Author Topic: Help me recover from stupidity  (Read 4893 times)

nived

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Help me recover from stupidity
« on: September 30, 2013, 08:08:49 PM »
So, unfortunately I happened across this whole mustacian thing about a week after I accepted a 31k loan for a shiny new car. Now that the novelty has worn off, I realize that I want financial independence much more than I want to drive around in leather seats. I thought the 0% financing made it a great deal, but after reading some of the articles on the site I no longer think that's the case. I'd like some advice to help me get turned around. I'll do my best to include pertinent information below, if you have any other questions about my situation, please ask. One of the stupidest things about my new car is my close proximity to work. I'd been riding my bike for a couple months, but I was starting to feel like I needed a car for the winter and for other things that come up. Being human is hard...

I'm thirty years old. I'm single. I'm paying down a 15 yr mortgage ($1,170/mnth with $121,423.26 remaining [about $40k in equity]), and now the new car loan. I have no other debt. I have $32k in savings of which approx. $17k is currently invested in index funds and bonds (using betterment). I have one roommate who pays $325/mnth in rent. I could do some minor work on the house to create another room to rent out (I just don't know how to do it currently). With the addition of the car expenses, I'm down to a $250/mnth surplus of approx. $4,000/mnth net income.

I'm considering selling my house and moving back to my mom's place. She could use some help anyways and it would drastically reduce my monthly expenses. I'm also wondering if selling my new car and getting a used reliable one would still be more frugal. It's probably worth mentioning that I'm getting quite burnt out in my current field (software engineering), but feel stuck because of my house payment (and now my care payment).

Any advice would be greatly appreciated. Thanks!

seattlecyclone

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Re: Help me recover from stupidity
« Reply #1 on: September 30, 2013, 08:19:20 PM »
Yes, selling the new car is more frugal. The car depreciated significantly when you drove it off the lot, but that depreciation should be regarded as a sunk cost at this point.

You mention you have $32k in savings. Great! So you can afford to sell your car, pay off any remaining balance on the car loan, buy a reasonable used car, and still have a decent emergency fund left over. Your cash balance would go down in the short term, but the savings will add up in the long term. You will have no more car payments and lower insurance costs. You can take that money you're currently giving the bank for your car loan, and instead invest that money or pay down your mortgage. Dump the car and watch your stash grow!

Dicey

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Re: Help me recover from stupidity
« Reply #2 on: September 30, 2013, 11:02:41 PM »
I think moving in with your mom is a BAD idea. You have to grow up, man up and clean up your own mess, not go hide behind mom's apron.

Whoops, that sounded harsher than I intended, but I'm not going to take it back. Instead of running from your mistakes, FACE THEM!

Is the roommate paying market rent? Does he/she pay half of the utilities? Do you eat meals at home and pack your own lunch?

I, for one (and I assure you, this will be a minority viewpoint), do not think you should sell the car. You're going to get hosed. Enjoy it, take excellent care of it. Drive it as little as possible, so that you can keep it for fifteen years or more. Then remind yourself every time you see it that you once made a mistake, but you are never going to so again. If you cash out your savings to pay any shortfall, you are losing twice. Since the loan is at 0% and you already own a house, it's not going to hurt as much to keep it in the long run as you think. The mistakes you don't make in the future because you made this one and faced up to it could save you a fortune over the course of your adult life.

P.S. You don't have to move in with your mom to help her. I'm not letting you off the hook on that one. Best of luck to you!

MKinVA

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Re: Help me recover from stupidity
« Reply #3 on: October 01, 2013, 06:05:06 AM »
If you bring home 4,000 per month, what else are you spending money on? Your mortgage minus roommate rent is only 800 plus? What's the car payment? Seems as though you should have a lot more than 250 bucks at the end of the month. You could certainly get out from under the car, but does it serve all your purposes? Is it a good travel vehicle, good gas mileage, lots of storage for hauling things around? If so, I might think about keeping it (for 20 years).

Also, don't move home with mom. You need to might this work in the real world.

nived

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Re: Help me recover from stupidity
« Reply #4 on: October 01, 2013, 10:24:26 AM »
Thank you so much for the feedback and your willingness to help. I greatly appreciate it! Here's a picture of my current budget for October (I use YNAB). This should answer most of the questions that have come up. I do have more than $250/mnth left over--closer to $950/mnth. The vehicle I have is really not the best for hauling anything but people. It's a Ford Focus ST. I definitely didn't buy it for practicalities sake. I was seduced by the speed and 0% financing *puts head down in shame*

The red number in the picture is due to the family phone plan I share with my brother. When he reimburses me it'll bring the balance in that category back to $0. The Savings categories go into off budget accounts, so their totals are not tracked here. I still need to do some re-allocation. For example, the money (Transportation/Upgrade) I was saving up for a vehicle never got used (I didn't put anything down when I got my new car). I could also move most of the money out of my Home/Upkeep category. I was going to use it for landscaping. I might still use it for some minor remodeling to section off another room to rent.

I think it might be helpful to re-organize my budget to clearly differentiate between fixed expenses, and those that I can do something to reduce. As I look at it more closely, there's a lot of room for savings in there.


StarryC

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Re: Help me recover from stupidity
« Reply #5 on: October 01, 2013, 11:00:17 AM »
A hatchback Ford Focus, in and of itself it not a terribly anti-mustachian car.  Though, I think the ST version gets worse gas mileage than the less souped up versions.  Still 24-28 though, right? And, if you have a gas budget of $100 a month you aren't driving much anyway. 

