Author Topic: Case Study - $800,000 in debt and where to start?  (Read 25816 times)

tralfamadorian

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Re: Case Study - $800,000 in debt and where to start?
« Reply #150 on: September 26, 2017, 03:29:42 PM »

Just to put that in perspective:
1. 3600 per year - stache required: 90k
2. 5400 per year - stache required: 135k
3. 7800 per year - stache required: 195k
4. 360 per year - stache required: 9k
5. 840 per year - stache required: 21k
6. 1200 per year - stache required: 30k

Total savings: $19,200 per year
You just reduced your FIRE target by $480,000

Eye-opening breakdown Andy!  +1 

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #151 on: September 26, 2017, 08:58:37 PM »
Adding to the list here...

Complete:

1. Credit cards have been paid off, resulting in freed up cash $300/mo
2. Winding down the Lending Club account has started, should add income of about $450/mo
3. Stopped contributing to emergency fund and misc saving accounts, resulting in freed up cash: $650/mo
4. Downgraded AMEX Platinum to AMEX Green Card, saving $30/mo
5. Disposed of BlueGreen Timeshare, saving $70/mo
6. Cancelled Crossfit membership, saving $100/mo

Just to put that in perspective:
1. 3600 per year - stache required: 90k
2. 5400 per year - stache required: 135k
3. 7800 per year - stache required: 195k
4. 360 per year - stache required: 9k
5. 840 per year - stache required: 21k
6. 1200 per year - stache required: 30k

Total savings: $19,200 per year
You just reduced your FIRE target by $480,000

Proof positive that every little bit counts!  Thanks for putting this in perspective.  These things don't seem like big moves on their own, but it certainly adds up!
Please don't mistake my ignorance for arrogance -thebloggo

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Ze Stash

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Re: Case Study - $800,000 in debt and where to start?
« Reply #152 on: September 27, 2017, 04:20:54 AM »
Adding to the list here...

Complete:

1. Credit cards have been paid off, resulting in freed up cash $300/mo
2. Winding down the Lending Club account has started, should add income of about $450/mo
3. Stopped contributing to emergency fund and misc saving accounts, resulting in freed up cash: $650/mo
4. Downgraded AMEX Platinum to AMEX Green Card, saving $30/mo
5. Disposed of BlueGreen Timeshare, saving $70/mo
6. Cancelled Crossfit membership, saving $100/mo

Just to put that in perspective:
1. 3600 per year - stache required: 90k
2. 5400 per year - stache required: 135k
3. 7800 per year - stache required: 195k
4. 360 per year - stache required: 9k
5. 840 per year - stache required: 21k
6. 1200 per year - stache required: 30k

Total savings: $19,200 per year
You just reduced your FIRE target by $480,000

I kind of disagree with this breakdown. The $450/mo from lending club and the $650/mo redirected from the savings accounts are not savings in the sense that he stopped spending that money on something. These are just cash flows that he already had redirected towards debt repayment. I agree that this is a very smart move and the money is much better used to get rid of those loans as soon as possible, but that decision did not decrease his FIRE target, as that is only determined by real spending.

Nevertheless, impressive progess thebudgetbloggo. I find it very inspiring to read your updates and am looking forward to you posting even more awesome ones.

andy85

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Re: Case Study - $800,000 in debt and where to start?
« Reply #153 on: September 27, 2017, 05:57:07 AM »
Adding to the list here...

Complete:

1. Credit cards have been paid off, resulting in freed up cash $300/mo
2. Winding down the Lending Club account has started, should add income of about $450/mo
3. Stopped contributing to emergency fund and misc saving accounts, resulting in freed up cash: $650/mo
4. Downgraded AMEX Platinum to AMEX Green Card, saving $30/mo
5. Disposed of BlueGreen Timeshare, saving $70/mo
6. Cancelled Crossfit membership, saving $100/mo

Just to put that in perspective:
1. 3600 per year - stache required: 90k
2. 5400 per year - stache required: 135k
3. 7800 per year - stache required: 195k
4. 360 per year - stache required: 9k
5. 840 per year - stache required: 21k
6. 1200 per year - stache required: 30k

Total savings: $19,200 per year
You just reduced your FIRE target by $480,000

I kind of disagree with this breakdown. The $450/mo from lending club and the $650/mo redirected from the savings accounts are not savings in the sense that he stopped spending that money on something. These are just cash flows that he already had redirected towards debt repayment. I agree that this is a very smart move and the money is much better used to get rid of those loans as soon as possible, but that decision did not decrease his FIRE target, as that is only determined by real spending.

