Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series.
Anonymous S is a 24-year-old engineer earning $67,000 a year plus bonus. He also builds websites on the side for an hourly fee of $20 to $35. Read his bio here. Anonymous S is on Team Roger, with Certified Financial Planner Roger Wohlner.
Keep reading to see his net worth report, which includes progress over the past year, with detail from the past several months, as of December 2012. Following the analysis from Anonymous S., Roger Wohlner will offer his own thoughts and guidance.
Roger Wohlner, CFP appears courtesy of The Chicago Financial Planner.
Anonymous S’s comments and analysis
In 2012, I started a new job twice, opened four credit cards, and made many changes in my personal finance habits. After graduating in December 2011, this was my first full year as a working adult. However, I have managed to save a decent amount in retirement accounts, as well as a variety of non-retirement accounts. I decided to experiment with a couple of investment products, and started to apply for credit cards for the bonuses.
In February, I started working at a small company for a $25,000 salary. This was to be for a 3-month probationary period, with no promise of what my future salary would be (although there were implications that it would be higher). As a college graduate with an engineering degree and an advanced degree, this seemed very low, but was the best job I could get at the time that was in my field and would be enjoyable. The benefits matched the salary, with almost no stipend towards health insurance that could cost several hundred dollars a month. Luckily, I was young enough to stay on my parents’ health insurance. I kept looking for new job opportunities. I started a Roth IRA, and contributed $1,600 for 2011, the most I could afford at the time. I also signed up for two credit cards with cash back rewards.
In March, I received a new job offer in the same metropolitan area. During time off before starting the new job, I splurged on celebratory dinners with my girlfriend, fancy drinks, and expensive electronics, all due to my now much higher salary of $67,000. After starting the new job, to pay my bills, I sold many of my stocks and mutual fund holdings from my taxable securities account. This included a $1,300 loss in one stock. I also started to fund my Roth IRA for 2012 and enrolled in the company 401(k).
In the following months, I started a 529 plan, and tried other investments. I bought a ton of junk loans using LendingClub. I thought that if just some of them paid off, it would be great, but most of them didn’t. I was given a $10,000 gift by my grandfather, who had earlier given me an old car. I promptly put much of this into I-Bonds. I put about $2,000 into Motif Investing, a selection of themed ETFs. The idea seemed pretty interesting to me, and I saw the money as “play money,” since I had no debt, a funded emergency fund, and well-funded retirement accounts.
My girlfriend moved to NYC to start her job. We started taking Amtrak to see each other every weekend. By booking far in advance, we were able to get good rates on the tickets. I quickly ramped up my IRA contributions with any extra money. I also signed up for another cash back credit card.
In November, I started thinking about moving to New York City to be closer to my girlfriend, and to find a new job. In preparation for this move and potential transition period, I reduced my payroll deductions to the bare minimum, just enough to receive the 401(k) matching contribution. I also received extra income from overtime at work.
In December, I spent extra on gifts and visited my girlfriend for the holidays, which added additional expenses. In December I also paid for some annual costs, such as web hosting and professional certification exams. I also sold the majority of my securities held in a non-retirement account. This served many purposes, such as reducing my total stock market losses for the tax year, increasing my checking account to fund my 2013 IRA, and giving me more liquidity in case of a sudden move to NYC. I wanted to be able to put a deposit down on an apartment, and buy things like furniture or last-minute train tickets. Finally, I signed up for an Amtrak credit card to get the free 12,000 bonus points and additional reward points on train tickets.
In the future, I plan on reducing my investments in non-retirement stock market accounts, and focusing on retirement savings. Since I don’t save enough to max out my 401(k), this will be my main goal. I also currently participate in the company Employee Stock Purchase Plan, which allows me to purchase company stock at a 10% discount from the lowest price of the quarter. I currently participate with 2% of my salary, but may increase this in the future. However, I am certain that if I do change jobs, I will need to rethink many of my current strategies. Additionally, I am thinking about closing my savings account to simplify the number of accounts I have open.
Feedback from Roger
n reading your first update it seemed like your were trying to dabble in too many areas. For now I would forget about Motiff, LendingClub, and the 529 and focus on the basics. I totally agree with your priority to increase retirement savings, at the very least I suggest that you try to contribute enough to receive the maximum match from your employer if they offer one. As far as buying company stock, 2% is fine, I would generally discourage you from going much higher. The litmus test is to ask yourself whether you would want to own the stock if you didn’t work at the company. It is never a good idea to over indulge in the stock of any employer. Doing this ties too much of your wealth and your earning power to your job security and to the fiscal health of your employer.
The fact that you have been able to build an emergency fund is very positive and you should continue to maintain around 6 months of expenses in this fund to cover you in the event of a job loss or other emergency.
While I don’t know how tight you are with your girlfriend, I’d generally be leery of relocating to New York City unless the relationship is very serious and/or you really want to live there. From a career building standpoint, it sounds like your current position is a decent one that pays well. As you haven’t been there for even a year at this point I would try to build a bit of track record with this employer before even considering a job switch. That said in today’s economy it is always a good idea to keep up with your professional network and to continue to make professional connections.
Feedback from Jacob
First and foremost, congrats on the awesome income and long-term mindset at such a young age. You’re definitely ahead of the curve, and at this rate, will build a lot of wealth. Do you have a monthly budget? And not just tracking your spending, but planning your month before it begins. If not, check out my budgeting series on getting one set up and check out Budget Fridays for real, live examples of personal budgets I put together for some people. The reason I ask is that your spending habits seemed to be reactionary (new job, buy more things). And while I think it’s awesome that you can afford it, you should plan these purchases well ahead of time. My rule of thumb is to not buy anything unless the cash is in the bank first. As a sucker for credit card rewards myself, I can appreciate making some money off these sweet cards, but I would make sure you don’t finance any of your lifestyle.
I have seen many people bringing in over $100,000 per year ending up in major debt and living paycheck to paycheck because they built spending habits early on that they could not sustain. They purchased a house, then had to furnish it, put a boat out in front of it with a new truck to tow it, and all of the sudden they were deep in debt. And based on your investing, I don’t see this happening to you. You’re rockin’ it! But just be aware of these things, because lifestyle inflation has a way of creeping up on you. Man, I’m really excited to follow your story, I have a feeling that not only is your net worth going to increase, but so is your income!
Updated January 17, 2013 and originally published January 14, 2013.