| Category | Monthly | Comments | Annual |
| Salary/Wages for earner #1 | $12,500 | $150,000 | |
| Salary/Wages for earner #2 | $4,622 | $55,464 | |
| Pretax Health Ins. | $500 | $6,000 | |
| Pretax Vision/Dental Ins. | $64 | $768 | |
| FICA base salary/wages | $16,558 | $198,696 | |
| 401(k) / 403(b) / TSP / etc. | $300 | Room to increase? | $3,600 |
| Subtotal 1 | $16,258 | $195,096 | |
| Pension contribution | $556 | $6,672 | |
| Life/LTD Insurance | $52 | $624 | |
| Subtotal 2 | $15,650 | $187,800 | |
| Rental income | $4,275 | $51,300 | |
| Rental real expenses | $285 | $3,420 | |
| Rental depreciation expense | $1,000 | $12,000 | |
| Rental taxable income | $2,990 | $35,880 | |
| Federal Total Income (for IRS tax) | $19,248 | $230,976 | |
| Federal tax | $3,729 | 2017 rates, MFJ, item. ded., 1 exempt. | $44,753 |
| State/City tax | $0 | Guess, using 0.00% * (AGI - Exempt'n) | $0 |
| Soc. Sec. tax | $926 | Assumes 2 earners paying | $11,115 |
| Medicare tax | $240 | $2,881 | |
| Total income taxes | $4,896 | $58,750 | |
| Income before other expenses | $14,744 | $176,930 | |
| Monthly Average Expenses: | |||
| Mortgage | $1,950 | Input to Itemized Deductions | $23,401 |
| HOA | $10 | $120 | |
| Property Tax | $769 | Input to Itemized Deductions | $9,228 |
| Home/Rent Insurance | $143 | $1,716 | |
| Cable TV | $50 | $600 | |
| Car Insurance | $106 | $1,272 | |
| Car Maintenance, Registration, etc. | $10 | $120 | |
| Christmas/Holidays | $150 | $1,800 | |
| Dining (Lunch/Dinner/Etc.) | $550 | $6,600 | |
| Dry Cleaning | $45 | $540 | |
| Electricity | $200 | $2,400 | |
| Emergency Fund | $500 | $6,000 | |
| Entertainment | $400 | $4,800 | |
| Financial Fees | $20 | Input to Itemized Deductions | $240 |
| Fuel/Public Transport | $200 | $2,400 | |
| Gas/Oil for heating | $25 | $300 | |
| Groceries | $600 | $7,200 | |
| Hair Care | $86 | $1,032 | |
| Home Alarm System | $32 | $384 | |
| Household; Maintenance | $60 | $720 | |
| Internet | $50 | $600 | |
| Landscaping/Yard work | $100 | $1,200 | |
| Life Insurance | $54 | $648 | |
| Miscellaneous | $150 | $1,800 | |
| Pets | $200 | $2,400 | |
| Phone (landline) | $20 | $240 | |
| Sports/Recreation | $100 | $1,200 | |
| Travel/Vacation | $100 | $1,200 | |
| Water/Sewer | $65 | $780 | |
| Wine/Beer/Tobacco | $250 | $3,000 | |
| Non-mortgage total | $5,045 | $60,540 | |
| Loans: | |||
| SFH | $390 | PITI $673 | $4,679 |
| CONDO | $709 | PITI $1,049 | $8,505 |
| DUPLEX | $1,049 | PITI $1542 | $12,592 |
| Personal Loan 1 | $321 | $3,847 | |
| Personal Loan 2 | $425 | $5,097 | |
| Total Expense | $9,889 | $118,662 | |
| Total to invest | $4,856 | $58,268 | |
| Summary: | |||
| "Gross" income | $21,112 | $253,344 | |
| Income taxes | $4,896 | $58,750 | |
| After-tax income | $16,216 | $194,594 | |
| IRA+401k/403b/TSP/457 | $300 | $3,600 | |
| Living expenses | $8,167 | $98,005 | |
| Non-mortgage loans | $2,893 | $34,721 | |
| After-tax investable | $4,856 | $58,268 | |
| Time to FI?: | |||
| Time to FIRE | 9.9 | years | |
| Safe Withdrawal Rate | 4.00% | percent | |
| Real return on tax-deferred investments | 5.00% | percent | |
| Real, after tax, return on taxable investments | 4.25% | percent | |
| Current Savings | |||
| Taxable | $52,000 | ||
| Tax-deferred (e.g. trad. IRA/401k) | $129,857 | ||
| Projected Savings at Retirement | |||
| Taxable | $813,488 | ||
| Tax-deferred (e.g. trad. IRA/401k) | $255,203 | ||
| Total projected stash | $1,068,691 | ||
| Projected Expenses in Retirement | |||
| Non-loan, non-work expenses | $53,868 | ||
| Annual non-tax retirement expense | $53,868 | ||
| Total | $53,868 | ||
| Total loan principal due at FI | $369,399 | ||
| Stash needed for retirement @4.0% SWR | $1,716,099 | ||
| Need $647,407 more. |
| Filing Status | 2 | 1=S, 2=MFJ, 3=HOH | |
| # Exemptions | 1 | ||
| # Children <13 | 2 | ||
| # Children for EIC | 2 | ||
| Adult #1 | Adult #2 | ||
| Age | 39 | 37 | |
| # of earners | 2 | ||
| Total Income | $230,976 | ||
| Std. Deduct. | $12,700 | ||
| Act. Deduct. | $20,252 | ||
| Exemption | $4,050 | ||
| AGI | $230,976 | ||
| MAGI | $230,976 | ||
| Taxable | $206,674 | ||
| 1040 Tax | $44,753 | ||
| Tax after n-r credit | $44,753 | ||
| Net Tax | $44,753 | ||
| Monthly | $3,729 | ||
| Mtg. Int. (approx.) | $11,024 | ||
| Prop tax | $9,228 | ||
| Item. Deduct. | $20,252 | ||
| Version | V9.1 |
| Loans: | Orig. Prin. | Orig. Length | Curr. Prin. | Yrs left | Rate |
| Mortgage | $340,000 | 20 | $329,935 | 19 | 3.375% |
| SFH | $80,460 | 30 | $69,351 | 23 | 4.125% |
| CONDO | $100,000 | 15 | $94,790 | 15 | 3.375% |
| DUPLEX | $185,000 | 20 | $181,688 | 20 | 3.250% |
| Personal Loan 1 | $16,000 | 5 | $14,233 | 5 | 7.500% |
| Personal Loan 2 | $25,000 | 7 | $17,612 | 7 | 10.750% |
| Addtional Loans: | Orig. Prin. | Orig. Length | Curr. Prin. | Yrs left | Rate |
| Car 1 | $40,127 | 6 | $26,483 | 4 | 2.490% |
| Car 2 | $24,149 | 6 | $17,031 | 4 | 3.490% |
| HEL | $18,664 | 20 | $10,498 | 8 | 7.240% |
| 401k Loan | $35,000 | 5 | $31,082 | 5 | .000% |
| TSP Loan | $15,000 | 5 | $13,627 | 5 | .000% |
| FMV | BAL | RENT | PYMT | TERM | RATE | |
| DUPLEX | $225,000 | $181,690 | $1,825 | $1,540 | 20 | 3.25% |
| CONDO | $160,000 | $95,230 | $1,650 | $1,050 | 15 | 3.375% |
| SFH | $120,000 | $69,350 | $800 | $670 | 30 | 4.125% |
Post more about the rentals. What is the mortgage balance/market value of each, and what are the actual expenses (PITI, maintenance, management, vacancy, etc)? If you've really got ~$700k worth of mortgages making only $4200/month gross, that's horrible, and you should sell those properties immediately and go read some books about RE investing.
-W
Wow so many numbers. Do you track your rental/personal expenses separately? For example, when you say you spend $100/month on landscaping, is that at your rental properties or at your own house?
Obviously, there's substantial fat in your expense that can be cut, but it's hard to assess if any these expenses are driven by your properties.
I'd recommend separating everything cleanly.
Also - credit cards! Yikes! Kill them now! Don't waste a moments effort on consolidating, you make enough money just pay them off in a couple months and never carry a balance again.
How has no one mentioned the $600 a month on groceries with a $550 a month of dining out. The $600 is not even horrible. But an additional $550 a month for eating out?I did along with a few other things.
You have a big income, so I get it, but you are in a place where you could be ere very quickly.
Post more about the rentals. What is the mortgage balance/market value of each, and what are the actual expenses (PITI, maintenance, management, vacancy, etc)? If you've really got ~$700k worth of mortgages making only $4200/month gross, that's horrible, and you should sell those properties immediately and go read some books about RE investing.
-W
I think the OP has $365K of investment-related mortgages, the ~$700 includes primary, I believe.
Whew.
You may be the first person to have no one request additional details in your case study.
My two cents:
1) You have over 4 grand to invest monthly, but are contributing almost nothing to retirement.