Nevertheless, impressive progess thebudgetbloggo. I find it very inspiring to read your updates and am looking forward to you posting even more awesome ones.
Yea...i completely agree with you and thought the exact same thing when typing that post up. Not all of those expenses are 'forever expenses' and one of them is even a savings category....just trying to get the point across on how little changes add up.

bhleigh

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Re: Case Study - $800,000 in debt and where to start?
« Reply #154 on: September 27, 2017, 01:42:59 PM »
Great Job tb! I recently started to bring my wife on board with MMM. I let her pick an area that she thought she could deal with the most, the cooking. She loves to cook but also loves good wines and fancy cheeses as she is French. So far in the last month we have managed to cook only 3 meals a week. We eat the left overs the next night. That leaves one night a week that is unplanned. Still working on that one. My point is to take it slow and let her join MMM at her pace.

Good luck and keep the updates coming!
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Zoot

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Re: Case Study - $800,000 in debt and where to start?
« Reply #155 on: October 02, 2017, 12:12:10 PM »
Posting to follow--great job "waking up," tbb!  :)

Villanelle

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Re: Case Study - $800,000 in debt and where to start?
« Reply #156 on: October 02, 2017, 06:02:36 PM »
It's really friggin' inspiring to watch this process work exactly as it should, but so rarely does! 

TonyV.

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Re: Case Study - $800,000 in debt and where to start?
« Reply #157 on: October 12, 2017, 10:38:37 AM »
So I just read the whole thread and it's very inspiring! I'm happy to read about someone willing to make so many changes to better their life. Keep up the good work! I really have no advice for you from my position since I think everyone else has covered everything else with better advice than I could supply. I'm just REALLY curious about a couple parts of the story and look forward to updates along with everyone else.

First off... I kept looking for but never came across what this "start up company" is all about. Who did you invest with? What is the company about? Are you seeing any returns from it yet? When do you plan on seeing them? Was it a "bad" decision and can you cut your losses? Or are you stuck with it?

Second of all... I'm curious to hear more about how the wife has responded to you finally getting a budget together and how she feels about the changes you have made and the ones you plan to make. I never saw an update on her position in this and think it would be nice to hear about.

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #158 on: November 01, 2017, 07:47:46 PM »
So...it's been awhile.  You didn't really think I gave up, did you?

Here is what was complete as of my last post (somewhere around late September):

1. Credit cards have been paid off, resulting in freed up cash $300/mo
2. Winding down the Lending Club account has started, should add income of about $450/mo
3. Stopped contributing to emergency fund and misc saving accounts, resulting in freed up cash: $650/mo
4. Downgraded AMEX Platinum to AMEX Green Card, saving $30/mo
5. Disposed of BlueGreen Timeshare, saving $70/mo
6. Cancelled Crossfit membership, saving $100/mo

Since then, I've been quiet on here, but also quietly making MMMoves in the background, so let's catch you up really quick...

7.  Sold Buick LaCrosse! 
              Payoff:  $16,378
              Sale Price:  $12,000
              Cash to sell:  $4,378
              Prep to sell:  $758
              Total from cash:  $5,136

8.  Bought a 2010 Volkswagen Jetta SE with cash!
             Price:  $4900
             TTL:  $295
             Total from cash:  $5,195

9.  Paid down highest APR personal loan by nearly $3,000
            Original Balance:  $17,185
            Today's Balance:  $14,252
            Total from cash:  $2,933

7+8+9 = 24, right?  WRONG...it equals $13,264 less cash, but damn it feels good to be a gangster (name that song?)...

On a serious note...these last three moves hit our cash reserve hard.  Despite that, the extra cash freed up from items 1 through 6 mean it won't take long to start reaping the benefits. 

Speaking of benefits, I had 41 payments left on that Buick at $372/mo.   So, 28 months from now I'll have recouped my cash outlay from both that sale and the purchase of the Jetta, while also cutting 14 more payments totaling $5,208!!!

Cheers!

*edit for my bad grammar


« Last Edit: November 01, 2017, 07:55:23 PM by thebudgetbloggo »
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tyort1

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Re: Case Study - $800,000 in debt and where to start?
« Reply #159 on: November 01, 2017, 08:14:08 PM »
Yes, paying in cash is a hit up front, but it frees up cashflow.  With the freed up cashflow from your other savings, it'll take about 2 months to recoup the entire cost from cash for selling the Buick and another couple months to completely recoup the cost of buying the Jetta.  That's pretty outstanding.
Frugalite in training.

doneby35

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Re: Case Study - $800,000 in debt and where to start?
« Reply #160 on: November 01, 2017, 09:08:26 PM »
Yes your cash reserve got hit now, but all for the greater good. So don't even think about it. Great job! I'm curious to see what happened with the entertainment/alcohol/dining out expenses. Don't forget about those...

Rufus.T.Firefly

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Re: Case Study - $800,000 in debt and where to start?
« Reply #161 on: November 01, 2017, 09:14:02 PM »
Two thumbs up!
"I have worked my way up from nothing to a state of extreme poverty"

~ Groucho Marx

former player

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Re: Case Study - $800,000 in debt and where to start?
« Reply #162 on: November 01, 2017, 09:15:48 PM »
I make it that you've cut almost two thousand dollars a month in payments - that has to feel good.

