Monthly Archives: March 2015

Dream Job

In the financial independence community, I think we sometimes get stuck on reaching financial independence and the long-term goals of how we’re going to get to our “FI date.” But what happens if you didn’t have to escape the “real world” and your career that you disliked. What if the path to financial independence wasn’t such a rush, and you did not want to leave your career with its associated paycheck? Do these dream jobs you hear people talk about actually exist?

You know these people I’m talking about… “I’m a teacher (replace teacher with nurse, physical trainer, writer, counselor, etc.), it’s my DREAM job, it’s my passion! I would do it even if I didn’t need to work.” Are they for real? Do they really enjoy their job that much? I’m sure you’ve met these people before. I can’t decide if they’re being honest, or they are just trying to justify their career path to others. I’m sure many of these people are honest, and for that I am very happy for them. Not everyone can find a career they are passionate about and enjoy doing day-in and day-out, while earning a paycheck.

So I started to think, what would be my dream job? I have not figured it out yet (or at least have not found the cahones to quit my career to figure it out), so I came up with a few ideas of what my dream job may be:

1) Maintenance at an RV Campground

Pros: I had this job about 15 to 19 years old, and I loved it. I was making $12.50/hour by the time I was 19, which wasn’t bad. I got to hang out with my friends all day, do some manual labor like weed whacking, and every weekend there was a bevy of teenage girls who were dragged there by their parents because they weren’t allowed to stay home alone while the parents went away.

Cons: No health insurance, pay probably wouldn’t go up much from there, seasonal job in nature, and I won’t even comment on the teenage girls.

2) Certified Financial Planner

Pros: I have always been interested in becoming a CFP. When I had interned at a regional accounting firm during college, I shadowed some people in the wealth management division. I got to sit in on an financial assessment of a woman who wanted to know how her family was doing financially. I loved the meeting, and even 20 year old me came out of the meeting with a whole list of things her and her husband could be doing better. I would really be able to help people out with their personal finances if this was my career (and if they took my advice).

Cons: I would definitely not work for an affiliated adviser as I would refuse to push investment products and strategies on my clients. I would have to work for an independent adviser, and then still I would be reporting to a higher-up and perhaps all my ideas wouldn’t reach my clients. To make this career work I would have to work for myself, but it would be a long road of trying to build up my client base. And I don’t know if I would like taking calls from certain clients every time the S&P dipped a couple percentage points.

3) Carpenter

Pros: My father has always been a DIYer and performed all the electrical, carpentry, and plumbing repairs at our house growing up and I would be his assistant. I’ve assisted in the building of porches, wiring houses, plumbing for hot water heaters, etc. I always liked this work because I was learning something new, hanging out with my dad, and building something tangible that served a purpose when it was completed. My favorite of these tasks was definitely carpentry because I liked using the saws, drills, and hammers.

Cons: A lot of these jobs are unionized and I would have to go through a whole apprenticeship period which would take years. I’ve worked in a lot of these settings when I was in HS and college, and I don’t know how well I would get along with my coworkers and bosses due to different interests. So if I was a carpenter, I’d want to work for myself, but then I’d have to find all my clients with currently no referrals or real experience.

4) Farmer

Pros: My grandparents owned and operated a dairy farm down the street from me when I was a child. I would ride my bike down to their house after school, on the weekends, and all summer long to help out my grandfather. I’d help milk the cows, hay the fields, pick vegetables, and anything else that arose. It was nice to be outside (if the weather was nice) learning about farming and obviously every boy loves hanging out with their grandfather.

Cons: This career is requires some extreme manual labor which can take a toll on the body. Also if you are starting a new farm, there can be huge capital outlays for land and equipment. This career requires your attention 24/7 and wouldn’t have much time to pursue other hobbies or interests.