If you want to know where to start, the answer is simple, start maxing your 401k, max out your Roth for 2016 since I think there is still time, and max it out for this year. The 401K contributions alone will save you roughly 7 grand a year in taxes and will train you to live on less income (which is a good thing).
2) You aren't $800,000 in debt, but roughly $80,000 and a car loan in debt.
Whatever is left over after 1 goes towards your unsecured loans in the amount of $80,000 or so. Luckily for you, the snowball and avalanche repayment approaches both dovetail for you at the 10+% loans you have. Pay them off. (I also didn't see the TSP and 401K and HELOC in the monthly debt payments-did I miss something?)
It technically makes sense to pay those loans off first, then arguably the 7%, then max your retirement savings, but you have income to still make these go away quick while still maxing retirement. For a long term sustainable approach, I truly think that forced restrictions of income (401k withdrawals) are the best way to train yourself. It is hard to have lifestyle creep when you don't let the creep hit your bank account to begin with.
Secured mortgage debt is a different animal than debt--you have them at good interest rates, get deductions and depreciation, and avoid cash flow rental property taxation--let them lie for now.
There are going to be lots of posts about low hanging fruit for spending (because there is a lot of fruit, and some of it is hanging very low) but you are in the "make a shit ton of money" category. You asked for a place to start--drop the debt anchors weighing you down so that compounding interest starts making you money instead of costing you money.
Once you have those payback horizons projected and automated, then you can look towards your spending.
Like the previous poster mentioned, there is a lot of low hanging fruit. You should definitely increase your 401k to help with lowering taxes, and you can easily do that if you cut out some of the spending. $250 a month on alcohol/tobacco? $156/month on hair? Plus the entertainment and eating out is almost a thousand dollars right there.
I get my haircut twice a week at about $28/pop
I get my haircut twice a week at about $28/pop
I'm sorry, but I thought you said you get your haircut twice a week. Surely this was a mistake, no?
EDIT: I looked back at your budget, and you must have meant twice a month. Still, I think that could be much less.
So income level wise we're in similar boats from wage earners. I'd agree with previous poster that you need to increase your retirement savings. Not sure which earner has this available, but you want to make sure you are hitting any matches you have. With similar incomes we are at $12,000/year into my 401k.
If you are serious about working a budget something like YNAB is a terrific and easy to use tool that makes it pretty painless. It's not free like a spreadsheet would be but I lean toward practicality in this case. If it does not get used and you have fits and starts it can be discouraging and if you and your significant other are not always together or do not want to be carrying receipts home to enter later the mobile app more than pays for itself in the savings you can garner knowing what is happening.
From a spending standpoint, you've got a ton of low hanging fruit. $1,800 for hair care? My wife goes to a local ladies salon, and we live near a big city, and gets her hair done for $20. I have always had a buzz cut and do it myself at home for $0 after buying a $30 Wahl shaver 10 years ago. I think your monthly hair care bill covers our family of 7 for the year. You're going to get slammed for the dining out budget. If you are looking to save, this is easy pickins. We're not anything more than social drinkers so the wine/beer/tobacco budget seems excessive. That would be a lifetime budget for us in your yearly number. Concerted effort on groceries also seems like a target. If I understand your details you are a household of 4. Your grocery budget is the same as our household of 7 who are all teenagers and eat like horses. There are certainly other things to target, but those were the big ones that jumped out to me.
On the plus side, you have a very meager travel budget which would be tough to prune unless you went nowhere. I think you outperform MMM in that category. You also add a lot to the emergency fund, but keep an eye on when you've built that enough and when you can redirect to investing. At a certain level you no longer have an emergency fund, it just becomes part of the pile.
You can then start targeting your unsecured loans to get them paid.
It sounds like you feel somewhat strapped for cash and are not quite sure why, given your massive income. Other than the obvious advice to track your spending in much more detail, I think it would be helpful to break out each rental property separately -- your spreadsheet shows $4275 in income and $450 in expenses, but that doesn't include the mortgages you are paying for those properties, so it is difficult to tell if any individual property is turning enough of a profit to make it worthwhile.
Also, what are those personal loans and CCs for? Did you run up those bills from general overspending? If so, then that is a strong signal that you are spending far more than these numbers suggest, which means tracking is priority #1. OTOH, if they came from expenses associated with the rental properties (e.g., "private" second mortgage, reno cost), then you should be considering them when you evaluate the profitability of the various properties.
Finally, I am not a fan of debt consolidation loans in most circumstances. If you have gotten into this situation by overspending, then consolidating your debt into a single lower payment is just going to free up more room in your budget to buy more stuff. You have to do the hard work first -- tracking your spending, learning to budget, changing your habits to get used to living within your means -- if you want anything to stick. You didn't get into this situation overnight, so you shouldn't expect to get out of it overnight either.
Is it possible that the real profitability of the rental properties is (perhaps vastly) overstated here?
You report a about a 90% NOI margin for your properties (revenue - "real expenses" / revenue). This makes them the most profitable I've seen. More profitable than scaled up public REITS that own 1000's of single family homes and more profitable than large trophy office buildings.
Wouldn't property taxes alone be more than your claimed expenses of $450 a month on ~$400K (a guess) of property?
It doesn't add up that you just took out $50K from your 401k/TSP via loan , have unsecured high interest debt AND have spectacular income / cash flow from properties and reasonable (but not mustachian) expenses relative to your income.
I think there needs to be more context as to the use of proceeds of your non-mortgage borrowings to get a feel for what's going on.
the only explanation I can think of is you borrowed from 401k / personal loans to use as downpayment / rehab for your investment properties, which is fine assuming they actually are very profitable.
I like to link to specific articles from the blog if it pertains to a case study. In your case I think this would be an appropriate resource:
http://www.mrmoneymustache.com/all-the-posts-since-the-beginning-of-time/
A few of your expense categories have been mentioned already. If you feel that you can't make a change in any of these categories tell us why. You may be thinking if you spend $600 on groceries now dropping to $300 would mean you only get half of what you want or half the quality. This is not the case. I compare myself to friends and coworkers and I'm confident that I eat more good food, and healthier food than almost anyone I know and I spend about $250/month for 2. That's with very little eating out and a diet of 3-4,000 calories/day, the other person eats about half that.
But seriously, if you have reservations about cutting back in any of the categories that have been mentioned make your case. Especially the hair.
Wow so many numbers. Do you track your rental/personal expenses separately? For example, when you say you spend $100/month on landscaping, is that at your rental properties or at your own house?
Obviously, there's substantial fat in your expense that can be cut, but it's hard to assess if any these expenses are driven by your properties.
I'd recommend separating everything cleanly.
Also - credit cards! Yikes! Kill them now! Don't waste a moments effort on consolidating, you make enough money just pay them off in a couple months and never carry a balance again.
Post more about the rentals. What is the mortgage balance/market value of each, and what are the actual expenses (PITI, maintenance, management, vacancy, etc)? If you've really got ~$700k worth of mortgages making only $4200/month gross, that's horrible, and you should sell those properties immediately and go read some books about RE investing.
-W
I'd be interesting in hearing more about YNAB - is that something you use personally?
Post more about the rentals. What is the mortgage balance/market value of each, and what are the actual expenses (PITI, maintenance, management, vacancy, etc)? If you've really got ~$700k worth of mortgages making only $4200/month gross, that's horrible, and you should sell those properties immediately and go read some books about RE investing.
-W
Post more about the rentals. What is the mortgage balance/market value of each, and what are the actual expenses (PITI, maintenance, management, vacancy, etc)? If you've really got ~$700k worth of mortgages making only $4200/month gross, that's horrible, and you should sell those properties immediately and go read some books about RE investing.
-W
I think the OP has $365K of investment-related mortgages, the ~$700 includes primary, I believe.
I'd be interesting in hearing more about YNAB - is that something you use personally?
It stands for You Need A Budget. It is a program that forces you to do two main things: account for every penny you have, and project your spending for the future. It requires some patience to get used to how it functions and discipline to keep up with inputting expenses as they happen. It also requires you to be honest with yourself since it only works properly if you account for all monies coming in and going out. Your vague categories of "entertainment" "restaurants" and "gifts" get put front and center as you see specific dollar amounts and where they went. (personally I'm curious how Christmas is costing you $2k a year). The interface is like a supped-up spreadsheet with budget categories where you apply your income to those categories and then watch them dwindle over the course of the month. You can do a free 1 month trial to test it out and it comes with web-based tutorials. I've been using it for over four years and it helps me stay honest with myself and maximize my investment contributions.
Take a look at the program. If it looks a little daunting (it often does to budget newcomers), then start with a simple excel doc and record every transaction you make for a couple months whether it be credit cards, cash, checks, automatic withdrawals, trips to the vending machine, etc. Then look back at the end of the month and pick your jaw up off the table when you finally see where your money is going.
Actually, even with the overwhelming amount of information here, I do actually have some requests!
What are the interest rates for you credit card debts and how much is your payment?
How much is your monthly HELOC obligation?