Congratulations.
Be frugal and industrious, and you will be free (Ben Franklin)

rpr

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Re: Case Study - $800,000 in debt and where to start?
« Reply #163 on: November 02, 2017, 12:06:35 AM »
Just read through all four pages. Was worth seeing your post from today. Great job!

1967mama

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Re: Case Study - $800,000 in debt and where to start?
« Reply #164 on: November 02, 2017, 01:15:22 AM »
posting to follow!

Raenia

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Re: Case Study - $800,000 in debt and where to start?
« Reply #165 on: November 02, 2017, 05:47:38 AM »
Great job!  You'll notice the snowball starting to gain speed as you funnel all this new cashflow toward your debts.  You're on your way to freedom!

Could you post an updated list of your debts, now that the car is gone and you've started attacking the personal loan?

tralfamadorian

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Re: Case Study - $800,000 in debt and where to start?
« Reply #166 on: November 02, 2017, 07:10:47 AM »
Great job!  You'll notice the snowball starting to gain speed as you funnel all this new cashflow toward your debts.  You're on your way to freedom!

Could you post an updated list of your debts, now that the car is gone and you've started attacking the personal loan?

+1

Congratulations on making a lot of progress this month, TBB!

Laura33

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Re: Case Study - $800,000 in debt and where to start?
« Reply #167 on: November 02, 2017, 12:44:24 PM »
Badass! 
Laugh while you can, monkey-boy

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #168 on: November 03, 2017, 07:29:27 PM »
August 29th, 2017 was when I started this Case Study - total debt balance has decreased by $30,000 since then...

LOANORIGAUG29NOV3
PRI$340,000$329,935$326,860
SFH$80,460$69,351$68,794
CONDO$100,000$94,790$93,460
DUPLEX$185,000$181,688$180,572
PL1$16,000$14,233$13,370
PL2$25,000$17,612$14,260
CAR1$40,127$26,483$25,386
CAR2$24,149$17,031$0
HEL$18,664$10,498$10,339
401k LOAN$35,000$31,082$29,891
TSP LOAN$15,000$13,627$13,163
TOTAL$879,400$806,330$776,095

CCAUG29NOV3
1$10,828$0
2$1,734$0
1$572$0
2$255$0
TOTAL$13,389$0

*Edit to add Credit Card Balances
« Last Edit: November 06, 2017, 08:25:19 AM by thebudgetbloggo »
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Zoot

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Re: Case Study - $800,000 in debt and where to start?
« Reply #169 on: November 04, 2017, 07:39:21 AM »
Amazingly awesome progress!  Way to go!

So which account is in your sights next?  With that $2000 in monthly cash freed up, you could make short work of that $10K-ish loan, for example.  What's the plan?  :)

Goldielocks

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Re: Case Study - $800,000 in debt and where to start?
« Reply #170 on: November 04, 2017, 03:09:51 PM »
I think a huge next step (that is already in progress) was the SFH home repairs and sell to current renter... which will make a large cashflow difference, too.

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #171 on: November 06, 2017, 08:28:21 AM »
Amazingly awesome progress!  Way to go!

So which account is in your sights next?  With that $2000 in monthly cash freed up, you could make short work of that $10K-ish loan, for example.  What's the plan?  :)

I still have nearly $4,000 in work (after already spending $5,800 to get the SFH ready to sell, but it's getting close.  I'll still net a good profit on that, which would naturally pay off the HEL on that property.  Whatever is left over I would send to Personal Loan (PL1), which might get paid off depending on the sale price of the house.

In the meantime, I'm going to direct all my extra cash flow toward that Personal Loan (PL1) anyway since it has the highest balance and interest rate.
« Last Edit: November 06, 2017, 09:18:47 AM by thebudgetbloggo »
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JustGettingStarted1980

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Re: Case Study - $800,000 in debt and where to start?
« Reply #172 on: November 06, 2017, 09:52:14 AM »
Well Done, very impressive progress and a great case for newbies to follow and learn.

tyort1

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Re: Case Study - $800,000 in debt and where to start?
« Reply #173 on: November 06, 2017, 03:48:09 PM »
In the meantime, I'm going to direct all my extra cash flow toward that Personal Loan (PL1) anyway since it has the highest balance and interest rate.

Smart!
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Zoot

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Re: Case Study - $800,000 in debt and where to start?
« Reply #174 on: November 06, 2017, 06:09:55 PM »
In the meantime, I'm going to direct all my extra cash flow toward that Personal Loan (PL1) anyway since it has the highest balance and interest rate.

Smart!

Very, very smart!  Great thinking!  :)  You get a double whammy that way--it's both highest interest AND highest balance!  Way to go!

