reader profile had great advice! I took most and acted upon them:

• found a new job
• moved to the Bay Area
• simplified my funds within my retirement accounts
• didn't touch my retirement accounts to time the market, dollar cost averaging still happening
• have a nice list of 501(c)(3) candidates for my contributions
• maintained a relatively frugal lifestyle and high savings rate

But some of the bad things I did this year, sometimes against the advice:

• allocations of my assets are still not where they should be; too much cash, not tax efficient
• rebalancing does not happen regularly across my assets

I suppose I will give my current financial outlook and then a more detailed account of things that have happened in the past year.

Financial Outlook

My new base income is $100k (+$30k/42%). But after bonuses and benefits it is closer to $120k (+$40k/50%). Total annual savings should be around $52k (+$11.5k/28%).

The following monthly expenses are all good estimates given that I have moved the beginning this year to a new city. These numbers are still in flux because doing my taxes will have a large impact, but it should paint an accurate picture. Some of my own comments will follow them.

Budget/Actual Spending (i.e. ceiling):

• $8330, income
• $2675, income taxes
• $1690, retirement contributions (maxing trad 401k, others, $ 500, employer match (first 6%))
• $ 240, health/dental insurance (HDHP, HSA compatible, $ 240, health/dental insurance reimbursement (wire transfer from employer each month))
• $ 730, charitable earmarks
• $  15, renter's insurance
• $1400, rent
• $  40, utilities
• $   0, cell/data plan (employer pays directly)
• $  20, car fuel
• $  20, car parking fines (unjust but practicly impossible to fight)
• $  40, car insurance
• $  20, public transportation
• $  25, groceries
• $ 190, restaurants
• $ 180, alcohol/bars
• $  30, coffee shops
• $  80, travel (3 planned flights to visit family per year)
• $  20, shopping
• $  35, entertainment (music, cover charges)

Spending (exclude retirement): -$5,760

Income (exclude retirement): $8,570

Savings: $5,000

In the past year I splurged on:

• $1880, broken bone surgery
• $ 650, flight home for a grandparent's death
• $ 200, supplies for bedroom's loft/desk I built
• $ 130, hammock
• $   0, homebrewing, wised up before starting this hobby

Significant Assets (rounded off):

• $41,940, roth IRAs
• $12,000, trad 401k
• $ 5,000, trad IRA
• $ 9,400, HSA (pseudo-retirement account, storing medical reciepts)
• $ 9,600, brokerage
• $14,000, savings
• $13,000, emergency fund
• $ 6,860, checking (3 different institutions)
• $ 1,800, car (basically cash-even trade when last car got totalled, thanks over-coveraged insurance!)
• $ 1,600, physical assets
• $ 7,000, bitcoins

Total Assets: $122,200

I'm not really breaking down allocation here. I know it is not where it should be. I like the idea of an 80/20 stock/bond split, rebalanced every 2 months. Also need to make it tax efficient by placing things like muni bonds outside of retirement accounts.

Liabilities (rounded off):

• $ 750 student loans (had basically a full scholarship)
•     $1400 on my credit card currently (it's in the middle of the month.. sounds about right)

Net Worth: $120,050 (+$59k/97%)

Allow me to comment on some of the above:

    (1) The "charitable earmark" amount gets direct deposited into an online banking account which I do not include in any of my financial tracking. I've made some very minor donations so far this year. I am thinking of mostly donating securities (or bitcoins) to additionally avoid the capital gains taxes.
  
    (2) Taxes will be quite interesting this year and next. As it stands, I will have a tax bill of a couple thousand, unless I itemize. I didn't have much income for Jan (took a month off of any work) and I ended up under-withholding most of the year. I haven't made the large charitable donations yet, so I could hold off on large charitable donations until next year. Though I did have some moving expenses and home office expenses though. Need to find a CPA asap I think; how do I find a good CPA?
  