How much do you have in your emergency fund and how much longer do you need to fund it at $500/month to reach your goal e-fund amount?
And because I'm slightly confused on the three rental property expenses, is it accurate that you are spending $3264 on rental PITI plus $450 in real expenses (total $3714) with rental income at $4275? That is a whole lot of work for $571/month. Is your long term goal for these properties to fund your FIRE? What is the profit margin on each property?
If I were you, my #1 goal would be to figure out how to quickly eliminate the following ~$55k in debt (45k of which is unsecured):
- Credit Cards (14k at ???%, freeing up ???/month)
- Personal Loan 2 (17k at 10.75%, freeing up $321/month)
- Personal Loan 1 (14k at 7.5%, freeing up $425/month)
- HELOC (10k at 7.2%, freeing up ???/month)
Without more information on the rentals, I'd focus on cutting spending to get rid of these debts before focusing attention on maxing out retirement and hitting the lower interest debt next.
$400/month on "entertainment" plus $550 on eating out is a very easy place to start.
Recommended Steps:
1. Go through all your August expenses and detail what you *actually* spent ALL of your money on. The expenses you list in the OP aren't inclusive since you don't have HELOC or CC payments in there. This honest look at where your money is going right now is really important as a wake up call. When I first did it, I realized just walking into Target was a liability for me.
2. Sit down with spouse and talk about your financial goals. Do you want to retire early? Do you want to semi-retire and be full-time landlords? Do you want to move to the tropics ASAP?
3. Make a plan of action (The investment order is a good starting place to build off of) with your goals in mind. It may not be exactly in line with what MMM would do, but more than anything it needs to be something you both agree to 100% and will commit to working towards. That might be a) pay off all debt over 6.5%, b) max out IRA and 401k, c) pay off lower interest debt, etc...
4. Put together a spending plan with your spouse. This is not what you hope you'll spend, but what you commit you will follow as your plan for the month. Look for ways to cut back to achieve your goals and plan of action more quickly. You don't have to follow the same spending plan forever. You could cut back drastically until you pay off the unsecured and high interest debt, then reward yourselves with a bump in entertainment money after that goal is reached.
5. Figure out how to track expenses and then actually do it. Budgets are pretty worthless without expense tracking. That is the teeth of financial planning. Use YNAB or Mint or Everydollar or a freaking spreadsheet, it does not matter.
6. grind it out!
Is it possible that the real profitability of the rental properties is (perhaps vastly) overstated here?
You report a about a 90% NOI margin for your properties (revenue - "real expenses" / revenue). This makes them the most profitable I've seen. More profitable than scaled up public REITS that own 1000's of single family homes and more profitable than large trophy office buildings.
Wouldn't property taxes alone be more than your claimed expenses of $450 a month on ~$400K (a guess) of property?
It doesn't add up that you just took out $50K from your 401k/TSP via loan , have unsecured high interest debt AND have spectacular income / cash flow from properties and reasonable (but not mustachian) expenses relative to your income.
I think there needs to be more context as to the use of proceeds of your non-mortgage borrowings to get a feel for what's going on.
the only explanation I can think of is you borrowed from 401k / personal loans to use as downpayment / rehab for your investment properties, which is fine assuming they actually are very profitable.
Great observations; I was pretty limited by the spreadsheet since my situation is a bit more complex than it was designed to handle. You are correct, rental properties are definitely not that profitable. I've added the rental income on each one below the calculations. I wasn't able to place them under the 'mortgage' section in the spreadsheet, because it only had one line there...basically, here is the income vs. expenses for the rentals:
Rental Income
Duplex $1,484.00
Condo $1,528.00
SFH $800.00
Mortgage Payments
Duplex $1,540.00
Condo $1,050.00
SFH $670.00
SFH HEL $148.00
As far as the the 401k loans go, I took those out to invest in a small business - nothing to do with the rentals at all.
Your rental portfolio is a money-loser. The gross rent is only around $3,800. Why do you have these properties? Have you considered selling them?
... and was able to refi 3 out of 4 mortgages to 20 years or less with good rates...Why did you take out mortgages (re-fi) for less than 30 years? If they were all 30 year loans, would they cash flow better?
"I don't understand the logic of selling them when my investment as a percentage of the total cost of ownership after rental income is still pretty low."
Please explain what you mean by this statement. You are not cash flow positive on these properties. My guess is you are not in a rapidly appreciating market. From where do you expect the return on your investment to come?
... and was able to refi 3 out of 4 mortgages to 20 years or less with good rates...Why did you take out mortgages (re-fi) for less than 30 years? If they were all 30 year loans, would they cash flow better?
If you took $150,000 and invested it in the stock market at a compounded growth rate of 7 percent how much would you have after 20 years? That's with no $3,000 additional investment.
It looks to me like you are a little lost in the weeds with the real estate investments. There are two ways to make money on real estate - cash flow and appreciation. You are cash flow negative, so you have to make it up somewhere else. That somewhere else is appreciation. Leverage may not be your friend here, even though your tenants are paying off your mortgage.
Sword Guy recommends Gallinelli's book on investment property math. You might want to have a look at that.
https://www.amazon.com/Estate-Investor-Financial-Measures-Updated-ebook/dp/B018HOKXBG/ref=sr_1_1?ie=UTF8&qid=1504069909&sr=8-1&keywords=frank+gallinelli
Actually, even with the overwhelming amount of information here, I do actually have some requests!
What are the interest rates for you credit card debts and how much is your payment?
How much is your monthly HELOC obligation?
How much do you have in your emergency fund and how much longer do you need to fund it at $500/month to reach your goal e-fund amount?
And because I'm slightly confused on the three rental property expenses, is it accurate that you are spending $3264 on rental PITI plus $450 in real expenses (total $3714) with rental income at $4275? That is a whole lot of work for $571/month. Is your long term goal for these properties to fund your FIRE? What is the profit margin on each property?
If I were you, my #1 goal would be to figure out how to quickly eliminate the following ~$55k in debt (45k of which is unsecured):
- Credit Cards (14k at ???%, freeing up ???/month)
- Personal Loan 2 (17k at 10.75%, freeing up $321/month)
- Personal Loan 1 (14k at 7.5%, freeing up $425/month)
- HELOC (10k at 7.2%, freeing up ???/month)
Without more information on the rentals, I'd focus on cutting spending to get rid of these debts before focusing attention on maxing out retirement and hitting the lower interest debt next.
$400/month on "entertainment" plus $550 on eating out is a very easy place to start.
Recommended Steps:
1. Go through all your August expenses and detail what you *actually* spent ALL of your money on. The expenses you list in the OP aren't inclusive since you don't have HELOC or CC payments in there. This honest look at where your money is going right now is really important as a wake up call. When I first did it, I realized just walking into Target was a liability for me.
2. Sit down with spouse and talk about your financial goals. Do you want to retire early? Do you want to semi-retire and be full-time landlords? Do you want to move to the tropics ASAP?
3. Make a plan of action (The investment order is a good starting place to build off of) with your goals in mind. It may not be exactly in line with what MMM would do, but more than anything it needs to be something you both agree to 100% and will commit to working towards. That might be a) pay off all debt over 6.5%, b) max out IRA and 401k, c) pay off lower interest debt, etc...
4. Put together a spending plan with your spouse. This is not what you hope you'll spend, but what you commit you will follow as your plan for the month. Look for ways to cut back to achieve your goals and plan of action more quickly. You don't have to follow the same spending plan forever. You could cut back drastically until you pay off the unsecured and high interest debt, then reward yourselves with a bump in entertainment money after that goal is reached.
5. Figure out how to track expenses and then actually do it. Budgets are pretty worthless without expense tracking. That is the teeth of financial planning. Use YNAB or Mint or Everydollar or a freaking spreadsheet, it does not matter.
6. grind it out!
First, thank you for taking the time to post some real recommendations and next steps. All of this information has been extremely helpful!
Credit card payments are about $425/mo
HEL is $185/mo
Emergency fund balance is $6,250 - I have the cash to push that up to whatever it needs to be, but assume I should direct some cash to paying off debt first?
Rentals are not highly profitable at this point, but I don't think are costing me much either. I regret all the confusion, but as I mentioned earlier, the calculator didn't really work for my situation as well as I would have hoped. I've added more info about the rentals now.
Again thank you for the action plan...seems most advice is to pay down the credit credit cards/unsecured debt. I have roughly $20,000 in cash, does it make sense to tap into that to pay this down, or just cut spending and apply the savings to debt?
The rule of thumb.
IF RENT is...
Duplex $1,484.00
Condo $1,528.00
SFH $800.00 (?? I am not sure how your rent is $4275 per month, something is missing from my numbers)
Is your property value under the following amounts (approximately)?
Duplex is worth no more than: $148,400 to $250,000?
Condo: $152,800 to $250,000?
SFH : $80,000 - $130,000?
If the property value is on the low side of the above, you have a very strong rental property argument. If it is closer to the higher number, you are definitely relying on capital appreciation to make this pay out, and you need to evaluate if your time and risk is worth it. (It may be).
