Author Topic: How to get started???  (Read 7253 times)

stashless

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How to get started???
« on: July 02, 2012, 11:02:05 AM »
Hello, let me divulge the full details of my disgusting financial situation.  The wife and I are 41 years old with two kids, 2 and 4.  Here are our assets:

401k: $130k

We own a 2010 Toyota van outright but that's not an "asset" in my mind, not in this context anyhow.

Debt (here's the really ugly part):

~$10k on credit card at 6.9%
~$5.7k on motorcycle at 5.9% (I commute on this)
~$35k on truck at 2.75% (barely gets driven now that I have the motorcycle)
~$235k on primary residence at 3.75% (just refinanced for 30 years, VA loan)
~$96k on rental property at 6% in another state (used to be our primary) ... we pay more monthly than this property brings in, by about $150, it was not our choice to have it be a rental, but it has been now for over five years.
two 401k loans totaling over $26k, paying myself 3.25%

I make over $109k per year salary.

I understand paying off the credit card has to be a priority.  I'm tempted to sell the truck, even though it'd be a slight loss (bought new six months ago but it's a Toyota so value is better than most).  As I see it I'd lose about as much as I'd save in interest over the life of the loan but freeing up the cash would allow me to pay other things off a lot faster.

Any suggestions???

Thanks,
Stashless

stashless

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Re: How to get started???
« Reply #1 on: July 02, 2012, 11:18:12 AM »
We pay $140 weekly for the truck and have a little over 4.5 years remaining on the loan.

James

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Re: How to get started???
« Reply #2 on: July 02, 2012, 11:30:09 AM »
You are asking here, so absolutely yes, sell the truck.  Tomorrow.


But then you knew that didn't you?  :D


I'm sure it will hurt, but you will be glad you did.

James

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Re: How to get started???
« Reply #3 on: July 02, 2012, 11:35:40 AM »
There is much more advice we can give, and you can certainly make lots of changes that will make your $109k salary seem huge.  Have you read through the back posts on the blog?  Are you aiming for mustachian makeover or just to get yourself back to treading water more comfortably?  I've been in your shoes, I didn't change overnight and I'm not saying you should, but at the same time if you are at a point of saying "This must change!" then really make it count!  Get serious and get your lifestyle on track to really be what you want it to be, don't put things off, because it's all too easy to slip back into those ruts.  Getting an idea of your goals will give us a baseline for making recommendations.

I would also sell the minivan and get a nice high mpg car, that will free up some cash to get rid of debt.  Sell the motorcycle and get something cheap to commute on, you can save up for the beautiful bike and pay cash for it when you can afford it.  You will enjoy it that much more, and a $1000 motorcycle will work fine for commuting.  (Or better yet bike if you are close enough)

If you list your other expenses we can continue to tell you the mustachian advice as we see it, and being here that is what we expect you want to hear.  That doesn't mean everyone here follows that advice in every area, but we don't sugar coat things or enable mediocrity.  :)
« Last Edit: July 02, 2012, 11:44:20 AM by James »

stashless

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Re: How to get started???
« Reply #4 on: July 02, 2012, 11:37:22 AM »
Well, my gut tells me yes, sell the truck, but I wasn't entirely sure it makes financial sense considering I'll take a loss on it.  I'm not entirely sure when it makes sense to take a loss in order to reduce debt.
« Last Edit: July 02, 2012, 01:26:52 PM by stashless »

stashless

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Re: How to get started???
« Reply #5 on: July 02, 2012, 11:39:57 AM »
There is much more advice we can give, and you can certainly make lots of changes that will make your $109k salary seem huge.  Have you read through the back posts on the blog?  Are you aiming for mustachian makeover or just to get yourself back to treading water more comfortably?  I've been in your shoes, I didn't change overnight and I'm not saying you should, but at the same time if you are at a point of saying "This must change!" then really make it count!  Get serious and get your lifestyle on track to really be what you want it to be, don't put things off, because it's all too easy to slip back into those ruts.