One suggestion:  add the interest rate on each loan to your table of debts, as this will definitely have an effect on people's recommendations of which one to target next.

Keep going!  You GOT this!  :)

Dicey

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Re: Case Study - $800,000 in debt and where to start?
« Reply #175 on: November 08, 2017, 09:04:13 AM »
Gotta say, it kills me every time your thread pops up. There is such an immense difference between secured and unsecured debt. It kills me that you are falsely overburdening your financial outlook by lumping it all together. Too much stress is a bad thing. Owning appreciating assets via the power of leverage is an excellent way to create wealth.
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Goldielocks

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Re: Case Study - $800,000 in debt and where to start?
« Reply #176 on: November 08, 2017, 12:51:03 PM »
Gotta say, it kills me every time your thread pops up. There is such an immense difference between secured and unsecured debt. It kills me that you are falsely overburdening your financial outlook by lumping it all together. Too much stress is a bad thing. Owning appreciating assets via the power of leverage is an excellent way to create wealth.

Can you elaborate?  Up thread we looked at the rental property income separately, as a business, and discovered that the SFH was
 unprofitable but the other properties looked decent long term if he has the cashflow to maintain this business during times of difficulty (missing rents, repairs, etc).


OR
Do you just mean that he lists his unsecured debt into the same list with what I consider business investment (the properties) and personal home mortgage?

IMO -- The next step in analysis is to definitely generate a new cashflow statement, which based on the incomes, and should look very good now:

CASH FLOW REVIEW

Add:
Personal monthly and annual Expenses, not including savings
Home Mortgage* payments + Taxes
Debt Repayment to CC's, SL, non-rental payments (can use minimums or use planned larger payments, your choice)
 --> Subtotal Personal Expenses, per month

Business Expense: mortgage payments* and property reno loans and maintenance, property expenses
--> Subtotal rental expenses monthly basis

Income - personal gross incomes per month
Income -- Gross Rental income per month  (Discount it by 10% to plan for a bit of vacancy per year)

Total net Cash Flow per month--> (SUM All Income in) * Reduction rate for taxes + Rental Depreciation Credits - Cash flow (all expenses) out
How much free cash per month is available for additional debt repayments and savings?

* Obviously a portion of the mortgages and loans is principal repayment, but for cashflow analysis I lump it with expenses.

Dicey

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Re: Case Study - $800,000 in debt and where to start?
« Reply #177 on: November 08, 2017, 01:59:53 PM »
Gotta say, it kills me every time your thread pops up. There is such an immense difference between secured and unsecured debt. It kills me that you are falsely overburdening your financial outlook by lumping it all together. Too much stress is a bad thing. Owning appreciating assets via the power of leverage is an excellent way to create wealth.
OR
Do you just mean that he lists his unsecured debt into the same list with what I consider business investment (the properties) and personal home mortgage?
Yup. You and I are on the same page, GL.
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ATR

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Re: Case Study - $800,000 in debt and where to start?
« Reply #178 on: November 30, 2017, 08:09:52 AM »
Posting to follow! Keep it up!

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #179 on: December 04, 2017, 08:19:50 AM »
Gotta say, it kills me every time your thread pops up. There is such an immense difference between secured and unsecured debt. It kills me that you are falsely overburdening your financial outlook by lumping it all together. Too much stress is a bad thing. Owning appreciating assets via the power of leverage is an excellent way to create wealth.

Can you elaborate?  Up thread we looked at the rental property income separately, as a business, and discovered that the SFH was
 unprofitable but the other properties looked decent long term if he has the cashflow to maintain this business during times of difficulty (missing rents, repairs, etc).


OR
Do you just mean that he lists his unsecured debt into the same list with what I consider business investment (the properties) and personal home mortgage?

IMO -- The next step in analysis is to definitely generate a new cashflow statement, which based on the incomes, and should look very good now:

CASH FLOW REVIEW

Add:
Personal monthly and annual Expenses, not including savings
Home Mortgage* payments + Taxes
Debt Repayment to CC's, SL, non-rental payments (can use minimums or use planned larger payments, your choice)
 --> Subtotal Personal Expenses, per month

Business Expense: mortgage payments* and property reno loans and maintenance, property expenses
--> Subtotal rental expenses monthly basis

Income - personal gross incomes per month
Income -- Gross Rental income per month  (Discount it by 10% to plan for a bit of vacancy per year)

Total net Cash Flow per month--> (SUM All Income in) * Reduction rate for taxes + Rental Depreciation Credits - Cash flow (all expenses) out
How much free cash per month is available for additional debt repayments and savings?

* Obviously a portion of the mortgages and loans is principal repayment, but for cashflow analysis I lump it with expenses.

This makes a lot of sense; I think there's argument both ways (debt is debt) but I think I'll break it out regardless.  Getting ready to post the current situation...
Please don't mistake my ignorance for arrogance -thebloggo

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thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #180 on: December 04, 2017, 09:06:24 AM »
So...Got a little carried away.  I ended up taking a couple steps backward this month.  Not horrible in the big picture, but still a little disheartening. 