If your properties are worth a LOT more than this upper range, it is a strong candidate for selling, without compelling reasons to keep it (such as intending to move into it, exceptionally low inherited property tax, other investors demands, etc).
| FMV | BAL | RENT | PYMT | TERM | RATE | |
| DUPLEX | $225,000 | $181,690 | $1,825 | $1,540 | 20 | 3.25% |
| CONDO | $160,000 | $95,230 | $1,650 | $1,050 | 15 | 3.375% |
| SFH | $120,000 | $69,350 | $800 | $670 | 30 | 4.125% |
I'd be interesting in hearing more about YNAB - is that something you use personally?I'll start with this but then address a few other things I saw discussed after.
Rental income $4,275 $51,300
Rental real expenses $450 $5,400
Rental depreciation expense $1,000 $12,000
We can't forget these two. Assuming you recapture your rental depreciation in a low income year, in future, and it is offsetting a very high income currently, the depreciation is worth, maybe $150 net to your monthly bottom line.
Rental Income: $3950
Rental Income
Duplex $1,484.00
Condo $1,528.00
SFH $800.00
Net Rental depreciation tax avoidance $150
Mortgage Costs
Duplex $1,540.00
Condo $1,050.00
SFH $670.00
SFH HEL $148.00
Real property costs $450
Plus -- other maintenance fund 5%, your expenses for car usage, forms and office paperwork costs, 3% vacancy (assuming 1 month vacant per year out of three units), other?
: $$380 per month (wild guess)
Total costs:
$4238 per month.
NET: Cost to you $288 per month, on average over a year or two.
................. Think of the rule of thumb, that prefferrably 1% of your property real value (cost to buy) should be the monthly rent. No less than 0.6% to 0.5% if your goal is capital appreciation (in which case, your market may already be pretty high, so a good time to sell?)
RENTAL PROPERTIES (Gross Rent)
FMV BAL RENT PYMT TERM RATE DUPLEX $225,000 $181,690 $1,825 $1,540 20 3.25% CONDO $160,000 $95,230 $1,650 $1,050 15 3.375% SFH $120,000 $69,350 $800 $670 30 4.125%
The rule of thumb.
IF RENT is...
Duplex $1,484.00
Condo $1,528.00
SFH $800.00 (?? I am not sure how your rent is $4275 per month, something is missing from my numbers)
Is your property value under the following amounts (approximately)?
Duplex is worth no more than: $148,400 to $250,000?
Condo: $152,800 to $250,000?
SFH : $80,000 - $130,000?
If the property value is on the low side of the above, you have a very strong rental property argument. If it is closer to the higher number, you are definitely relying on capital appreciation to make this pay out, and you need to evaluate if your time and risk is worth it. (It may be).
If your properties are worth a LOT more than this upper range, it is a strong candidate for selling, without compelling reasons to keep it (such as intending to move into it, exceptionally low inherited property tax, other investors demands, etc).
$4,275 is gross rent, I pulled out the management fees from the Duplex and Condo. They gross $1,825 and $1650 respectively. I should probably put that back in and indicate the management fees separately. Below is based on the gross...
RENTAL PROPERTIES (Gross Rent)
FMV BAL RENT PYMT TERM RATE DUPLEX $225,000 $181,690 $1,825 $1,540 20 3.25% CONDO $160,000 $95,230 $1,650 $1,050 15 3.375% SFH $120,000 $69,350 $800 $670 30 4.125%
Awesome! Remember, only ONE credit card for personal expenses, pay off each month. So much easier.And ONE credit card for expenses related to your rental properties, preferably tied to a sepearate checking account, which naturally you will pay off every month.
- I've signed up for both YNAB and Mint, and I am leaning toward Mint a little bit at this point be I find the app easier to use and it imports most transactions automatically...this will save me tons of setup time because I have hundreds of transactions per month. I can tell either tool will be a great resource to help us visualize our spending.You appear from your location to be US based, so US financial institutions, therefore YNAB will also import transactions automatically.
We obviously have a lot to do, but this feels like a good start.
Let me know what you think, and thanks again all!
Does anyone else invest in Lending Club or other P2P lending platform? I'm curious if it would be worth winding down that account to pay off debt faster? Right now I roll all the payments back in, but would get about $476/mo out of that for as many as it took to drain the account...right now it would be about 23 months. Thoughts?
I know you didn't ask, but I'd also recommend tweaking your various loan repayment plans slightly to approach it somewhat more methodically. If you want to minimize the money you pay in interest (and maximize what you keep in your pocket), you should throw all of your extra money at the highest-interest loan, and pay only the minimums on the remainder. Then once the highest is fully paid, throw all the extra plus what you just freed up from the first loan towards the second-highest loan. Etc.
I think your math is off on the last post. I think you are calculating the balance being the same in 18 months on the $14 000 instead of subtracting 18 months worth of payments and then see how long the new payment would take. I could be wrong I have only had one coffee today.
This is an AMAZING thread.
How are the wife and kiddos taking this new approach to finances?
What is on your to-do list this week? For example, did you decide to cancel cable and if so did you do it?
Re: groceries and planning to cook. I did the Whole30 diet/cooking approach in March of this year and it revolutionized my approach to meal planning and therein grocery shopping. It was amazing to know what I was going to eat a week out. It cut down on waste, encouraged me to eat at home and gave me a tangible way to moderate my grocery bill (for example, if I'm only going to use one bell pepper in a week it doesn't make sense to buy them in bulk at Costco that week).
I've been thinking of posting a similar post since I earn a good salary but sometimes feel underwater since I'm also paying for a house for a parent, have a lot of travel to weddings this year, replaced a car, etc.
Really enjoying the thoughtful replies and hope to see updates periodically, and maybe get punched in my own face some day soon!
:)
Yeah, I think we have math issues. I can't find a good calculator in the time available that lets you play around with different combinations, but this is what I found from one calculator (https://financialmentor.com/calculator/debt-snowball-calculator):
Current (from original study):
A = $17,612 owed, 10.75%, paying $425/mo
B = $14,233 owed, 7.5%, paying $321/mo.
Calculator says this will pay off both loans in 53 months, with about $7K in interest.
Your proposed plan would be to add $325 to each of those. When I plug those in, I get loan A being paid off in 27 mos. and loan B in 24 mos., with a total of about $3400 interest.
So then I plugged in adding $650 to loan A, which gave me 18 more payments and a total of $1520 in interest. Then I took the full $1075 you were paying towards A and added it to the $321 to B, which gave me 11 payments and $520 interest. But that doesn't consider that you would be paying down B at a rate of $321/mo for the year and a half you are focusing on A.
So then the real question is what will be the remaining principal on B in 18 mos., once you finish paying A? I can't find a calculator that tells me exactly how much principal you are repaying on your current schedule (I can't quite get the numbers to match your current payments), but it looks like the principal component is on the order of $200/mo. So if you assume that during the first 18 months when you are focusing on A, you are also paying $200/mo principal on B, that means that by the time you start to throw all your money at B, the principal would be down to about $10,600. And then when I plug in $10,600 owed and $1396 payments ($321 + original $425 from A + extra $650), it gives me 8 additional months and under $300 in interest. So the grand total for my proposed option would be 26 months and about $1800 in interest.
So my option: first loan paid off in 18 mos; second in 26 mos.; $1800 interest.
Split option: first loan paid off in 24 mos.; second in 27 mos.; $3400 interest.
Caveat that I am not the spreadsheet queen, so all numbers should be checked for accuracy.
1. Great job at killing your credit card debt. Now freeze those suckers in a block of ice... no really that's where mine are. From your posts you seem to be over spending from lack of tracking and while I know you are now working on tracking through mint, it's easy to back slide, so not having them around makes things just simpler. Make sure to unconnect them to things like Amazon and Paypal.
Consider using a second account for discretionary spending and just auto transferring over from you main account (where your pay your bills and mortgages) weekly or monthly. This debit card should be the only one you use. Make sure that there is no overdrafting abilities, when its gone its gone, denied. Over time you will adjust and every month or two lower the auto transfers as you become more efficient with your money.
2. I agree that you seem to just be spending whatever's in the bank account, part of why I suggested a separate account for discretionary, so I'd max your 401k ASAP. This will almost force you to lower you discretionary and make you do some hard choices just from have 1500 less a month. No pain no gain. Plus lower taxes...so yay.
