Okay, it isn’t really diabolical, but it is probably the closest I’ll ever come to anything even nearly diabolical, so please let me have this.
Something to note about all of my figures below is that I get paid every other week, so although I will include monthly savings numbers below, it’s important to remember that I will have 2 “extra” paychecks per year that aren’t earmarked for monthly expenses. (Twice monthly paychecks = 24 paydays per year. Every-other-week paychecks = 26 paydays per year.)
The “Cutting My Spending” Part
Rent: In a month or so I will be moving to a new apartment and will save $1000 on rent. My commute will be longer, but I will still come out ahead. Gain: $900 per month
Vehicle #2: Selling that sucker as soon as I possibly can. Bye-bye car payment. I will save $300 for the car payment, and $100 on insurance. Gain: $400 per month
Child support: Fibidie Jr. was living with his dear Papa for a couple of years and I was paying child support. The situation is about to reverse. Gain: $1100 per month + head of household filing status at the end of the year + an awesome kid
Storage: I am currently paying to store
shit treasures that I’m sure I can do without. That will be cleaned out very soon. Gain: $90 per month
Cable television: Uh, no. Gain: $100 per month
Power: Currently I am paying electricity for a multi-person household. Long story. When I move it will be just Junior and me. Gain: $100 per month
Water: Junior is a teenager and takes accordingly long showers, but it won’t be nearly as much water as is currently used in my current household. Gain: $100 per month
Phone: I really need the mega ultimate everything-included limitless phone, texting, data. A contract with a major carrier is SO worth it… and I’m totally yanking your chain. I switched to Ting years ago and I love it. Just wanted to make sure you’re paying attention. (That was an affiliate link, BTW.) Gain: N/A
The “Put Those Little Green Soldiers To Work” Part
401(k): My company makes a base 3% contribution for me even if I invest nothing. Awesome. If I invest 6% of my salary they will match 7.5% of my salary at 100%. My actual salary is slightly below $140k, so 13.5% of that will be $18,773. That’s a lot of free money, so I will be contributing only the required 6% to get the match until I’m out of debt. Invested monthly: Me – $641 / Company – $802 (plus 2 “extra” paychecks a year that brings it to the annual total).
Employee Stock Purchase Plan: I am entitled to invest in my company’s stock at a 15% discount, and am allowed to sell it as soon as it settles. My working theory is that if I do sell it immediately, I will take either a slight loss immediately or be taxed against a slight short term capital gain. It isn’t typically volatile. The trading commission will eat up about 1% if I sell after every investment, so I am going to assume a gain between 10-13% that can be realized on every purchase unless something REALLY EXTREME happens. I am going to invest 9% of my salary for a total of $12,515 annually. Invested monthly: $962 (plus 2 “extra” paychecks a year that brings it to the annual total).
Note: This is a bit of a “flipping” strategy. As soon as my account is long those new shares I’ll place an order to sell, then invest the proceeds elsewhere. It’s all about getting as close to that 15% return as possible.
The “Get My Ass Out Of Debt” Part
Credit card debt: Current balance (across all cards) is $6457. Obviously, this is the highest interest debt and I will be taking this out as quickly as possible.
401(k) loans: These guys are really interesting. At the time I took the loans out my rationale was “hey, I will be paying myself back all of the principle plus the interest, so there is no downside!” What I didn’t take into account was opportunity loss. I could have been making lots of money over the last couple of years with what I’d taken out of the market to fund these stupid loans.
So, as soon as my high-interest debt is taken care of I will be paying these suckers down. Or paying my 401(k) back up? However you’d like to look at it. I haven’t included my 2 “extra” paychecks in any of the figures above because I intend to apply them to these loans until they are paid off.
401(k) loan #1: Current balance is $17,145, at 5.75%. My monthly payment is $177, which is automatically deducted from my pay.
401(k) loan #2: Current balance is $29,209, at 6.25%. My monthly payment is $268, which is automatically deducted from my pay.
But what about your $10,000 annual bonus?
A few thoughts. First, I tend to underpay my taxes during the year and end up paying out the nose at the end of the year instead. Honestly, I’m kind of okay with this arrangement. When I’m not being stupid with my money that means I can invest those dollars and earn returns on them during the year instead of Uncle Sam. Then I pay the red, white, and blue bill when it comes due. My bonus just happens to come just before tax day. How convenient! (I will probably shift my withholding after I get a better idea of how my new filing status will change the picture for next year, so this number will go down.) Estimate: $3000. I am hoping to deduct as many business losses as possible though, so it hopefully won’t be that high. Will find out as soon as I file. I do want to get this number down as much as possible.
Another thing I usually use my bonus for is Junior’s summer camp, which is something I place a high value on. This year it will be about $1300.
Also coming out of my bonus this year will be moving expenses into my groovy new discount abode a couple of towns away. Estimate: $1000.
The remainder will go to a training program I am doing this year, which my employer will reimburse me for as soon as I graduate, probably around October. This will open up opportunities for me to start a side hustle, as well as a potential new career path, so I’m going for it while the going is good. Estimate: $5000 (I’ve already “paid” part of it; please see credit card debt above).
So how does this all look for the longer term?
Let’s pretend for just a moment that I’ve paid off all of my debt. For the sake of argument, let’s say that my salary stays at its current level as today, and my company doesn’t decide to send me out to pasture (this has been happening with alarming regularity lately).
401(k): If I max it out at 13% of my salary + 7.5% matched at 100%, it will be $28,508 per year (for a monthly investment of $1390 + extra paychecks).
Healthcare Savings Account (HSA): My medical insurance through work isn’t considered a “high deductible health plan” so I don’t qualify. Even in the highest deductible flavor of our plan, I am squeaking in just under the minimum deductible to qualify. Poop.
Traditional IRA: My MAGI is too high to be eligible for a trad IRA right now, but hopefully next year.
Roth: My marginal tax rate is much higher now than it will be when I retire, so, no. And that sucks because my 401(k) allows me to make after-tax contributions into a Roth account that can be rolled over into a Roth IRA. Backdooring it makes no sense to me though given my tax situation.
Employee Stock Purchase Plan: Yes, I realize it’s a bit on the “wild ass guess” side, but I’m going to assume I continue the 9% investment of 15% discounted stock, with a return of at least 10% on the flipside. That is a total of $13,767 per year (a monthly investment of $962 + extra paychecks). I am not yet sure how I will invest this, but it will likely go into a taxable account and a Vanguard index fund.
Total saved per year: 47,775
Junior and I will be living on around 43,000 per year, which means I will be saving about 53% of my net salary.
The folks over at the Networthify “When Can I Retire?” calculator say that I can retire in 14.4 years! If I can start saving my bonuses and 100% of my extra paychecks, I can push that down to 12.9 years.
That, my friends, means that if NOTHING CHANGES, I will reach FI when I’m 59.
I just have to stay alive until then.
I am fully aware that I’m playing fast and loose with some of this, but it’s at least a rough sketch of my diabolical plan. That’s the best I can manage right now. The Cone of Uncertainty says I’ll get more precise as I get closer to implementation. There are a LOT of levers I can pull to change the outcome. Expenses of $43,000 for 2 people could be skinnied down quite a bit, and I will be working on that.
“The Cone of Uncertainty” sounds like a party trick, like a Magic 8 Ball. “SPIN THE CONE OF UNCERTAINTY! Then point it at your question, look through it and see the answer appear!”
Somebody please get on that.