It looks to me, on an initial search, that a 2013 Focus hatchback is selling in my area for about $22-$26,000.  So, you've already lost about $7,000.  I'm not sure switching out for a 2010 focus at $10,000 with no interest savings, small insurance savings, and small gas savings is worth it.  If your interest rate was high or if you were spending an extra $200 a month on gas it would be worth it. 

$100 a month on "upkeep" for the brand new car seems high!  I'd expect closer to $150 a year. $200 a month on upkeep and furnishings for the house also seems high.  The other categories seem fine.   If you throw that $300 a month into getting the other room ready for 3 months and rent it out at even $250 a month that would be a good investment.   At that point you could save $942 + 250 + 250 (from above categories reduced).  Of your $4000 net income, that would be a savings rate of 36% (not quite true because it pretends the rent isn't income, but also not including the principal payment on your mortgage.

senecando

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Re: Help me recover from stupidity
« Reply #6 on: October 01, 2013, 11:38:17 AM »
...

I think it might be helpful to re-organize my budget to clearly differentiate between fixed expenses, and those that I can do something to reduce. As I look at it more closely, there's a lot of room for savings in there.


I'll confirm that this is a really useful way to use categories in YNAB. I use something like:

* Fixed (Rent, etc. Can be reduced year-to-year)
* Staples/Daily Stuff (Food, Gas etc. Costs that cannot be removed but can be reduced month-to-month.)
* Extras (Alcohol, etc. Stuff that I could take down to zero if I wanted to.)
* Irregular
* Investments/Saving (AKA Not really spending)

Just having those four categories makes a lot of the reporting tools in YNAB much more useful.  I've found putting all irregular expenses in their own category makes it easier to see real trends month-to-month. Also, hide the Investment category in reports and they make much more sense.

Greenbeard

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Re: Help me recover from stupidity
« Reply #7 on: October 01, 2013, 12:58:44 PM »
Don't ditch the car and lose money just based on principle.  Keep the car in excellent shape and keep track of all your maintenance records.  Keep the miles reasonable.  (Not too low, people actually get suspicious of cars with too low miles.)  Keep your eye on the book value and on Craigslist to see what they are selling for and when the time is right, sell it.

Eventually you'll get some value out of the car that will help account for the big loss you took driving a new car off the lot.  Hot hatchbacks are desirable, that one in particular.  It should hold it's resale value for a while.

In a year the car will still be worth about what it's worth now, but you'll have driven it a year and gotten some value back.

smedleyb

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Re: Help me recover from stupidity
« Reply #8 on: October 01, 2013, 01:01:08 PM »
The thing I don't get is how are you paying $570 a month on a 31K loan?  The math does not work out for a 48 or 60 month term.

The Money Monk

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Re: Help me recover from stupidity
« Reply #9 on: October 01, 2013, 01:43:12 PM »
I would get the work done on to make the other room rentable as soon as possible. Even if you can't do it yourself. Assuming you would get the same (or more) as from your first roommate, every month you have the room empty you are losing out on an extra $300+ dollars a month, and another chunk for utilities. Which would more than double your current savings rate before you even change anything else.

So yeah you might be able to do the renovations cheaper if you do them yourself, but it would be better to pay somebody else to do them and start making money off it than to have it sit there empty. If you procrastinate even a month or two the savings from doing it yourself would be negated by the opportunity cost of lost rent.



nived

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Re: Help me recover from stupidity
« Reply #10 on: October 01, 2013, 02:25:45 PM »
Thanks everyone. All the feedback is really encouraging. I will definitely make renting out another room my top priority. smedleyb, I'm glad you pointed that out (though it is humbling). I must be remembering one of the two figures incorrectly. I haven't received my first statement yet, and the more I think about the less certain I am that the 31k figure is the one I've remembered correctly. The full weight of my stupidity is setting in... No going back though. Thanks for all the advice. I'm actually starting to feel a bit more optimistic.

MrsPete

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Re: Help me recover from stupidity
« Reply #11 on: October 02, 2013, 12:34:57 PM »
First, the car: 

If you hadn't already bought the car, I think you'd hear a resounding, "DON'T DO IT", but it's too late for that.

On the plus side, it's a decent car.  Good mileage, should last you a while.   On the negative side, how could you possibly have paid so much for it?  I see from Google that it runs $16,692 - $24,062.  Yeah, leather seats, etc.; I'm thinking you bought a tricked-out version of an economy car.  Or did you roll an old car payment into the loan? 

You'll get different opinions on this, but I say keep the car.  Keep the car a long, long time.  You have to pay for it anyway, so use it.  As others have said, mind your maintenance so it will last.

House:

Your utilities look high to me, but I do live in the land of low . . . everything.  Could you cut back on utilities by keeping the heat lower, caulking windows, etc.?  You're spending $100 a month on furnishing your house -- that's not something you can afford right now.  If you're surviving with what you have now, you can continue surviving with that same stuff for a while. 

Multiple categories in your budget:  fun, eating out, vacation, entertainment.  Yeah, we all need some of that in our budgets, but you're fooling yourself by moving things into multiple categories so that it looks like less. 

Moving in with mom: 

I'm ambivalent about this one.  So many variables:  How do the two of you get along?  How far from work is she?  Would this be long-term or short-term?  Would your house sell quickly and for a profit?  Would you actually save money doing this, or would you want to escape often enough that you'd just "up" your entertainment budget? 

If you stay put, a roommate is a great idea.  A roommate could potentially cut your mortgage in half, and that's like free money. 
« Last Edit: October 02, 2013, 05:17:08 PM by MrsPete »