3. Can we talk about your crazy cars? What do you have? Look into their blue book value vs their debt. Sell those puppies and get some used cars paid in full. Now if you can or maybe after a few months of cutting the low hanging fruit. I think you can get some decent cars for 5k each (my 2001 camry drives like a dream at 1k value if that lol) but you can definitely get something for 10k a piece. Without those car loans your debt is lowered and you can roll what you were paying on them further into your debt emergency, say your personal loans.
https://www.mrmoneymustache.com/2011/04/19/how-to-come-out-way-ahead-when-buying-a-used-car/
http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/
3. I didn't think the cars were that crazy considering we gross over $200k - it's a 2015 Dodge Durango and 2010 Buick Lacrosse, nothing excessive really. While I do realize it's $900+/mo, I really wanted the wife/kids in something reliable (which we also use for family travel). I kinda got hosed on the Buick, so getting rid of it now would just lock in losses, since it worth quite a bit less than what I owe.(https://i.ytimg.com/vi/YkMVH--1Kx4/maxresdefault.jpg)
3. I didn't think the cars were that crazy considering we gross over $200k - it's a 2015 Dodge Durango and 2010 Buick Lacrosse, nothing excessive really. While I do realize it's $900+/mo, I really wanted the wife/kids in something reliable (which we also use for family travel). I kinda got hosed on the Buick, so getting rid of it now would just lock in losses, since it worth quite a bit less than what I owe.
I'm not sure we're quite at the level of needing to cancel cable...besides, we are in a two year commit with AT&T @ $125/mo, which isn't horrible. Ont he docket this week, was paying off credit card debt (done) and stopping the automatic reinvestment in Lending club (also done). I also installed new floors in the SFH, and once the paint is complete, I'll be getting an appraisal to determine the selling price for that unit.
I'm not sure we're quite at the level of needing to cancel cable...besides, we are in a two year commit with AT&T @ $125/mo, which isn't horrible. Ont he docket this week, was paying off credit card debt (done) and stopping the automatic reinvestment in Lending club (also done). I also installed new floors in the SFH, and once the paint is complete, I'll be getting an appraisal to determine the selling price for that unit.
$125/mo for cable absolutely is horrible. I really, really hope that number is for your cable tv, internet, and phone lines, because that's an insane amount of money on TV. Your initial budget post says $50/mo cable, is that not accurate? Even assuming it's all included, you can do much better. You're still in debt, you are at the level of needing to cut everything that doesn't add irretrievable value to your life. Don't get complacent just because you paid off the credit cards.
Your car spending is absolutely insane. It has nothing to do with how much you gross, it has only to do with how much you have left at the end of the month. The answer to that question is, yes, the cars are that crazy and that excessive. Locking in losses on the Buick is better than continuing to pay interest on it. You can easily get a good car for <$10k, cash.
| Car Loans: | Orig. Prin. | Term | Curr. Prin. | Avg. Trade | Yrs left | Rate |
| 2015 Dodge Durango | $40,127 | 6 | $26,483 | $27,350 | 4 | 2.490% |
| 2010 Buick LaCrosse | $24,149 | 6 | $17,055 | $8,550 | 4 | 3.490% |
Man, my face hurts. LOL. Thank you all!
Look, obviously my flawed line of thinking is what got us here in the first place. I know it needs to change, and that's why I'm here. No amount of face punching is going to scare me away, but it may help push me to make the difficult changes we need to in order to realize FI.
The cars seem to be getting a lot of attention. I know I overpaid for both of them, and here is the current situation:
Car Loans: Orig. Prin. Term Curr. Prin. Avg. Trade Yrs left Rate 2015 Dodge Durango $40,127 6 $26,483 $27,350 4 2.490% 2010 Buick LaCrosse $24,149 6 $17,055 $8,550 4 3.490%
I'd really eat it by trading in the Buick right now...would lose at least $9,000 - more than its even worth. The average retail is only $12,000 - still a loss of over $5,000. I'm not saying I can't do it, but is that a good idea given how upside down it is? It does have an extended warranty on it until 100,000 miles, that may boost the trade value or at least keep it on the road longer.
Honestly everyone, I really do appreciate the feedback, both positive and negative. Please don't mistake my ignorance for arrogance. Clearly it's a miracle I've made it this far with no discernible strategy or budget, and I'd still be exactly where I was if not for all of you. Thank you again.
Man, my face hurts. LOL. Thank you all!
Look, obviously my flawed line of thinking is what got us here in the first place. I know it needs to change, and that's why I'm here. No amount of face punching is going to scare me away, but it may help push me to make the difficult changes we need to in order to realize FI.
The cars seem to be getting a lot of attention. I know I overpaid for both of them, and here is the current situation:
Car Loans: Orig. Prin. Term Curr. Prin. Avg. Trade Yrs left Rate 2015 Dodge Durango $40,127 6 $26,483 $27,350 4 2.490% 2010 Buick LaCrosse $24,149 6 $17,055 $8,550 4 3.490%
I'd really eat it by trading in the Buick right now...would lose at least $9,000 - more than its even worth. The average retail is only $12,000 - still a loss of over $5,000. I'm not saying I can't do it, but is that a good idea given how upside down it is? It does have an extended warranty on it until 100,000 miles, that may boost the trade value or at least keep it on the road longer.
Honestly everyone, I really do appreciate the feedback, both positive and negative. Please don't mistake my ignorance for arrogance. Clearly it's a miracle I've made it this far with no discernible strategy or budget, and I'd still be exactly where I was if not for all of you. Thank you again.
The Durango is used mainly to get my wife to work, ferry our two kids around, and take family trip. Out of the two cars, it would be more difficult to get rid of that one (or something equivalent to it room wise). We don't NEED an SUV, but we do pack it full when we go on vacations.Yes, do NOT roll it into another loan.
Getting rid of the Buick is definitely a possibility, just not sure any of the options make sense.
I think the worse option is to roll the the losses into something else at a dealer - makes a bad situation worse, right?
1. Sell Buick outright and take out a $5k personal loan that will almost surely have an interest rate higher than 3.49%. That loan would eat up any interest saved by paying off the current loan, right?
2. Sell Buick, pray it gets $12k, and use cash to cover the difference. Then buy a used car around $10k. Does paying the difference with cash that could be used to pay down a higher interest rate (7-11%) personal loan make sense though?
3. Sell the Durango. Like I said, we don't need an SUV, and since it's not in a bad spot equity-wise, we could find a used car or SUV at around $10 - $12k and used that saved money to pay down the Buick.
3. Keep and pay off both cars. Maybe the second worst option it seems. I could punch myself in the face for getting into this mess, continue to focus on paying off my $34,000 in personal loans (target 22 months) then snowball that extra cash into paying off these cars.
*sigh*
1. Ignore the Buick for now. Ditch the Durango. That will free up $600 per month. That is a metric shit-ton of money when you are as underwater as you are.
2. Realize you are not paying $600/mo. for the Durango. You are paying $600/mo, plus the interest rate on your highest-interest debt, because if you didn't have the stupid Durango payment, you'd have $600 more every month to throw at that loan. You are effectively paying double interest on that car.
3. Do not divert the savings to the Buick. Send it to your highest-interest debt and watch that snowball speed up.
Hi -- I lost the track of all the loans, so I am reposting here... recap of the loans -- do I have the PMT amount (voluntary + minimums) right? Also I believe tb has used cash to pay off some CC loans...or have I missed anything?
Credit Cards RATES? Paid off?
1 $10,828.00
2 $1,734.00
3 $572.00
4 $255.00
Additional Loans: Orig. $ PMT Term Owing$ Yrs left Rate
Car 1 $40,127 $602 6 $26,483 4 2.490%
Car 2 $24,149 $383 6 $17,031 4 3.490%
HEL $18,664 $148 20 $10,498 8 7.240%
401k Loan $35,000 $694 5 $31,082 5 .000%
TSP Loan $15,000 $266 5 $13,627 5 .000%
Personal Loan 1 $16,000 $321 5 $14,233 5 7.500%
Personal Loan 2 $25,000 $425 7 $17,612 7 10.750%
Mortgage $340,000 $1950 20 $329,935 19 3.375% (itemized deductions)
Total Committed Payments made to non-business Loans: $2839/mo + cc's if not paid in full + $1950/mo for Mortgage
= $4789 per month
Total Loan value to be paid off in 5-7 years: $130,566 +$13,389 cc's ? +$1950/mo mortgage + interest on loans as they accrue.
Okay -- I have to ask -- why did you take out $90k in loans in the past year? (401k, tsp, personal loans)... Was this to buy a rental property or pay off cc's? My original thought was that you were buying another rental, or even a down payment for your current home?
Reference only: "BUSINESS LOANS" -- evaluated on a business income - expenses basis, not included above.
RENTAL PROPERTIES (Gross Rent)
FMV BAL RENT PYMT TERM RATE
DUPLEX $225,000 $181,690 $1,825 $1,540 20 3.25%
CONDO $160,000 $95,230 $1,650 $1,050 15 3.375%
SFH $120,000 $69,350 $800 $670 30 4.125%
I assume you mean ditch the Durango and buy something cheaper? We both work and live in the suburbs. I'm not sure there is a realistic way for us to downsize to one car in our current situation. I travel to Michigan and Wisconsin, among other places like downtown Chicago. While I'm gone, the wife really needs a car to get to work and to get the kids around to babysitter (grandma), dance, etc. She typically gets home much earlier than I do, like 3-4 PM compared to my 6-7 PM. Public transportation isn't an option, though I could probably rent cars (not sure that makes sense).