Between the $10,000 in cash I spent to replace the Buick, $14,000 in cash to pay down credit cards, and over $11,000 in repairs the rental SFH, I've run out of cash. Also, I put new tires on the Durango and replaced the brakes on the Jetta...spent over $1200 on those two things.  At the end of the day, I resorted to credit cards to keep things moving. 

On a positive note, the SFH is just about ready to sell, with just some yard cleanup to do.  I hope to have an appraiser out there next week to get an idea of value, and will update you all once that's complete. 

One other item I haven't yet responded to (for fear of more facepunches) is the small business I invested in, which accounts for the 401k and TSP loans.
 I own 25% of a craft brewery opening in late December/early January.  ***bracing for impact***

Here is the current situation.

REAL ESTATE:
REOFMVBALPITIRENT
PRI$410,000$325,829$2,942$0
SFH$125,000$68,641$673$800
CONDO$150,000$93,014$1,048$1,650
DUPLX$225,000$179,450$1,542$1,750
TOTAL$910,000$666,934$6,205$4,200

OTHER LOANS:
LOANORIGBAL
PRSP$16,000$13,497
USAA$25,000$13,938
CAR1$40,127$24,837
CAR2$24,149$0
HEL$18,664$10,255
401k LOAN$35,000$29,348
TSP LOAN$15,000$12,923
TOTAL$173,940$104,798

CREDIT CARDS:
CCBAL
BBUY$347
USAMC$5,136
AMEX$2,582
TOTAL$8,065
« Last Edit: December 04, 2017, 09:40:51 AM by thebudgetbloggo »
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bhleigh

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Re: Case Study - $800,000 in debt and where to start?
« Reply #181 on: December 04, 2017, 09:26:07 AM »
25% of a craft brewery? Whats the anticipated ROI? How quickly can you get your money back out? Personally I don't agree with borrowing money for investing purposes. Its speculating, not investing IMO.
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My Journal: B-Leigh's Mid-Life Crisis Avoidance

ShoulderThingThatGoesUp

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Re: Case Study - $800,000 in debt and where to start?
« Reply #182 on: December 04, 2017, 09:34:18 AM »
Why are you bothering with an appraiser and not just interviewing realtors for the SFH?

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #183 on: December 04, 2017, 09:34:36 AM »
25% of a craft brewery? Whats the anticipated ROI? How quickly can you get your money back out? Personally I don't agree with borrowing money for investing purposes. Its speculating, not investing IMO.

That's a fair point; definitely speculative - all investments are (at varying levels of risk).  That money would have been safer in the retirement accounts without a doubt.  This wasn't a move to try and beat returns there or even get a ROI at this point.  I've been home brewing for a few years now, and it's something I enjoy doing.  In that regard, I'll have an active role in the company, and am not just focused on how quickly I can get my money back out of it.
Please don't mistake my ignorance for arrogance -thebloggo

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thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #184 on: December 04, 2017, 09:38:39 AM »
Why are you bothering with an appraiser and not just interviewing realtors for the SFH?

The current renter wants to buy it so we are looking into a FSBO; as opposed to him buying it "as-is" we agreed I would front the repairs for him and add that to the sale price.  He has a pre-approval from his bank so I assume they will want their own appraisal, but I wanted to see where we were at before that.
Please don't mistake my ignorance for arrogance -thebloggo

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lhamo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #185 on: December 04, 2017, 10:03:36 AM »
So...Got a little carried away.  I ended up taking a couple steps backward this month.  Not horrible in the big picture, but still a little disheartening. 

Between the $10,000 in cash I spent to replace the Buick, $14,000 in cash to pay down credit cards, and over $11,000 in repairs the rental SFH, I've run out of cash. Also, I put new tires on the Durango and replaced the brakes on the Jetta...spent over $1200 on those two things.  At the end of the day, I resorted to credit cards to keep things moving. 

On a positive note, the SFH is just about ready to sell, with just some yard cleanup to do.  I hope to have an appraiser out there next week to get an idea of value, and will update you all once that's complete. 

One other item I haven't yet responded to (for fear of more facepunches) is the small business I invested in, which accounts for the 401k and TSP loans.
 I own 25% of a craft brewery opening in late December/early January.  ***bracing for impact***


You know, it would have been nice if you had been upfront about this at the beginning.   Then everyone would have known there was little point in offering you feedback/help/support.  Because you are going to follow your whims wherever they take you.   Right down the financial toilet apparently.