    (3) Rent is a big shocker, of course, moving into San Francisco. The property is about average, but is in a trendy part of town a few blocks from the nexus of it all and in fact the surrounding area has a lot of low-income households (allegedly, even though the real estate is worth millions). Rent control sucks, economically. I have three other roommates to split the $5300 4br/1ba cost. I love being able to walk everywhere and can find something to do in the city at any given time. Rent ends up being 30% of my take-home pay (and less in terms of net or gross). However, after this lease is up, I will reconsider my options.

    (4) The walkable/bicycle lifestyle is the best. Would be nice if I could get rid of all my auto expenses, but realisticly I think it's cheaper to keep my car in reserve for the uncommon trips I have to take for work or convenience.

    (5) I really suck at feeding myself. My home-cooked meals are mostly oatmeal, milk, coffee, eggs, and rice along with the odd exception. Meals out are a lot of mexican, pizza, or similar (though twice a week I go to an actual well-rounded resteraunt). I'm actually looking forward to Soylent coming out to replace all my lunch meals and maybe some of my dinners; alledgedly both healthier and cheaper. All my roommates typically eat out (a month after moving into our apartment, the only thing in the refridgerator was beer and take-out chinese).

    (6) I have a girlfriend now! We've been dating a couple months. I woud say I pay for about 80% of our combined food/drink costs, practicaly limited to the weekends (since she lives about 30 minutes away by rail). She is living the frugal student life and I don't mind picking up these bills. We really like each other and she is a really good match to my personality but if I were to be forthcoming I'm slightly hesitant about her wit, it's not as sharp as would be ideal. She laughs with me but sometimes for the wrong reasons? :/

    (7) I lost about $400 in the brokerage account shorting stocks; I would be up by $1000 if I had just bought an index fund. I consider this my speculative, play money. But really, it's not that fun any more (like it would have been back in 2008 or 2009) with the government inflating the markets, therefore I think I will be transferring this money back into savings and allow my bitcoin holdings to serve as my speculative allocation. Bitcoins are way more interesting; I am converting about $900/mo into BTC, so far I have about 40% unrealized gains in terms of $USD. It may be wise for me to donate bitcoins directly to charity (instead of cash from my savings) to avoid some capital gains tax. Maybe I will look into have a self-managed IRA to be able to hold bitcoins in there?

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

Things are looking good, just like last time!

However, there are some additional items (not covered above) I really need to focus on:

    (8) Affordable Care Act is realistically causing my individual healthcare costs to double while not giving me personally any known, visible benefit (I shopped for the best HDHP plan early this year, and just recently compared it to healthcare.gov plans before the exchanges went live). My employer should be able to pick up the extra cost, but this is something I will need to look into in the next month. If my employer was not footing the bill, I would seriously look at my options of forgoing health insurance and pay the fine. I could foot probable emergency bills like a sports injury and if I were diagnosed with a longer-term illness I could apply for health insurance the next month to pay for treatments.

    (9) I still feel very passive (in a bad way) in my young career, investing, relationships, and social life.

    (10) My job gives me a lot of freedom and flexibility, but I haven't really taken advantage of the freedom yet. I could be more outgoing and do extra work to help my career within the company, or get some side-income or side-projects (CA is employee friendly in terms of IP rights) but instead I mostly waste time on the internet in my down time.

    (11) SF is a great place for me right now with all the opportunities out here; though it is a sort of bubble versus the rest of America. Also, definitely not for raising a family. This is not really on my horizon but worth noting. Would like to build my own dream home once I am "settled down." Will probably move back to the South, closer to home, in the long term.

    (12) The JOBS act passed recently. I here I can invest in early stage companies now without being an accredited investor. That's pretty interesting and worth thinking about.

Recounting the past year

A hail storm totalled my car but luckily I was over-insured (thanks Mom!) and the insurance company wrote a check for $1800. Went car-less for 2 months (attributed to my laziness) mostly using my bicycle (in a city ranked in the bottom 5 bicycle friendly cities in the USA). Eventually bought a used sedan for $1800 (great engine, pretty shoddy everything else, like no AC in the South). Ultimately I should have bought an economy pickup truck for the extra usefullness.