1. Ignore the Buick for now. Ditch the Durango. That will free up $600 per month. That is a metric shit-ton of money when you are as underwater as you are.I assume you mean ditch the Durango and buy something cheaper? We both work and live in the suburbs. I'm not sure there is a realistic way for us to downsize to one car in our current situation. I travel to Michigan and Wisconsin, among other places like downtown Chicago. While I'm gone, the wife really needs a car to get to work and to get the kids around to babysitter (grandma), dance, etc. She typically gets home much earlier than I do, like 3-4 PM compared to my 6-7 PM. Public transportation isn't an option, though I could probably rent cars (not sure that makes sense).
2. Realize you are not paying $600/mo. for the Durango. You are paying $600/mo, plus the interest rate on your highest-interest debt, because if you didn't have the stupid Durango payment, you'd have $600 more every month to throw at that loan. You are effectively paying double interest on that car.
3. Do not divert the savings to the Buick. Send it to your highest-interest debt and watch that snowball speed up.
So it's not really freeing up $600/mo if we still need two cars, even if one is significantly cheaper. Saving $300/mo might be more realistic if we can get something in the $10-12k range to replace the Durango.
I want to make the difficult decisions and hard changes, but they can't be so drastic that they jeopardize our ability to work; one thing we definitely cant afford is to lose one of our jobs.
if you still want a $10-12K used SUV, you can save up and pay cash for one.+1
However, it sounds like to me that 99% of your Durango trips could also be accomplished by a Civic. It's a consumer trap to imagine the most extravagant personal transportation task (big family vacation) and then purchase a vehicle that will meet that need. The reality is that most vehicles carry one person around on their work commute.+1
You could always rent a Durango for a week every year for your family vacation.
So growing up in Chicago and starting my career there, why is public transportation not an option to downtown Chicago. Most of the Metra lines run out to most suburbs in all directions and would give you a much shorter drive or perhaps open up a bike to the train stations vibe. I used to live all over the north and northwest suburbs and regularly took Metra, CTA, PACE and RTA options in combination. Yes it took time in some cases (when I went to college it took three hours to get to DePaul downtown from Arlington Heights area because I took a Pace bus from Woodfield Mall to Ohare Metra station in Rosemont, then took that in to either Metra line or CTA changovers in the loop to get back up to Lincoln Park). Only cost me about $150/month for all the passes and I was saving to $20-$30/day for parking in the Loop so more than paid for itself. I know they've gone up but it might be worth looking at those options (or how over time you bring them into play by moving). Chicago is awesome where you can live in the suburbs for cheap (Gurnee or Crystal Lake for us eventually) and use public transportation to get nearly anywhere. Just need to be creative. You can then use the time to get work done (or school work if studying for degrees later) and amazing how much more you can get done when you are not driving the car, but just riding along able to repurpose your time. If you travel for work, will they not let you rent a car for those times you need to drive to other states?
My household also needs 2 cars to ferry passengers to their well-paying jobs. This is a justifiable expense.
However, it sounds like to me that 99% of your Durango trips could also be accomplished by a Civic. It's a consumer trap to imagine the most extravagant personal transportation task (big family vacation) and then purchase a vehicle that will meet that need. The reality is that most vehicles carry one person around on their work commute.
You could always rent a Durango for a week every year for your family vacation.
The first question on this is is your spouse on board with your MMM epiphany? If not you may want to check out the https://forum.mrmoneymustache.com/ask-a-mustachian/how-to-convert-your-so-to-mmm-in-50-awesome-steps/My household also needs 2 cars to ferry passengers to their well-paying jobs. This is a justifiable expense.
However, it sounds like to me that 99% of your Durango trips could also be accomplished by a Civic. It's a consumer trap to imagine the most extravagant personal transportation task (big family vacation) and then purchase a vehicle that will meet that need. The reality is that most vehicles carry one person around on their work commute.
You could always rent a Durango for a week every year for your family vacation.
I appreciate this real world example and perspective; it makes a lot of sense.
Now...any strategies on how to convince my wife that her truck needs to go and she has to start driving the Buick? LOL
Another alternative may be to sell the SFH, it appears that it is the lowest profit margin by far, and could free up $40k. Do this in conjunction with the Durango and you are all set. Of course, you need to run the real estate business numbers first, there could be a lot more to the SFH that I don't know about.
OK, so yeah, not in a great spot on either vehicle. If I figured the numbers right you are at a $372.35 payment on the LaCrosse. Also looking at your loan, you bought this thing used for $25K and financed it for 6 years? Obviously 2 years into that loan I'm guessing you did not find a dealer sitting on an old 2010 in 2015 and buy it new then, but just checking. I'm assuming you rolled the extended warranty into the financing, which is part of what inflated this sucker to the insane amount. 5 year old LaCrosse should have been under $15K, so not sure how you got squeezed for $25K.
Right. So you bought the Buick two years ago for $16k (or $17k as per a previous post) plus $3k in transaction costs (tax). It is now worth $12k, so it has cost you $2k or $2.5k a year in depreciation. On top of that it has cost you $1.25k a year in additional insurance costs (which is what the warranty is). The $3.5k loss on the previous car isn't really a loss on this car, you've just disguised the loss you made on the previous car 2 years ago and put off paying it by adding it to this loan.
So you are kidding yourself by thinking you will lose money by selling the car. You have already lost (ie spent) the $13k, and are paying $372.35 a month so that you can continue to live in denial about having lost (ie spent) it.
LISTEN TO YOURSELF -- ARE YOU INSANE OR JUST UNBELIEVABLY STUPID?!?!?!??!
Can you not see that when you rolled that money you owed on the lease into the new loan on a USED car, which you then increased the loan for to buy A RIDICULOUSLY high-priced warranty, this was not a way to "put off the losses." YOU COMPOUNDED YOUR LOSS BY ADDING MORE MONEY OWED ON TOP OF THE ORIGINAL LEASE PENALTY PLUS THE INTEREST RATE FOR THE LOAN!!!!! All on a rapidly deteriorating asset!
Sorry, I shouldn't have gone off like that on you. It was rude and unhelpful and I apologize.
What sent me over the top was that it sounded to me like you were saying "Yeah, it was not smart of me to roll all those extra expenses into the loan but at the time I felt like couldn't take the immediate hit. So I added interest on top of the bad decision. And now I still can't stomach the immediate hit, so I'm just going to keep paying the interest for another four years." Sunk cost fallacy, my friend. The money you spent on the cars is GONE. It isn't coming back. And you are continuing to pay interest on those sunk costs, which is not helping. The question is, how quickly can you get yourself out of this hole?
Does your wife realize how much debt you are in? If I were her I would be totally freaking out, not worrying about keeping my truck.
Next time you need a car and are thinking about visiting a dealership, send one of the shrewd negotiators on this forum instead. Car salesmen probably see you coming and rub their hands together with glee. Payday has arrived!
tbb, it will be better than salvaged, you'll make decisions in the future that will make your life better than you thought possible. One step at a time. Tough love here, but worth it.
I just read this whole thread. Whew!
TBB, are you in love with being a landlord? Do you have time for it all? Because if not, I am going to be radical here and say sell them all. If you want to have real estate investments, buy shares in a REIT. So much simpler, and they know what they are doing.
People have looked at various aspects of your situation, so I am going to go general.
We have no idea of what your life is like. You work, plus you mentioned a side business (or at least an investment in a side business), your wife works, kids are ? age? how many after-school activities? I am wondering how much time is available to you (which is why I am thinking REITs are the way to go for you) and how much energy you have left after work.
One of the guiding principles here on the forums is that money does not buy happiness. A well-thought out life does bring happiness. I am seeing a life that is basically in chaos, decisions made as the need arises, no long-term thinking about goals. You need to sit down with your wife (and kids if old enough to have sensible input) and figure out what your life is like now and what you as a family would like it to be. Given all the mental energy you seem to be spending on jobs and rentals and who knows what, how much of your energy is going to your family?
And really, looking at the juggler juggling knives and flaming torches story so far, you need to simplify. You will continue to spend money eating out if you can't sort out a home life that involves eating at home and a sensible grocery shopping plan. Involving the kids in home maintenance activities (cooking, dishes, laundry, yard maintenance, minor home repairs) will prepare them better for adulthood. Having the family plan what is important and what can be dropped will help the kids learn how to set their own priorities.
Some info from your wife would help too, how does she see all this? Does she even have a clear picture of all this?
Good luck.
I'm not married to being a landlord - I just kinda fell into it, since like someone else mentioned, the banks seemed to have no problem issuing me over $700,000 in mortgages. I was never really compelled to sell since they've remained rented. It's clear that they are probably not the most fiscally sound investment choice. I'm in the process of preparing the SFH for sale, and need to split the mortgage to sell the Duplex, if I want to get maximum return on that sale. I am considering keeping the condo if any of them, since I think it may be in the best shape from an ROI standpoint, but the jury is still out on that.So I'm going to offer a bit of deeper thought on both of these. Maybe totally off base, but wanted to mention so you can think about/investigate.