I hope the other people who have "invested" in this craft brewery have a big cash cushion.  Because you are in no position to throw more money into it.
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bhleigh

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Re: Case Study - $800,000 in debt and where to start?
« Reply #186 on: December 04, 2017, 10:25:39 AM »

That's a fair point; definitely speculative - all investments are (at varying levels of risk).  That money would have been safer in the retirement accounts without a doubt.  This wasn't a move to try and beat returns there or even get a ROI at this point.  I've been home brewing for a few years now, and it's something I enjoy doing.  In that regard, I'll have an active role in the company, and am not just focused on how quickly I can get my money back out of it.

Even if you are not interested in getting your investment back at the moment, I would still set a plan on when to get it back. If you sunk $50,000 into the business, I would want to know how soon I can get that back even if I never would. Monthly profit shares? Year end allottment? I would want to pay down that debt as quickly as I can from my portion of the profits.

Also, you only own 25% of the business. Does everyone have an equal share? Are you a minority stake holder? My concern is that if the business fails or the major stake holder decides to sell and you don't have a vote. You certainly have a voice, but maybe not a vote. Just keep it in mind.

There are no problems. Only solutions we haven't found yet.

My Journal: B-Leigh's Mid-Life Crisis Avoidance

thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #187 on: December 04, 2017, 11:08:42 AM »

You know, it would have been nice if you had been upfront about this at the beginning.   Then everyone would have known there was little point in offering you feedback/help/support.  Because you are going to follow your whims wherever they take you.   Right down the financial toilet apparently.

I hope the other people who have "invested" in this craft brewery have a big cash cushion.  Because you are in no position to throw more money into it.

I agree with you, I'm not in a position to throw more money at it.  Everyone was capped at $50k each, whether it succeeds or fails.

I appreciate your feedback, and understand why you feel that way.  This is hardly the only thing I needed help/feedback/support with however.  I disagree with the notion this negates my acknowledgement or need for help, my progress thus far, or the regard I have for the feedback I've received. 

Yeah, the brewery was a huge risk, but it's something I'm passionate about and a dream I want to pursue.  I can live with my decision, and the moves I'm making mean we'll be just fine whether I get that money back or not.  I realize not everyone here will agree with that viewpoint. 

What was the point of this blog if it's full of people who have all the answers? 
Please don't mistake my ignorance for arrogance -thebloggo

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thebudgetbloggo

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Re: Case Study - $800,000 in debt and where to start?
« Reply #188 on: December 04, 2017, 11:15:24 AM »

Even if you are not interested in getting your investment back at the moment, I would still set a plan on when to get it back. If you sunk $50,000 into the business, I would want to know how soon I can get that back even if I never would. Monthly profit shares? Year end allottment? I would want to pay down that debt as quickly as I can from my portion of the profits.

Also, you only own 25% of the business. Does everyone have an equal share? Are you a minority stake holder? My concern is that if the business fails or the major stake holder decides to sell and you don't have a vote. You certainly have a voice, but maybe not a vote. Just keep it in mind.

I'm not the minority shareholder - myself and one other hold titles (Vice President and President) and the majority of shares...he and I have equal voting rights.  There is a profit sharing plan...in simple terms, yearly revenue up to $100,000 is returned to the business, anything over that is distributed to shareholders proportionate to their ownership. 

I've not lost sight of the money aspect of it, but that's just not a short term focus.
Please don't mistake my ignorance for arrogance -thebloggo

My blog is https://thebloggo.com/budget if you are interested.
I'm on twitter https://www.twitter.com/thebloggo
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former player

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Re: Case Study - $800,000 in debt and where to start?
« Reply #189 on: December 04, 2017, 11:30:40 AM »
Can I suggest that you make a further amendment to your spreadsheet?  I think after the entries for Real Estate you should have an entry for "Small Business" that includes the 401k and TSP loans.  Then instead of "Other Loans" use the heading "Consumer spending" for what is left, including credit card balances not paid off at the end of the month - assuming that all these other loans and credit cards are all down to consumer spending, of course.

Other things which aren't clear are 1) your interest rates and monthly payments on all of those loans, and 2) your current cash flow situation.  Not much advice you can get here without those.
Be frugal and industrious, and you will be free (Ben Franklin)

Goldielocks

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Re: Case Study - $800,000 in debt and where to start?
« Reply #190 on: December 04, 2017, 11:55:16 AM »
25% of a craft brewery? Whats the anticipated ROI? How quickly can you get your money back out? Personally I don't agree with borrowing money for investing purposes. Its speculating, not investing IMO.

That's a fair point; definitely speculative - all investments are (at varying levels of risk).  That money would have been safer in the retirement accounts without a doubt.  This wasn't a move to try and beat returns there or even get a ROI at this point.  I've been home brewing for a few years now, and it's something I enjoy doing.  In that regard, I'll have an active role in the company, and am not just focused on how quickly I can get my money back out of it.

Someone, somewhere is going to make a lot of money with craft breweries.  The industry does need to consolidate,  and your competitors often have terrible operational / distribution focus, so keep aware of buyout potential as the win to your efforts.