My roommate moved overseas with about 3 or 4 months left on the lease. Couldn't find a suitable replacement after a couple weeks and succumbed to laziness and just ate his share of the rent ($400) for the remainder of the lease. So ammitorized, my year-long lease was $500/mo, not $380/mo. The extra privacy was slightly addicting; I could see myself getting used to that.

I had a preventable bicycle accident which left me with a scarily broken collar bone. Paid for the surgery out of my emergency fund and saved the reciepts so that I might withdraw from my HSA at any point in the future with no penalty or taxes.

And, of course, I got a new job! Not at a "renowned" company like I thought might happen, but rather a smallish company based in Europe in desperate need of someone with my skill sets to work with customers in Silicon Valley. It's a fairly niche sector involving low level software but has some extra attention lately in the media. I'm no longer doing as much r&d work directly, but still working on the cutting edge and getting interaction with many more engineers directly involved in the field.

I used a lot of the personal finance and career advice that I learned from FMF and other websites to negotiate a better job offer. Firstly, I interviewed at another company in my town in parallel and actually got an offer there, an offer that ended up making me do a triple-take (for a single 24 year old), that I could use as leverage. The initial offer from the European company came in and it felt like a huge let down compared to the local one. However, I strapped in and prepared for negotiations: I knew they really needed an engineering presence in the US and I was the easy, ideal fit for them. And I wanted to work with them (and in Silicon Valley at that)!

I created two new sheets for 2013 in my annual financial spreadsheet document and filled them in with my my two job options. The conclusion was that my main concerns were the high rent costs in San Francisco (I had decided that if I move to Silicon Valley, I'm going to experience some culture, knee-deep) and the diminishing take-home income caused by progressive income taxes (feels like 2 steps forward, 1 step back). I came up with a number that I would be very happy with, in terms of net cash flow. Seriously, it kind of boggles the mind why any company would pay to have their main workforce in California instead of somewhere like Texas, Tennessee, or Washington.

Armed with everything I needed, I sent the head of engineering my concise, clear counter-offer and reasoning over email, along with a request for him to call me at his convenience. My email covered:

•   Thanked him for the offer, I'm glad we all agree I would be a good fit.
• Expressed that I had researched what the market salary for someone with my experience doing similar work in the bay area was, especially at some of the company's clients, and that this offer was not aligned.
• I had a more competitive offer from a well-known company locally (and much cheaper cost of living).
• Gave him the high level factors like 2.3x rent costs, the state income tax, etc. If I took this current offer, my net cash flow would be reduced by 50%, comparatively. Offered to share my calculations.
• To reach the same level of net cash flow, the number is X (was something crazy like 35% more).
• Also worried about the healthcare costs (the offer just mentioned there would be healthcare available), currently my premium is very low.
• Suggested that instead of covering my relocation expenses up to Y, be changed to a Relocation Bonus of Y
• Ended with making it clear that this was my #1 choice and I would hold off on accepting any other offer until I hear back.

He emailed me back his counter-counter-offer later in the day and called me soon after. This offer he said was a final offer and he had to go to the board of directors for approval (it was outside of ranges for the position):

• $ 100k, base salary (negotiated from $90k)
• $  10k, sign-on bonus (negotiated to be a bonus instead of relocation expenses)
• $<=15k, discretionary bonus (came from $10k->$15k in negotiations, I considered it as 5%, realisticly)
• $   6k, 401k matching (first 6%)
• 4 weeks vacation

And after starting work it is also true that:

•     individual health insurance is reimbursed completely
•     smartphone and plan are paid for directly by company

This offer resulted in my net cash flow being quite healthy, though still lower than the other offer I had outside of CA. However, I sort of skipped the fact that my Total Savings is quite higher with this job and I will be donating more to charity! Also, did I mention there was a good chance I would be mostly working from home?

