In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. 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 July. (You can read June’s update here.) This month, the participants are focusing on education. 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 analysis and comments
In July I continued to settle into my new lifestyle. Monthly spending decreased dramatically, and I was able to save (and invest) a decent chunk of my income. To invest, I put excess discretionary money into a low-cost index ETF at Vanguard. Once I get to the equivalent mutual fund minimum, I will convert my ETF shares to mutual fund shares. Compared to June, food spending was cut by 31%. I expect to be able to lower that even further in August, since I found local farmer’s markets close to home.
In July I also started selling the I-Bonds I purchased last year. They don’t fit my overall risk/return policy, and I would rather put that money into the market. The 1.76% return on I-Bonds isn’t that attractive. With a 30+ year horizon to look at, investing in the market seems a much better idea. I still keep a healthy buffer in my checking account, and feel very certain about my career. In August, I plan to redeem more of my I-Bonds in order to invest in riskier assets with higher expected returns. While I will miss out on three months of interest due to the early redemption, I don’t think it will make much of a difference in the long run.
Although I will be redeeming a large amount of I-Bonds, I will hold on to my other savings bonds, all of which earn 4% or higher. This still leaves me with significant liquid assets in case of emergency, and the interest rate is better than I can get with a checking account.
Credit card balances still appear high since they are on auto-pay and the due date hasn’t come yet.
Another friend told me that he is buying a condo. This is the second of my friends to buy a condo, and both have “parental help.” Each one is splitting the down payment with parents, and paying “rent” to them until it is paid, along with paying the mortgage and fees. This is great for them, and it can be difficult to stay content “throwing money away” on rent while others are building equity. However, I am glad that I am much more flexible in living arrangements if I have to move in a couple years. There are multiple reasons for and against owning a house, and sometimes it’s difficult to not see the greener grass on the other side.
This month’s theme is college and education planning. I don’t have too much experience in this area, since I was fortunate enough to have my parents pay for four years of college. I’m not yet thinking about saving for a child’s college expenses, but I did start a 529 in case I want to get an MBA. However, it seems more and more like I will not need an MBA to advance in my career, and I will likely transfer the 529 to a child when it’s appropriate.
There is a negligible amount in the account, so I wouldn’t be upset if I lost it. When I do have kids, I would love to be able to provide a debt-free college experience. While there are debates about how much college is appreciated by those who don’t have to sacrifice financially for it, there is no debate about how it feels to have debt afterwards. Someone I know did have strings attached to her education, in that her parents would only pay if she studied STEM, business or medicine. She studied engineering.
Feedback from Roger Wohlner, CFP
Kudos on starting the investment into the Vanguard ETF. Before converting the ETF to a mutual fund I would compare the relative costs. Often Vanguard ETFs are less expensive than all but their various institutional share classes.
At this point in your life I agree with the decision to rent vs. buying, since it provides the level of flexibility and mobility that someone your age and at your stage in your career needs.
We have three kids ranging in age between 20 and 25. We have been fortunate that two of them attended elite private universities and were the recipients of substantial aid and scholarship dollars. One had no debt, and the other had minimal debt. The younger of the two girls is starting law school as I write this and will be financing that herself. Our youngest is a junior at a state university here in Illinois and so far has minimal debt as well. As parents we feel that every cent we’ve spent on their educations is an investment in their future.
Feedback from Luke Landes
You’ve made some great progress this year. It’s exciting to watch your assets increase month after month.
Starting with index ETFs at Vanguard is a great idea. I’m not a fan of ETFs for myself, though. Prices change throughout the day, like stocks. I don’t think I’d be tempted to trade ETFs on a minute-by-minute price, there’s more than a little chance of each purchase coming with a tinge of regret — had I waited five more minutes, I would have received a better price. The same could be said about buying mutual index funds, so it may not be an important concern. The bottom line is you need to accumulate a minimum first before investing in the mutual funds at Vanguard, and an ETF lets you start immediately instead.
Regarding fees, the expense ratio for VTI, the Vanguard Total Stock Market Index ETF, is 0.05%. The corresponding index mutual fund, VTSMX, has an expense ratio of 0.17%. It appears the ETF offers the better deal, but the ETF fee doesn’t take into account the bid-ask spread, which is built into the price of every stock (or ETF) on an exchange — a difference between the immediate selling and buying price which guarantees a profit for the broker with every trade.
I understand the pressure you feel from friends about buying a house. Keep in mind that while your friends will need to pay thousands of dollars every year to maintain and operate their homes, money that is completely lost, like investment fees, and while they’ve paid fee upon fee to be given the right to borrow money to pay for their houses, you’re saving money at every turn. It helps to remember that if you add in all the fees that house buyers, owners, and sellers must pay rather than just subtracting the purchase price from the selling price, that “investment” will not likely break even.
Perhaps sometime in the future buying a house will be the right decision for you, but until then, enjoy the freedom you have while renting.