5) University Professor

Pros: After obtaining my masters in accounting, I somewhat seriously considered getting my PhD and becoming a professor. Accounting professors were in high demand, and if you got into a decent program they would PAY you to obtain your PhD. And then starting salaries at universities after the 4 or 5 years it took to obtain your PhD averaged about $150k a year! Plus think of the pension, time off, and other paid for benefits!

Cons: A big part of being a professor at a university is publishing your work. I don’t know how excited I could get about coming up with ideas to regularly write about in the accounting field. These blog style posts on topics that interest me are way better.

6) Personal Finance Writer

Pros: While I’ve only been writing posts on this blog for a couple months, I thoroughly enjoy getting my thoughts and ideas down on paper. Personal finance is obviously a subject I’m passionate about, and I would love to spread any knowledge I’ve accumulated over the years to anyone willing to listen. So many great writers ahead of me have taken their time to teach others like myself, and I would love to return the favor to the next batch of personal finance students with posts like Post College Finance Guide or Keeping up with the Joneses.

Cons: I have no formal journalist background whatsoever, and my blog is a baby and therefore I don’t have much experience in the field and it may be quite hard to convince someone to pay me to write about personal finance or my other interests.

7) The Suze Orman Show (or better yet The Fervent Finance Show)

Pros: Please don’t laugh! But one of my guilty pleasures is watching The Suze Orman Show. I don’t know why I still put myself through the torment of watching it and cringing every time someone calls and asks a ridiculous question. It usually goes something like:

I make $50k a year. I have $7k in credit card debt, $45k in student loans, and $4k in my retirement account. Can I buy a $40k convertible?

Even though I do not agree with all the advice she gives, she does give great advice to personal finance novices that are clue-less about where to begin or how to get themselves out of debt, and she definitely does not hold back! She does not seem biased as it she tells people when their financials advisers are trying to take advantage of them and that whole life insurance policies are crap. She also usually recommends low cost index funds which I like. If I had her job, I would get to give advice that I felt would actually help the listeners and I wouldn’t have to charge them for it because I would be earning my income from the advertisement revenues.

Cons: Yelling at all the people calling up asking me if they can fund their large purchase by putting it all on their interesting bearing credit card.

In all honesty I think #6 takes the cake! If I had a career that I was exited to show up to, was passionate about, and provided me with a paycheck, it would make reaching financial independence that much easier! Now I just need to convince CNBC to let me take over when Suze retires from the program. Shouldn’t be too hard…

What is your dream job? Are you currently living it? If not, what is stopping you?

Post College Finance Guide

I’ve been doing some reflecting lately as it has been over five years since I donned my cap and gown. I have been wondering how far I’ve come since I graduated college in May of 2009 with a full-time job offer set to begin in August. My plan for that summer was to get as many masters classes out of the way as possible, so that I wouldn’t have to kill myself too bad working full-time and trying to earn my masters degree. I am happy I jumped right into it as it definitely made my life easier in the long run.

I wouldn’t say I made any major errors with my finances after college such as buying too much of a house or not saving for retirement, but I definitely could have done better. Therefore I will use my experiences (good and bad) to outline a plan I wish I had followed with my finances post graduation.

Step 1 – Move back home (if possible):
Luckily my parents welcomed me back with open arms when I graduated college. I know this is not an option for everyone, but I was lucky to have this option and I took advantage of it. They didn’t charge me any rent, and it was much easier to get my financial feet underneath me while living at home. I only stayed for about a year, but looking back I wish I had stayed longer. I decided after a year to move closer to work since my parents’ home was approximately an hour commute each way which got old fast. Plus I wanted to become more “independent” and not live with the rents anymore.

If this isn’t an option for you because of personal situations or your job is too far away, try moving in with a relative that will rent you a bedroom at a discounted price, or try to split an apartment with as many people as possible to lower your costs that way. When I moved out, I moved into a 2 bedroom apartment 10 minutes from work with a friend from college. While I now had a rent payment, my commuting costs went way down.