I accepted the offer and took a month off between jobs since the last month of rent was pre-paid. This was a really fun period of time before flying to Europe for orientation. The orientation went really smoothly as I was very familiar with all the technology and my coworkers and I got along well. While in Europe, I took the opportunity to rent a nice bicycle over a weekend and tour the coast and some mountains, stopping for the occasional coffee with a view. Really a great, company-paid, frugal, mini vacation. When I came back to the USA, I kept my moving costs very low: packed up my car, sold/donated the rest, drove across the country making a small detour to visit some family, lived with family in the nearby area while searching for an apartment and roommates, and finally furnished the new apartment frugally (garage sales, thrift stores, diy).

The first few weeks on the job I had to commute to Silicon Valley fairly often so I logged my miles to customer sites. Not sure if my company will be reimbursing me for my mileage (so it might just be a tax deduction) because I haven't brought it up since being close and available to customers is kind of part of the job. However, things settled down and now I work from home most of the time.

Very soon, I will be interviewing (much older) engineers in the area to be my colleague for a new project in the company. I saw that their expected salary is something around $150k and I am actually not exactly impressed by their technical abilities as presented on their resumes. Definitely an engineer-employee friendly market out there right now. I'm not sure if this new hire will mean the company will finally get an office and require me to commute more often.​

Thanks for reading and I hope to get even more, better advice from this update!​

Comments

[Jabar]

The only caution I would provide is regarding what you said about health insurance. Under the ACA, you in fact could not simply "apply for health insurance the next month". You can actually only sign up during the enrollment period. For 2014, that happens to be until March 31. If you miss the deadline, you can get insurance for the NEXT year, but you won't be eligible for an exchange policy or subsidy, although you could try for an individual policy, assuming they would now take on someone with a now pre-existing condition.

[jim]

So you buy your own insurance and the company reimburses you? Thats odd. If the company has >50 people employed in the US then I expect that will change soon enough.

CoveredCA website shows 11 Bronze plans under $300 for a 25 year old male in S.F.

Going without health insurance is not a smart move at all.

Especially for someone who can easily afford it. The risks of a very large healthcare bill are far too high to just risk it. The penalty for not having insurance is 1% now but goes up in 2015 and 2016. When the full penalty is in effect you'd be paying 2.5% of income or about $3k for you which is more than a cheapo insurance plan.

As Jabar pointed out you can't simply sign up for insurance on a whim, thats a common misunderstanding.

[BB]

I am one of 3 people in the US employed at the company (my employee ID# is 1!) and one of my co-workers gets insurance through his wife. It just makes sense for the company to reimburse individual plans at this time.

You can buy individual health plans at _any_ time, but they don't go into effect until the next monthly cycle (not sure if it is the very next calender month or if there has to be some minimum number of days also). It's law now that pre-existing conditions have no factor in your eligibility for health insurance, yeah?

The penalty is also capped out at the national avg. of bronze's premium. I wonder if that means annual or monthly? I guess the annual cost.. No argument here that as I age health insurance makes more sense under ACA.

I re-checked the CoveredCA and indeed some numbers have changed since last time. I definitely need to research more, and not sure which plans may be HSA compatible, but there's no question that they are not competitive to what I have now (but that is well known and beating a dead horse). Here is what I have now, if anyone is curious:
1900 deductible
2500 max out-of-pocket
30% co-pays
210 premium (+$30 for dental)

Of course I will get health insurance if my company is paying for it, but like I said, there is a reason, statistically, that my premiums are so low now: I'm not high risk. Probably I just need insurance for emergencies. And my out-of-pocket for probable emergencies (sports injuries) will be 100% until the deductible, so with/without insurance is a push in this case (well, it does make the no-deductible plans slightly more appealing). So the only case it makes sense to go bronze at $220/mo is healthcare expenses >$8000, or plat at $410/mo if it will cost roughly >$6000.

I appreciate the concern, but this is probably only a theoretical issue we are talking about now. But it is an issue that a lot of younger workers in America will also be considering.

[Rachel]

I know the math seems to make sense regarding a debate between getting health insurance and paying the penalty. However, I will give you an example of why you should reconsider even though you are 25 and are in good health. My BF was diagnosed with leukemia at 27 and is now going through his second round of chemotherapy. He was in great health before the diagnosis, but thought he was just tired more than usual. Shit happens. If you really don't want to pay for extra coverage, at least purchase a catastrophic plan.