Regardless of what business you choose to invest in, trying to get your money to work for you  and to make more money is never a "face punch" at all.  (Lotteries do not count) 

One thing you do need to do -- put a circle around  the assets needed for basic personal accommodation (e.g., equity in your personal home) and basic retirement needed (first $100k-$300k before you are 40years, higher after that), and do not borrow for business against assets in this "inner circle".

Businesses do need a little bit of risk and investment to move ahead, but..
Businesses do go bust, and you should never risk your entire future, especially when you are not single and going entirely broke is not an option. 

With that in mind, where do you draw your "inner circle" of assets "not to be touched"?

Meesh

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Re: Case Study - $800,000 in debt and where to start?
« Reply #191 on: December 04, 2017, 07:13:58 PM »
So first off points for coming back and being honest even though you had a bad month.

It looks like you were trying to take all the great advice, but doing it all at once. Which got you adding debt again. I'm sure you just want to get as much done as soon as possible, but sometimes we have to be more realistic about how much cash we actually have and how much each project costs. Sometimes we have to slow down to rack up the cash for what we want to do. Yes you had a bad car, but if you couldn't afford buying a new one and it's repairs, wait a few months before you do it. The important parts are the plan and that you will eventually get it done.

It's important to keep some kind of cushion for things that come up like new tires and brakes and especially emergencies. When you get better at budgeting you'll learn to account for maintenance and the "unexpected" since you'll know a bit in advance anyway, also your budget will become more accurate the longer you budget. For example once you realize you spend x on Christmas in 2017 you add it to your monthly budget x/12. Now its not a shock when it comes around in 2018 because you know how much you spend and you saved up for it. You should do this for anything irregular like life insurance etc. As far as maintenance goes, you usually know in advance when things are getting old and need replacing. When you start to think "oh we need new tires" is when you go online and find out how much it costs and start saving up for them (and if it blows and it needs an immediate replacement you dip into an emergency fund not credit).
« Last Edit: December 04, 2017, 09:52:29 PM by Meesh »

Laura33

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Re: Case Study - $800,000 in debt and where to start?
« Reply #192 on: December 05, 2017, 09:21:19 AM »
25% of a craft brewery? Whats the anticipated ROI? How quickly can you get your money back out? Personally I don't agree with borrowing money for investing purposes. Its speculating, not investing IMO.

That's a fair point; definitely speculative - all investments are (at varying levels of risk).  That money would have been safer in the retirement accounts without a doubt.  This wasn't a move to try and beat returns there or even get a ROI at this point.  I've been home brewing for a few years now, and it's something I enjoy doing.  In that regard, I'll have an active role in the company, and am not just focused on how quickly I can get my money back out of it.

Sigh.  OK.  A few thoughts.

1.  After four pages, my impression is that you tend to approach finances emotionally -- you have all of these great ideas that you want to do and things that you want to buy, and they all seem legitimate ideas/wants/needs because reasons, so you chase them all, and you end up with this giant pile of various assets and debts and accounts and businesses.

If your financial plan is to make money through businesses (rental properties, brewery, etc.), you need to put the emotion aside and run them like businesses.  Look at the capital required, look at the likely ongoing expenses, figure out your ROI, identify your exit plan, and all of that.  You have just started to do that with the rentals (FWIW, after the SFH sells, the duplex needs to go next -- there is no way you are actually making money on that given the very small delta between the rent and the mortgage).  Now you need to do that same analysis with the brewery.

2.  You need to recognize this aspect of your personality and protect your family from its downside risks.  Everything that Goldielocks said applies 100% here.  Your finances are so smooshed together that you cannot possibly know whether your family is safe if the brewery fails and the rentals go vacant or need a new roof.  You need a "safe" pot of money that ensures your family is protected if everything hits the shitter.  Normally, that would be your retirement funds, but you have already raided them for the brewery.  Your first order of business once the SFH sells is to pay off the CCs and then replenish that specific 'stache that is designated for your family and untouchable by you.

3.  You need to slow down and stop going 1000 different ways at once so you can improve your planning skills.  You jumped in and sold the car and paid down debt, all of which is good!  But you left yourself completely cash poor, even though you knew you had significant car repairs in your immediate future -- or you would have known had you been paying attention, because tires and brakes are not the kind of things that usually come as a complete surprise.  And I guarantee you that this month is going to be challenging, too, because you'll suddenly realize that here are all of these Christmas expense that you haven't planned for.  Follow Meesh's advice:  sit down and project out all of the infrequent/unusual expenses you have coming up over the next 6 months.  Make sure you are setting enough aside in your budget to cover those expenses now.  Throwing a lot of money at your CC debt, only to put more costs on the CC, is called "robbing Peter to pay Paul," and is exactly why most people struggle to get out of debt.  You just need to stop buying shit you can't pay cash for, period.  Really, period.  If the car needs brakes and isn't safe to drive and you don't have cash to pay for the brakes, well, you can find the money somewhere, or you can figure out how to get by without the car for a few weeks or a month until you have the cash again.