Step 2 – Pay off all personal loans and credit card debt:
I had opened up a 12 or 18 month 0% introductory interest rate credit card my last year of undergrad. I did this to build more credit, but mainly to fund my living expenses while still keeping an emergency fund in my checking account. So when I began my full-time job in August, the first thing I did was pay off whatever balance was on this card (it wasn’t too much, probably around $1k and was still in the 0% introductory period). I also believe I owed my parents about $1k, which I paid off next. It was obviously a non-interest bearing loan, but I hated owing my parents money.

I’m not recommending, by any means, that college students open up credit cards to fund their living expenses. It was appropriate for me because I knew I had the money in my bank account, and am very diligent in my spending. I’m not one to buy things just because I have the funds available. Not everyone has this mindset though.

Step 3 – Save for retirement:
Putting saving for retirement as step 3 is a little misleading. I put this as step #3 just for the reason that most employers (from my experience) do not let you contribute to their 401k plan for three months or so after your start date. If your employer offers a match based off of your contribution, always contribute the required percentage to maximize the employer match as soon as possible.

Every company’s 401k plan is different, so just research yours. Some companies do not match at all, while I’ve seen others that will put in a percentage of your pay whether you contribute or not.

One thing I wish I did was contribute to an IRA. MadFIentist has written how the traditional IRA is the best option, and I’m not arguing against this but it has many factors limiting its benefits. It has a relatively low phase-out for the income tax deduction and accessing the funds while still earning income is not the best.

Currently I am phased-out of the traditional IRA and utilize the Roth IRA now. I really like the Roth IRA because contributions can always be distributed tax and penalty free, and then after 59.5 years old all distributions are tax and penalty free, including appreciation.

Step 4 – Pay off student loans:
Although my student loans went into deferment while I was earning my masters degree, that didn’t stop me from paying them down. I believe my highest interest rate student loans were 6.8% and I knew from the start I didn’t want those around for long. So I would pay down the high interest rate loans during deferment, and then once all the loans were active and I was paying them, I would pay minimum on the lower interest loans and extra towards the 6.8% loans.

I’m not a fan of the debt snowball method where the smaller debt balances are paid off first. Why pay off a $2k loan at 2% when you have a $10k loan at 6%? I am a fan of the debt avalanche method where I pay the minimum on low interest balances, and extra principal towards the higher interest bearing balances.

Right now I’m facing a dilemma because my only student loans left are at 3% (I have less than $10k left). I unfortunately do not receive the student loan interest deduction anymore but could pay them off if I wanted to. I just have a hard time paying off a relatively low interest rate when I would rather use that money to max out my retirement accounts sooner. So for the time being I’m going to settle in the middle since that makes me most comfortable and pay extra every month towards the student loans but not pay them off in full.

Step 5 – Don’t try and keep up with Joneses:
I made one mistake that I actually regret when it comes to my finances after college. A year after graduating, my car that I purchased with my own cash when I was 16 “shit the bed.” I was contemplating getting a used Toyota Camry and paying cash (less than $10k) or taking out a car loan for a “nicer” used car. What one do you think I chose? Of course choice B! I took out a four year used car loan at 6.39%.

Luckily I knew this was “bad debt” that was for a depreciating asset, but I took out a car loan anyways since “everyone else was doing it!” I knew I couldn’t deduct this interest for income tax purposes and my car was depreciating by the day, so I paid extra towards the loan every month. I paid it off in about 2.5 years, and then ended up selling it last year when I moved to NYC. I don’t think I’ll ever have a car loan again… lesson learned!

Some advice that I’ve been hearing lately that I can’t stand is “buy a house since interest rates are so low.” Interest rates are extremely low and hovering less than 4% for a 30 year fixed mortgage. I believe a house is not an investment unless it is providing you a return on your investment, such as cash flow.