I'm at the "this must change" point.  I've been wasting money for far too long and it's not making us any happier.  My wife is already generally frugal, although lately she's been on an organic kick that's costing us a fortune in groceries.  Without directly knowing it, she's always been mustachian because she does not want much, her main priorities in life have always been family, financial security, and food on the table.

grantmeaname

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Re: How to get started???
« Reply #6 on: July 02, 2012, 11:40:26 AM »
I'd say sell the van while you're at it, and get something older. You're in debt enough that driving a new car and driving a really new car aren't a pair of great decisions. What about a mid-2000s hatchback? It'd fit all four of you just fine. Bonus badass points if you can keep it to the one car and the motorcycle, but if not you could get a pair of 2005ish cars for less than 2/3s the value of your van.

Well, my gut tells me yes, sell the truck, but I wasn't entirely sure it makes financial sense considering I'll take a loss on it.  I'm entirely sure when it makes sense to take a loss in order to reduce debt.
It's a depreciating asset. The longer you wait to sell it the more of a loss you'll take. That sure doesn't make financial sense.

Lars

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Re: How to get started???
« Reply #7 on: July 02, 2012, 11:48:31 AM »
Sell the truck.

Sure you will take a loss but sooner you sell the smaller that loss will be. Think of the loss as a business might - Ignore the difference between the value of the vehicle and the balance of the loan as that is not the real loss. Your losses instead grow every day as the vehicle loses valve, interest costs are added to the loan, and you pay car insurance on a vehicle you rarely use.

AJ

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Re: How to get started???
« Reply #8 on: July 02, 2012, 12:00:09 PM »
I'm entirely sure when it makes sense to take a loss in order to reduce debt.

The thing is, though, you won't be "taking a loss". You have already "taken" the loss. Truck values don't go back up over time, so that money is long gone now. All you can do is lose more of it (or not).

James

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Re: How to get started???
« Reply #9 on: July 02, 2012, 12:15:04 PM »
Your debt right now on the truck is $35k.  Say you get $30k selling it, you have immediately saved $30k that you would otherwise have spent.  That is some huge savings!  Cash flow is the problem, you need to come up with $5k (or whatever the real number is) in order to clear out that truck debt.  You can do that by selling the van, which should also provide enough to get rid of all or at least most of the cc debt.  Same goes for the motorcycle.  Of course, before you sell the van and motorcycle you figure out what you will end up getting so you can figure out the bridge between the two places.

mechanic baird

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Re: How to get started???
« Reply #10 on: July 02, 2012, 02:10:50 PM »
+1 on sell the truck. You don't use it often. I'd keep the motorcycle though if that's what you use to commute.
Cars are de-appreciation assets, the longer you wait, the more money you lose. Bite the bullet now and save you 4 and half years of grief paying it.. I'd sell the truck tomorrow.

All consumer debts have to go and money needs to be saved up before you buy a car. If you read MMM's posts, you will know the guy is right about NEVER taking out loan to buy a car..

As of your wife's organic addition, that's not so bad if she knows how to plan it right. Eating organic is a long term investment to your and your family's health. We eat exclusively organic and grass fed meat and we are able to cut our grocery bill by half just by doing a bit more planning.. I will start another thread on this..

stashless

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Re: How to get started???
« Reply #11 on: July 02, 2012, 02:33:52 PM »
Thanks for the feedback on the organic eating Baird.  I highly encourage organic eating but there has to be a reasonable way to go about it because you can easily spend a fortune on it.  I'll look forward to your thread.

stashless

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Re: How to get started???
« Reply #12 on: July 03, 2012, 01:07:49 PM »
The truck and my $8k in camera gear will be up for sale by this weekend.  Once those are sold the credit card and motorcycle will be paid off within a few months.  Then it's on to paying the houses off in record time.  Thanks for your input guys.

mechanic baird

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Re: How to get started???
« Reply #13 on: July 05, 2012, 10:21:17 AM »
The truck and my $8k in camera gear will be up for sale by this weekend.  Once those are sold the credit card and motorcycle will be paid off within a few months.  Then it's on to paying the houses off in record time.  Thanks for your input guys.

