This Financial Life with Thomas Frank Part 2

Today is Part 2 of our delve into Thomas’s financial life.  There wasn’t much to critique in Part 1.  Will Part 2 also make the rest of us feel like losers?

 At just 23 Thomas is doing better than many of us a decade or more older.  Let’s see if he’s make any mistakes Andrew can help correct.  (I like Thomas so I’m slightly ashamed of this but I hope he’s made at least one, tiny mistake.)

 While it’s impressive that Thomas makes about $69,000 a year, he pays more in taxes because he’s self employed than he would if he made the same salary as an employee.  If you want some advice on small business taxes, check out our recent episode with Johnny Horta.

Thomas still lives in Ames, Iowa where he attended college.  He has three roommates and pays $320 a month in rent.  He spends a lot on food, both groceries and eating out.  Part of that is just wanting to get out of the house since he works from home.

Last year Thomas saved $500 a month into Vanguard and $500 a month into Simple IRA.  His goal is to “retire” by age 40.  He wants to save $900,000 and live off 4% or $36,000 a year.  He needs to save $25,000 a year with 5% growth to reach that number by age 40.  So double what he did last year.

Aha!  Investing is where Thomas needs some guidance.  Thomas started with the Vanguard Star fund which has returned about 15% over the last five years.  If he moved to the Total Stock Market Fund, that number would be closer to 20%.  There is the 5% growth he was looking for without doing anything other than switching funds!

If Andrew were 23 again, he would put 50% into the Total Stock Market Fund, 10% into REIT’s, 10% into emerging markets, and leave 30% in Betterment with an eye toward using that for “opportunity buys” like when a Tesla caught fire and the stock was cheap.

Most of Thomas’s bills are paid automatically.  Rent and Simple are the only things that he has to remember to pay and Simple could be automated once he figures out how to allocate it.

Thomas is going really well, especially for one so young.  But he’s proof that we all can use a little help in various areas of our life.  That’s what LMM is here for!

Show Notes

Mint:  The easy way to track your spending.

Betterment:  The smart way to invest.

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