People will use the excuse that it is a good tax deduction, which I can’t stand as well. If your mortgage rate is 4% and you’re in the 25% federal tax bracket, that’s still 3% of your principal balance that you’re paying in interest every year that you will never see again. Plus you are now responsible for property taxes, PMI if you don’t have at least 20% equity in the home, maintenance, all utilities, insurance, etc.

You should purchase a house when 1) you are sure you can afford it (not just that the mortgage broker says you can), 2) you are sure you are going to live in the area for longer than a couple years, 3) you are comfortable with home maintenance or at lease knowledgeable enough to contract it out, 4) a mortgage does not keep you up at night, and 5) you’re not thinking of owning a home as an investment.

Step 6 – What to do after student loans are paid off and all tax advantaged accounts are maxed out:
Those lucky enough to graduate without student loans, or who were focused enough and earned enough to pay them off early and max out their 401k and their IRA for the year, and have an emergency fund sometimes feel stuck with what they should do with their money. Should I build up my cash savings? Should I invest in an after-tax brokerage account? Should I invest in real estate?

In all honesty there are a million answers to these questions, and every popular financial blogger has wrote about their strategies. But in all honesty it is whatever makes you more comfortable. Sure there are answers that will most likely lead to a greater return on your investment over the long-term, but if those methods make you feel insecure then they are not for you.

I did not give an emergency fund its own step as it is different for everyone. I think emergency funds are extremely important, but if you’re able to move home after college and live rent free (or at least discounted), then I would worry about paying off any consumer debt and high interest student loans first. This is completely different for those who are completely supporting themselves, or a spouse, or a child, where this is much more of a necessity and should be prioritized. When I lived at home my only living expenses were student loans for the most part, so a couple thousand was enough for a six month emergency fund. But once I moved out into my own place I had to bump that up to keep it at six months of my living expenses.

Does anyone have any financial regrets about their early 20’s? What did you do well that you are proud of?

-FF

Managing Your Float

A couple years ago I was working for a senior manager that would not pay his electric bill regularly. It wasn’t because he couldn’t afford it, from what I could gather he had his financial house in relatively good order. His reasoning was because “why pay early when they aren’t going to penalize me or shut off my service? I’d rather keep my money as long as possible. Gotta manage your float!” From what I’d gather he’d regularly pay his electric bill at least a month late, especially in the winter time when electric companies in the northeast are not allowed to cut your power due to failure to pay.

Float, by definition, is when the bank will credit your account for a deposited check even though that check has not cleared. So in essence it’s not your money yet, but you have access to it, and it is counted twice as the payer still has that money in their bank account as well.

This conversation spiraled into another conversation where two other coworkers explained how they pay off their credit card weekly and sometimes daily, because they can’t stand “owing money when they just have it sitting in their checking account.” To be honest, I was baffled when I heard this as I set my credit card bill to be paid ON the due date, always.

When you pay your credit card early or any bills for that matter, in most cases, you are paying off a 0% loan early. I would rather use the money to fund my Roth IRA sooner, pay down a mortgage, pay down student loan debt, or just leave it in my checking account in case an emergency arose before it was due.

I think it all has to do with the person’s financial mentality. Where some people rush to pay down student loan debt at 1.9% or less, I would milk that payment out as long as possible and deploy that capital to investments.

But it’s easier said than done. I am actually running into this issue right now where my only student loans left are at 3% and I can’t decide if they’re worth paying off in advance or not. I have the funds to pay them all off now, but I don’t think it’s worth it with the low rates. So therefore I settled in the middle and pay extra over the minimum due even though I know over the long term the broader stock market has returned greater than 3%. Plus I do not receive the student loan interest deduction anymore. What would you do if you were in my situation? At the current pace I pay them, they will be paid off in less than 20 months.

Help me out folks. Which group do you fall in?

1) Do you manage your float to your full advantage?
or
2) Do you pay off your bills ASAP?
or
3) Do you fall somewhere in the middle?

-FF