Great work man!! That's awesome you are taking the action. Congratulations!

twinge

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Re: How to get started???
« Reply #14 on: July 05, 2012, 10:47:20 AM »
Quote
Then it's on to paying the houses off in record time.

I think selling the truck and camera gear to get out of the truck loan and pay off credit card debt makes complete sense.  But in your case I would hold off on paying off the houses aggressively.  Instead, I would first invest--maybe partially in a Roth IRA, part in a taxable account--with the idea of building up enough to pay off the 401k loan if you lost your job (to avoid taxes/penalties etc.).  At that point, I personally would continue to invest rather than accelerating the mortgage repayment, but people vary on that.

James

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Re: How to get started???
« Reply #15 on: July 06, 2012, 06:20:30 AM »
The truck and my $8k in camera gear will be up for sale by this weekend.  Once those are sold the credit card and motorcycle will be paid off within a few months.  Then it's on to paying the houses off in record time.  Thanks for your input guys.


That's great!!!   


I assume you will start with the $96k at 6%, which sounds smart to me.  Seems like a good idea to get out of that property, do you need to pay it down in order to sell?

stashless

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Re: How to get started???
« Reply #16 on: July 10, 2012, 12:43:25 AM »
I do not "need to sell" the $96k property, imo.  I consider it a good investment long-term.  It stays rented well but is in a poor market for sales.  The only downside is that it's out of state from where we live.  Maybe I'll start a separate thread to collect some knowledge and opinions on rental properties and selling them and such.  My estimation is that if I were to drop the price to a point it'd sell right now, we'd lose most of our down payment.  It's been for sale (and rented) for five years now with only one offer.

As an update, I have sold $3695 in camera gear already.  The truck is on craigslist but I've got no calls yet.  For now we're keeping the van and motorcycle, we'll adjust some more as things progress.  We've also cancelled Dish Network and the wife has been working at reducing grocery spending while sticking to organics as much as possible (we've eaten organic for years).  I've been increasing my bike trips to places like Home Depot (2 miles) and the grocery stores (1/2 to 3 miles) ... despite insane Phoenix summer temps and despite having a motorcycle that gets 85mpg readily available.

For the record, I've been going back and reading every article in the MMM archives.  I have discovered that I have had many mustachian traits for some time.  I bike to work much of the year, living only 2 miles from work.  I have shaved my head forever, precisely because it's cheap.  I insist on living close to work both because it's cheap and/or I can bike AND because it gives me more time with family.  There are a host of others but those are a few I thought interesting.

As another sign of what I would assume is good mustachian practice, we installed 5kw of solar panels on our house this year.  We are totally loving the solar!  And the Phoenix area was friggin made for it!

stashless

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Re: How to get started???
« Reply #17 on: July 16, 2012, 02:50:28 PM »
Truck's gone.  All but two pieces of photography gear are gone.  Still have some RC helicopters to sell.

Credit card and motorcycle will be paid off within 5-6 months.  Then it's on to some combination of saving a stash and/or paying off the mortgages.  I currently have $131k in my 401k (plus there are two loans from it with an outstanding balance of ~$26k).  I contribute 8% pre-tax to the 401k and employer matches 75 cents on the dollar on that.  The 401k loans will be paid off on regular schedule within 3.5 years.  I cannot pay ahead, I have to save and pay them off all at once or let them play out through regular payments.  I'm paying myself 3.5% on those.

We're leaning toward lowering the sales price of our rental property in an effort to go ahead and dump it.  It's been negative cashflow the entire time we've had it (it was never intended to be a rental, it was our PR before we moved out of state).

Any suggestions?