So I am at a point in my life where the decisions I make today can effect my life years from now. I am 25 years old and graduated college just 2 years ago. I took a job right out of college in Dallas, and wanted to live in the "cool part of town" paying about $1,000 in rent, (and this was with a roommate) while barely netting $2,000 a month. Long story short, my credit took a huge hit, I maxed out two credit cards, was living paycheck to paycheck, and was always 2 months behind on my car payments (for a car that needed about $5k in maintenance and repairs) This was a huge wake up call, and it forced me into getting a new (while higher paying) job that I went on to hate, and although I wasn't getting calls from collectors anymore, I was still barely staying a float.
Just a few months ago, I was blessed with a dream job offer with an uprising company making $115K a year. I immediately paid off all of my credit cards and opened a savings account within the first month. With the repairs needed for my car, it seemed financially smarter to just get a new car, so I did, and right away paid my first 4 months of car payments so I'm always ahead. Thing are going great now and I don't want to ever go back to where I was just barely a year ago.
My roommate and best friend, has plans to move out of the state in October when our lease is up, so it is starting to be that time to look at new apartments. My take home pay each month is roughly around $6,800. I have read that the rule of thumb is that you should not spend more than 50% of your monthly take home pay on fixed expenses. My expenses are:
$865 for rent
$700 for bills (car payment, insurance (renters and car), electric, water, trash, etc.)
So about $1565 total.
So with $3400 allocated for fixed expenses minus $700 for bills. In theory this leaves me about $2700 to spend on rent for a new place. I don't plan on spending this much, but I have about half of my close peers saying I should spend a good chunk of it to get a nice place since I'm young, single,, along with the fact that I don't plan on getting married or having kids anytime soon. But the other half is saying I should live in the cheapest place I can or find a different roommate. I have no interest in buying any real estate as it is simply not a buyers market right now, and homes are selling WAY over market value. I just simply don't know what to do here and need some genuine advice.
I am not posting this to brag or show off how much I am now making at such a young age, I just simply want to spend my money in a responsible manner, but also want to live my life to the fullest before I settle down, get married, and move out of the city. I also come from a family that has a history of terrible financial decisions (myself included). Neither one of my parents has ever made this much. And I want to have fun now, but also prepare myself for the future. But most importantly, I NEVER want to go through what I did again. My question is simply what would you do in my shoes? And is the 50% rule a bunch of crap? Or is that a good guideline to follow.
Thanks in advance!
Thu Jul 07, 2016 6:35 pm
oldguy Senior Member
Cash: $ 716.00
Joined: 21 May 2006
$5000 in car repairs? You still paid that, the buyer subtracted it from the KBB price. (And that's as it should be, ie the consumer should pay for what he consumes.) Modern cars provide 200,000 miles of troublefree service, it is usually best to maintain the car, keep it safe and reliable. What kind of car did you buy?
quote: I have no interest in buying any real estate as it is simply not a buyers market right now, and homes are selling WAY over market value.
No, it is selling AT market value (that's what market value is). Every time I waited for the housing market to 'come back down' so that I could buy another rental house, I ended paying an even higher price a couple yrs later. So I learned to buy houses when I wanted to add another house.
quote: , but also want to live my life to the fullest before I settle down, get married, and move out of the city. I also come from a family that has a history of terrible financial decisions (myself included). Neither one of my parents has ever made this much. And I want to have fun now, but also prepare myself for the future. But most importantly, I NEVER want to go through what I did again. My question is simply what would you do in my shoes? And is the 50% rule a bunch of crap?
You are assuming that 'living life to the fullest' is directly proportional to spending lots of money? You can become wealthy - and spend money - at the same time, they are not mutually exclusive (altho most people think they are).
Do this - direct your income stream to it's "highest and best use". Your net is $81,000. If you direct $10k/yr to an 11%/yr investment, it will be $2,200,000 at age 55. That leaves $71,000 for your living/enjoyment.
Conversely, if you spend the whole $81k each year for 10 years, and then try to build $2 million by age 55 you will need to put away $31,000/yr - that's tough to do, even on an $81,000 income stream (and that's why there are so few millionaires). My math skills served me twice - allowed me to earn a good salary for 35 yrs - and (2) gave me the skills to invest it and become wealthy. (While providing full lives for wife & children, paid for their colleges, bought them cars, travel, yada).
You went from about $35,000 gross to $115,000 in 3 years - are you in Sales?
I did some work in Dallas in the 1960s - is the It'll Do Club still there?
Thu Jul 07, 2016 8:28 pm
scottb234 New Poster
Cash: $ 0.45
Joined: 07 Jul 2016
Thanks for the response!
I took the advice of a friend and got an Infiniti, I hate having car payments, and he mentioned he's had his since 2007 with very little problems so I got one.
The housing market to me is confusing (mostly because of inexperience and unfamiliarity). But I had an old co-worker who said he was going to buy a house but something to with the appraisal value being 20k lower than the selling price (meaning he had to come up with that 20k), and almost every house being like that in the current Dallas market. I guess I shouldn't have said "market value" just that houses are being sold above appraisal value, and I don't have a ton of money in the bank to make up for that difference. But again, it sounds like you have a ton of experience so I'd love some more feed back!
Where would I even begin to invest in something like that? (Again just speaking from inexperience here which is why I am posting)
Sales is a part of my job, but it's mostly consulting, I got extremely lucky and came in at the right time.
LOL and yes that is still here. I haven't been there personally but I've heard stories.
Thu Jul 07, 2016 9:32 pm
oldguy Senior Member
Cash: $ 716.00
Joined: 21 May 2006
quote: Where would I even begin to invest in something like that?
It's way simpler than you might think, take a look at the site, check some 30-yr blocks of time, you'll see that the generic unmanaged US Market average is about 11%/yr. Many people make the mistake of trading in/out, buying individual stocks, individual sectors, trying to hit a home run, trying to "beat the market". But the secret is to NOT beat the market, instead simply ACCEPT the market, nothing wrong with 11%/yr.
Note: the 30 yr 11%/yr factor is 23, ie $10,000 will grow to $230,000. As you can see, it only takes 4 or 5 of those $10k lumps to add up to a million. Or, invest $10k every year and you'll have about $2.2M in 30 yrs.
Yes, Nissan is a great car - so is Honda & Toyota. The Asian cars are built to last - and with very few problems. As for hating car payments, that's an emotion, not a math calculation.
Eg, if I want a $30k car, I could sell $33k of our stock fund, pay $3k for capital gains tax on the profits, and pay $30k cash for the car.
Instead, I finance the entire $30k for 5 years. That means that I'm leaving $33k in my fund, where I expect it to double to $66,000 in about 6 years (the Rule of 72). And I pay about $33k in car payments spread over 5 years.