Open Enrollment Info for ACA -
https://www.healthcare.gov/glossary/open-enrollment-period/

[Jabar]

To answer your question on pre-existing conditions- yes and no. Yes, health insurers cannot deny you coverage or charge you more for a pre-existing condition. EXCEPT for "grandfathered" individual health insurance plans (which it sounds like yours might be, since you pay for it and your employer reimburses you for it?). They don't have to cover pre-existing conditions. Now, if you do have a plan like this, you can switch to a marketplace plan, but again, only during open enrollment.

[freebird]

Welcome to the neighborhood, I'm twice your age and arrived from the midwest a quarter century ago. It may not work for you but I can tell you what I did with income and expenses over this time.

First I'd say most engineers come here with dreams of striking it rich in a startup or stock options, and I found it to be rarer than I hoped/expected. My brother and also one of my former managers hit mid 7-figure payouts at different companies, but that's about it. My own company stock option winnings total barely broke 5 figures, but fortunately I'm not much of a spender and with a steady income over the years, I was able to accumulate my way to early retirement. The key was not getting caught up in the urban lifestyle, most of my free time is at work either going beyond my job description or handling personal business, stock shopping mostly. My biggest mistake financially was never buying a home, but I don't really regret it because I'm not into the headaches that come with. I definitely don't regret not getting into landlording even though many of my colleagues make a good second income this way (local cap rates look pretty dismal to me). Instead I lived in low rent places (hint illegal garage conversions also exist in nicer neighborhoods) and put the savings into the stock market. My investment returns have been mediocre but I put in enough to make up for it, so after a quarter century my annual spend is less than 3% of my portfolio. I'm now planning on retiring to a beach where costs and congestion are less than here, although I'm still loving the California climate even after all these years.

Anyway I hope it all works out well for you, I'd say aim for the best but take the opportunity to save aggressively in case things don't pan out.

[VA]

Sounds like you are doing great financially. If you would like to keep your girlfriend I would suggest not publishing personal insults about her on the internet. ;)

[jim]

Your employer pays your insurance so this is a moot point that you made for no good reason. But arguing that its a good idea for anyone to go without health insurance is not a good point.

NO, you can not just sign up for insurance in the exchange at any time and wait a month. If you miss the open enrollment period you'd have to wait till 2015.

It is true that the penalty can not be higher than the national average premium for bronze level in the exchange. That would be around $250 a month or about $3000.

Health insurance makes sense for everyone young and old. Young people voluntarily opting out of insurance are taking an unnecessary and foolish risk.

You're calculating that the insurance is a 'push' but you are ignoring the real risks here. The risk is not that you sprain an ankle playing football or break an arm on your bike. The risk is that you get cancer, kidney failure, a pinched nerve in spine, fall off a ladder and break your neck, etc. All stuff that can and does happen to young and healthy people in their 20's. Any of these would potentially bankrupt you without insurance. Thats not worth the risk to save a few hundred especially if you make 6 figure income. Is it likely? Well no thankfully, but its not likely hour house will burn down but you wouldn't go without fire insurance would you?? Its not likely you'll have a catastrophic car accident yet you don't drive without car insurance.

[BB]

Forgot to mention, I occasionally dumpster dive. Last month I re-claimed about $70 worth of good food.

Nice tip about some alternative living arrangements.

I looked a little more and it's as you all mentioned about applying for health insurance with a pre-existing condition. Though it is still possible to get insurance with a pre-existing condition from the exchanges (by having a life-event, like moving across a state line, getting married, change in employment, etc.). Why must things become so complex (insurance, taxes).

A person's risk-tolerance and mitigation (for all facets, not just insurance) is their own. Sometimes insurance costs too much money and is not a good value.

My apologies to my girlfriend if you read this and become upset. Come talk to me if you are upset, please.

Thanks for the advice everyone!