This is psychological training more than financial training:  you will never break yourself of the habit of buying whatever you feel like, and you will never learn to live within your very ample means, unless and until you really, deep-down learn that CCs are not an option to rescue you from the inevitable or tide you over "just until the next paycheck."  The road to hell and all that.  So if you have to learn the hard way by doing without because you didn't plan appropriately, oh well.

4.  Everything you have said about the brewery says that it is a hobby, not a business.  Businesses are all about cashflow and ROI; if this were a business, you'd be valuing the return on your money -- or the potential use of those profits to otherwise improve the business -- much more highly than your personal enjoyment tinkering with beer and participating in the process.  Either treat it fully like a business, or recharacterize it in your own head as a hobby, and then figure out if you can really afford a $50K hobby right now.  Hint:  you can't.  Of course, I also don't think you can get out of it at this point, so now you need to do everything you can* to make it profitable.  But use this as a lesson to restrain your impulsivity in the future:  no hobby businesses until your debt is paid off and your family is protected.  Needs before wants and all that. 

5.  Finally, there is a huge, huge difference between "speculation" and "investment," and you are intentionally conflating the two in order to justify your strong preference for the excitement of the former.  Stop doing that.  If I buy stock in a company that has hard assets that are themselves worth more than the value of the stock, that's not "speculation" in the slightest, because if everything hits the shitter, the assets are sold and I get my money back.  If I buy stock in a company that has a strong financial situation, tons of free cash to throw into new products or acquisitions, solid management, and a reasonable price in light of all of the above, that is not "speculation."  There is risk, of course; life is risk.  But it is a risk that any risk-benefit calculation says will pay off more often than not.  OTOH, buying real estate without even looking at the return on your investment (because prices never drop and you'll make it back in the end, c.2006?), or deciding to open a hobby business with your buddies because you just love-love-love the product and so everyone else will too -- that is speculation.

IOW, there is always risk.  But investors evaluate and manage those risks and pursue only those opportunities where the likely benefits outweigh the likely downside costs -- and they never invest more than they can afford to lose.  Speculators chase cool ideas because they sound good, without doing any thorough analysis of the likelihood or magnitude of the risks (much less ensuring that those risks are proportionate to the likely benefits and won't bankrupt them).  If you want to get the kinds of long-term returns you will need to support your family (which is exactly what gives you the financial freedom to engage in those expensive hobbies), you need to start behaving more like an investor and doing the hard work to really dig into those exciting opportunities before jumping after them.

*Other than throw more money into it.  Not another penny.
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Meesh

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Re: Case Study - $800,000 in debt and where to start?
« Reply #193 on: December 05, 2017, 11:57:37 AM »
An add to my budgeting comment...

Another thing that really helps me stay on budget, I have online free savings accounts in with the same company for each "irregular" category I know will come up in the year. One for Christmas/Birthdays, annual insurances etc Then I auto transfer to them the day after every paycheck, since I know exactly how much I need for each anyway. That way it is physically set aside so it doesn't get used for something else. Then I just transfer back what I spend. For some this seems too complicated and prefer to do it all on spreadsheets, but for me once it's set up its super easy since it's all automatic. You have to find what works for you and know your weaknesses. Mine's using whats in the regular account lol.

bhleigh

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Re: Case Study - $800,000 in debt and where to start?
« Reply #194 on: December 08, 2017, 01:46:04 PM »
Re-read Laura33's post. This breakdown of investments, speculation, and life habits is extremely well written.

An add to my budgeting comment...

Another thing that really helps me stay on budget, I have online free savings accounts in with the same company for each "irregular" category I know will come up in the year. One for Christmas/Birthdays, annual insurances etc Then I auto transfer to them the day after every paycheck, since I know exactly how much I need for each anyway. That way it is physically set aside so it doesn't get used for something else. Then I just transfer back what I spend. For some this seems too complicated and prefer to do it all on spreadsheets, but for me once it's set up its super easy since it's all automatic. You have to find what works for you and know your weaknesses. Mine's using whats in the regular account lol.

I do this exact same thing and fully agree that once it is set up, it is super easy to keep up. The categories I use are: Travel (for the yearly trip to visit the in laws in France), Once Yearly Expenses (registration, insurance, etc.), Gifts (birthdays, Christmas, etc.), Holidays (halloween costumes, thanksgiving, 4th of july bbq, etc.), and SWIM (Stuff We Initially Missed). By knowing that each paycheck I put a specific amount into each account (ie. $20 into Gifts), I'm never worried when the bill or expense comes due.
There are no problems. Only solutions we haven't found yet.

My Journal: B-Leigh's Mid-Life Crisis Avoidance