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 how Anonymous S progressed throughout the month of February. Last month’s update described his progress earlier this year. Following his net worth report own analysis, Anonymous S will be able to read feedback from Roger.
Roger Wohlner, CFP appears courtesy of The Chicago Financial Planner.
Anonymous S’s comments and analysis
February was a very transitional period. I accepted a job offer in New York City with a small start-up in the energy field as a Program Manager. While the benefits aren’t as good as my previous position, the position and company should provide many more growth opportunities in the future. As well, the position will be infinitely more fulfilling. Luckily, I stayed at my previous position long enough to collect my annual bonus, $3,500 before tax.
Unfortunately, the new position does not offer a 401(k), which means no matching, and a much lower limit on tax-free growth ($5,500 vs. $23,000 annually). To get the most out of my current 401(k) before I leave, I turned my contributions all the way up to 50% of my pre-tax salary (the maximum allowed). Health insurance will also cost a little bit more overall. The initial offer was $70,000, with $2,500 in stock options, but I was able to negotiate the salary up to $72,000. While this isn’t an extremely high amount for engineering in New York City, it is still a very good number for a start-up company, and should not be too hard to adjust to. Since I won’t have any vehicle expenses, and have been cooking many of my own meals, I don’t expect the type of lifestyle inflation many see when moving to New York City.
With the cost of living increase from my current city to New York, I will effectively have a lower salary. However, by living with my girlfriend of over two years and cooking, I should be able to maintain a relatively high savings rate.
This month I also moved my IRA to Vanguard from E*Trade, and switched my allocation to Vanguard funds. Although I lost a little bit of money to commissions and fees, I think this will pay off over time due to lower transaction fees and expense ratios. Additionally, I decided to invest some of my liquid cash into a taxable mutual fund account at Vanguard. I haven’t yet looked into the tax efficiency of my accounts, but I think I will do that in the next few months.
Since I wanted to do some traveling before starting work, I won’t actually start the new job until April 8. This, combined with my 50% contribution to my current employer’s 401(k), means that I won’t have too much discretionary income in March or April. Regardless, I’m pretty confident I will be able to make it to my first paycheck without changing my strategy. My tax refund of $2,600 should be coming in the next three weeks, which will definitely be nice to see. Additionally, I checked with Vanguard, and I wouldn’t incur any fees making a withdrawal from my taxable mutual fund account. This is more of a last resort, but I’m pretty comfortable with the risk.
Feedback from Roger Wohlner, CFP
Congratulations on the new position. Given that your age and lack of family responsibilities taking the risk and lower pay and benefits with this start-up company doesn’t have much downside, and if the company takes off you could participate in that growth career-wise and financially. I would stress the importance of keeping up with your professional network and continuing to grow it in case you need to or want to change positions. Given that you are in a new city it is wise to develop a network in the New York City area. I suggest that you get involved in an organization or professional group locally.
Without the 401(k) it is important that you fully fund an IRA each year. If you start to earn some self-employment income you can shelter some or all of it in a retirement plan such as a SEP-IRA or a Solo 401(k).