My wife has been on me about budgeting for a long time; and I've let her know that I'm getting all of this information together. I don't think she has a very clear picture of it however, because she hasn't typically been involved in the day to day bill paying, etc. It's not that I've made any effort to hide the situation, but I've never walked her through it all either. This is something I need to fix for sure.
Kids are 7 and 4, girls, and they have dance 4 nights a week. Did I mention I'm also in the Air National Guard, so there goes at least one weekend a month. I have zero energy all the time. I started crossfit and haven't been back in a month because the time just isn't there. But, I am still paying for it. *sigh*
Family life is struggling, I will admit - I do appreciate that laying all this information out here has really helped put things in perspective for me. It easy to just "keep on truckin" and accepting the status quo while your on the inside.
DDs - my DD did dance as well, also soccer, karate, Scouting, but we were never out 4 nights a week in elementary school. 4 and 7 seems very young to be doing that much dance. What is the rationale behind it? Are they in the same class so both doing 4 nights? Or different classes and 2 nights each, or 1 and 3? Who takes them? Can the parent taking them do errands while class is on, to free up family time for the weekend? Or is class time the chance for the chauffeuring parent to have a bit of a rest? So much to think about re arrangements here. Not knocking this, car time with kids can be a great time to connect with them. Long-term - what are the goals for dance? Mine got into a very competitive dance world (my DD's area of dance does not really have a recreational component except at the adult level) and we ended up doing a lot of travel for competitions. I am not sure I would have started her if I had known this was the standard. We did it frugally, it could have been much worse financially, but it did take a chunk of time and money. So if your daughters' dance is also competitive, the time to decide if you want to go down that rabbit hole is now, not when the teacher is talking about a summer of competition.
Also re DD's and activities - traditionally girls did individual activities and boys did team activities - dance is an individual activity. Are the girls getting lots of peer interaction? - you know, play time. Or sports? House leagues aren't usually too competitive, and competitive is stupid at their ages. And other group activities - this can also include Scouting/Girl Guides/4H/other group things. And they may be too young, but in this world I was always glad DD took karate, having a bit of self-defense skills is a good thing, and having a potential abusive boyfriend know the girl can wipe his clock is also a good thing. Oh, yes, I admit being a protective parent.
Re the real estate, if you had a passion for it I would say great, go for it, just do your financial calculations. Since you just sort of ended up in it, I go by the comment to sell it all. Maybe aim to be totally out in 6 months? Or a year? But give yourself a deadline. Just because the banks will lend to you is not a reason to take them up on it, the banks lent to all those people who have ended up under-water on their houses. Banks are in business to make money, after all, and they are making some off of you right now. And from you have posted, you don't have the time and energy to be a part-time landlord, save that time and energy for your family.
Re the Air National Guard, that means your wife is on her own with the girls one weekend a month. Is she getting enough down time? Are you being an active father? Having a daughter myself meant I saw lots of her friends, and there were a lot of fathers who weren't all that involved because they didn't know how to interact with daughters. Now that the daughters are all grown up the fathers are still not that involved in their daughters' lives, because they never were so there is no precedent. Actually there were a lot of daughters who never saw that much of either parent because of their parents' jobs, and that was sad too.
And if is seems odd that I am looking at your life instead of your money, the two are inextricably entwined. You can't change one without the other.
Going to start a rolling post of progress here just to keep track.
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
In doing these three things I now have about $1400/mo to throw on top of something.
I'm thinking this $1,400 goes on top of the $17,000 personal loan (PL1) with interest rate of 10.75%, which would pay that off in 11 months.
Next would be the $14,000 personal loan (PL2) with an interest rate of 7.5%. Combining the $1,400 with the $450 freed up by paying off PL1 would pay that off 7 months after PL1 is paid off, or 18 months from now. I'm assuming the balance on PL2 is around $2300 lower 11 months from now.
I'm also making repairs to sell the SFH, so proceeds from that sale could change everything above depending on how much i net there.
This is pretty aggressive (for me) but should be doable considering we were living without this money one way or the other anyhow.
Thoughts?
Going to start a rolling post of progress here just to keep track.
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
In doing these three things I now have about $1400/mo to throw on top of something.
I'm thinking this $1,400 goes on top of the $17,000 personal loan (PL1) with interest rate of 10.75%, which would pay that off in 11 months.
Next would be the $14,000 personal loan (PL2) with an interest rate of 7.5%. Combining the $1,400 with the $450 freed up by paying off PL1 would pay that off 7 months after PL1 is paid off, or 18 months from now. I'm assuming the balance on PL2 is around $2300 lower 11 months from now.
I'm also making repairs to sell the SFH, so proceeds from that sale could change everything above depending on how much i net there.
This is pretty aggressive (for me) but should be doable considering we were living without this money one way or the other anyhow.
Thoughts?
(What does a $450/yr CC fee even COVER???)
Amex also has the Blue Cash option, which is fee free -- you could save another $95/year that way (more with the cash back).
If I traveled enough to need all those extras, I would want my company to be providing me with the card, or covering the fee. Good for you for down-grading.
If I traveled enough to need all those extras, I would want my company to be providing me with the card, or covering the fee. Good for you for down-grading.
My company does reimburse travel expenses, but how they are covered is on the individual. They'd probably tell me the same thing as lhamo - "go get a card with no annual fee"...
I just read this whole thread. Whew!
TBB, are you in love with being a landlord? Do you have time for it all? Because if not, I am going to be radical here and say sell them all. If you want to have real estate investments, buy shares in a REIT. So much simpler, and they know what they are doing.
People have looked at various aspects of your situation, so I am going to go general.
We have no idea of what your life is like. You work, plus you mentioned a side business (or at least an investment in a side business), your wife works, kids are ? age? how many after-school activities? I am wondering how much time is available to you (which is why I am thinking REITs are the way to go for you) and how much energy you have left after work.
One of the guiding principles here on the forums is that money does not buy happiness. A well-thought out life does bring happiness. I am seeing a life that is basically in chaos, decisions made as the need arises, no long-term thinking about goals. You need to sit down with your wife (and kids if old enough to have sensible input) and figure out what your life is like now and what you as a family would like it to be. Given all the mental energy you seem to be spending on jobs and rentals and who knows what, how much of your energy is going to your family?
And really, looking at the juggler juggling knives and flaming torches story so far, you need to simplify. You will continue to spend money eating out if you can't sort out a home life that involves eating at home and a sensible grocery shopping plan. Involving the kids in home maintenance activities (cooking, dishes, laundry, yard maintenance, minor home repairs) will prepare them better for adulthood. Having the family plan what is important and what can be dropped will help the kids learn how to set their own priorities.
Some info from your wife would help too, how does she see all this? Does she even have a clear picture of all this?
Good luck.
I'm not married to being a landlord - I just kinda fell into it, since like someone else mentioned, the banks seemed to have no problem issuing me over $700,000 in mortgages. I was never really compelled to sell since they've remained rented. It's clear that they are probably not the most fiscally sound investment choice. I'm in the process of preparing the SFH for sale, and need to split the mortgage to sell the Duplex, if I want to get maximum return on that sale. I am considering keeping the condo if any of them, since I think it may be in the best shape from an ROI standpoint, but the jury is still out on that.
Kids are 7 and 4, girls, and they have dance 4 nights a week. Did I mention I'm also in the Air National Guard, so there goes at least one weekend a month. I have zero energy all the time. I started crossfit and haven't been back in a month because the time just isn't there. But, I am still paying for it. *sigh*
Family life is struggling, I will admit - I do appreciate that laying all this information out here has really helped put things in perspective for me. It easy to just "keep on truckin" and accepting the status quo while your on the inside. Reading through all of these perspectives has really shed a light on my situation and allowed me to see it from the outside, which is something I don't think I could have done alone. It was easy to accept it because we were on cruise control...albeit on the wrong side of the road.
My wife has been on me about budgeting for a long time; and I've let her know that I'm getting all of this information together. I don't think she has a very clear picture of it however, because she hasn't typically been involved in the day to day bill paying, etc. It's not that I've made any effort to hide the situation, but I've never walked her through it all either. This is something I need to fix for sure.
Going to start a rolling post of progress here just to keep track.
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
In doing these three things I now have about $1400/mo to throw on top of something.
I'm thinking this $1,400 goes on top of the $17,000 personal loan (PL1) with interest rate of 10.75%, which would pay that off in 11 months.
Next would be the $14,000 personal loan (PL2) with an interest rate of 7.5%. Combining the $1,400 with the $450 freed up by paying off PL1 would pay that off 7 months after PL1 is paid off, or 18 months from now. I'm assuming the balance on PL2 is around $2300 lower 11 months from now.
I'm also making repairs to sell the SFH, so proceeds from that sale could change everything above depending on how much i net there.
This is pretty aggressive (for me) but should be doable considering we were living without this money one way or the other anyhow.
Thoughts?
Forgot to add; and I don't think I ever mentioned this before...let the face punches commence. We owned a BlueGreen timeshare we never used that I just sold (read: gave away) two months ago. Another "seems like a good idea" at the time thing, but that was 10 years ago. It was costing us about $830/yr in maintenance and fees, so there's $70/mo back.
I also downgraded my AMEX Platinum Card to Green yesterday, lowering the annual fee from $450 to $95 - about $30/mo savings there.
So combine those two for about $100/mo more back in the pocket! Woo hoo! Small steps, buy they are adding up.
Adding to the list here...Good stuff! $1,600/month! That's almost MMM's entire monthly budget just from some quick hits. Keep going!
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
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
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
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
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.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.
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?
| LOAN | ORIG | AUG29 | NOV3 |
| 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 |
| $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 |
| CC | AUG29 | NOV3 |
| 1 | $10,828 | $0 |
| 2 | $1,734 | $0 |
| 1 | $572 | $0 |
| 2 | $255 | $0 |
| TOTAL | $13,389 | $0 |
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? :)
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.
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!
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.
Yup. You and I are on the same page, GL.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?
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.
| REO | FMV | BAL | PITI | RENT |
| 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 |
| LOAN | ORIG | BAL |
| PRSP | $16,000 | $13,497 |
| USAA | $25,000 | $13,938 |
| CAR1 | $40,127 | $24,837 |
| HEL | $18,664 | $10,255 |
| 401k LOAN | $35,000 | $29,348 |
| TSP LOAN | $15,000 | $12,923 |
| TOTAL | $173,940 | $104,798 |
| CC | BAL |
| BBUY | $347 |
| USAMC | $5,136 |
| AMEX | $2,582 |
| TOTAL | $8,065 |
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.
Why are you bothering with an appraiser and not just interviewing realtors for the SFH?
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.
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.
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.
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.
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.
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.
Posting to follow..........Valuable advice, just realised I am a speculator.
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.
I really appreciate the time you take to provide comprehensive and constructive feedback Laura33. I find myself reading your comments (and a small handful of others) over and over again as I continue trying to figure this out. Thank you.
I really appreciate the time you take to provide comprehensive and constructive feedback Laura33. I find myself reading your comments (and a small handful of others) over and over again as I continue trying to figure this out. Thank you.
And thank YOU for your gracious response, and for your openness to new concepts and new ways of looking at things. This is so, so important in making any kind of real change. Keep going! It's so worth it! :)
Just read the whole thing, how has it been going? Would be curious for an update!
1. Thank you! I actually have a separate business credit card account, which I'll start focusing on actually using for business expenses.
Thanks for coming back and letting us know what's going on.
Your finances are looking a lot healthier now, so congrats.
(Although I did have a bit of a doubletake over $100k of debt on two cars.)
Great that you came back, but I have a few questionmarks.
Assuming a NW of -80k in 08/2017 (the first post made it pretty hard to really read your NW) and now 450k, you added ~530k to your NW.
125k of this was rent, so you made ~600k in the last three years and saved around 400k?
So a savings rate of 66% while adding a 50k loan and another clown car. While also rolling credit into your mortgage? That's impressive. Or a sign that we can't see the full picture here.
There are two ways to make money on real estate - cash flow and appreciation. You are cash flow negative, so you have to make it up somewhere else. That somewhere else is appreciation. Leverage may not be your friend here, even though your tenants are paying off your mortgage.There are four ways to make money:
Sword Guy recommends Gallinelli's book on investment property math. You might want to have a look at that.
https://www.amazon.com/Estate-Investor-Financial-Measures-Updated-ebook/dp/B018HOKXBG/ref=sr_1_1?ie=UTF8&qid=1504069909&sr=8-1&keywords=frank+gallinelli
I’m sitting here a bit stunned that someone who starts a journey to get out of $800k of debt, makes incredible progress over 3 years, only to add a $65k new car. Is it about making sure that people know how successful you are? That’s 1/3 your salary. On a car!?! Anyways, I’m not a car person so clearly don’t get it.
I think the reference was to how successful your car makes you appear to people in your own life, not on this forum, which is generally unimpressed with expensive cars. As you can tell. (Also, not to be too annoying, but the phrase is, you couldn't care less, not you could care less, which means you do care.)
You've definitely made awesome progress and each person's financial journey is definitely his or her own.
I think the reason for the backlash is because the whole premise of this website/forum is for people to understand that they should be completely out of debt and try to avoid it in the future at all costs (at least in terms of consumer debt).
Again you have made great progress, and I do not think at all this was done for impression but I guess in most simplistic terms it's as though you treated yourself "for a job well done" but actually the job isn't done yet.
Regardless continue to keep up the progress!!
You've definitely made awesome progress and each person's financial journey is definitely his or her own.
I think the reason for the backlash is because the whole premise of this website/forum is for people to understand that they should be completely out of debt and try to avoid it in the future at all costs (at least in terms of consumer debt).
Again you have made great progress, and I do not think at all this was done for impression but I guess in most simplistic terms it's as though you treated yourself "for a job well done" but actually the job isn't done yet.
Regardless continue to keep up the progress!!
Why do you have a "dream" car at all? Why not a functional car in good shape at a good value suits your needs? It might be worth examining why you get pleasurable feelings from an expensive purchase that you can't afford.I assume this poster, like me looks at cars the same way. "A tool to get me from point A to B". Therefore I do not ever "dream" about any car anymore than I dream about my toothbrush or my shoes. It is something I need in my life, and I too choke at the car purchase. However, I also live in the world and understand that some people enjoy the "clown car" (MMM definition).
Why do you have a "dream" car at all? Why not a functional car in good shape at a good value suits your needs? It might be worth examining why you get pleasurable feelings from an expensive purchase that you can't afford.I assume this poster, like me looks at cars the same way. "A tool to get me from point A to B". Therefore I do not ever "dream" about any car anymore than I dream about my toothbrush or my shoes. It is something I need in my life, and I too choke at the car purchase. However, I also live in the world and understand that some people enjoy the "clown car" (MMM definition).
When I was in the C-suite at several companies I would regularly get asked by colleagues "Why don't you get a Mercedes or BMW like me?" I would always reply to them "My Hyundai has the same or more features than your car that costs three times as much. You've been in my car. What is better about yours?" I usually got a blank stare, a couple of half words, and then a head nod and "good point". This I think is where the "who are you trying to impress" points are coming from because you can get a brand new car for much less money that stacks up very favorably to the $65K cars if you want that chance to not own a beater. Also, on this board you'd get less questions from a $15K purchase of a decent used car (read "not beater") that still could give joy but have let you bank $50K.
All that said, it is your life, and so no judgment, just sharing perspective that is different.
First, congratulations on the progress.
Second, make sure you don't fall into a two-steps-forward, one-step-back way of thinking.
From the numbers you posted, it looks like you've paid off around $135K of debt (not counting regular amortization -- focusing on the "paid off" stuff). But part of that came from liquidating an income-producing asset, not budget cuts or such. Now, I still agree that that was a good idea, because the house wasn't paying for itself. But that still means that you have sold an asset to pay for (past) consumption, which is not what you want to be shooting for long-term -- it's necessary when you're that far in debt, but not desirable.
With clearing around $50K on the SFH, that means that you've covered about $85K out of your debt on your own, out of increased income and lower expenses. Again, congrats! That's really great progress.
But then you went and bought a new car. Which was an *expensive* car, since you used to owe less on the $65K car loan than you do now. So basically, it looks like you gave back around $65K of that savings and put it into a new car, a/k/a still more consumption.
Note: I'm sure it was less than that; I'm assuming the remaining part of the old car loan was rolled into the new one, and so that is not all attributable to the new car. But still: you rewarded yourself for paying off debt by taking on more debt. Yes, you need vehicles. But you don't need vehicles that require six figures of debt.
By way of contrast: I live an extremely luxurious, non-Mustachian lifestyle. And both of us like cars, very very much, and we have always bought non-cheap, nice cars, anywhere from brand-new to 2 yrs old. We make more than you do and have no debt except for our mortage. And despite all of that, up until a couple of years ago, we never owned cars that were even worth six figures combined (much less taking on that much debt to buy them). Even adding our third car for the teen driver would not have put the combined cost over $100K.*
Look, you are not me, you don't want to live my life, and you don't have to. But the point is that your mindset and the choices you make every day drive** your results. And as long as you continue to put nice consumption choices ahead of debt paydown and savings, you're going to continue to get in your own way towards the debt-free and financially-independent lifestyle you want.
*Yes, we do now, because I bought my StupidCar. But that came after we were FI, including having college costs fully covered for two kids.
**No pun intended.
After four pages, my impression is that you tend to approach finances emotionallyand now you say
It was a "dream car" purchase for me at a time when I felt I could afford (and enjoy) it.(emphasis added)
as long as you continue to put nice consumption choices ahead of debt paydown and savings, you're going to continue to get in your own way towards the debt-free and financially-independent lifestyle you want.