Author Topic: Case Study: Brand new and figuring where to go from here  (Read 3972 times)

Josephus

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Case Study: Brand new and figuring where to go from here
« on: March 29, 2017, 12:10:37 PM »
Hello Everyone,

Well, if I had hair it might be smoldering...I'm in Ontario, Canada so the tax system may look a little different than some are used to.  I'm married and have 3 kids under 13.  I'm 39 and my wife is 35 so we are late to the party. 

I just found you guys lately and have been skimming all over the forums since.  We have recently come to the conclusion that we will never get out of the mess we are in if we continue to make the same mistakes.  We have started using YNAB and have made great strides in the past few months...Honest!  We have paid the Line of Credit down from 25k to just over 9 which is a load off both our minds and we will continue and have it completely paid off soon.

I make a great income but somehow don't end up with it at the end of the year.  I run my own business which gives me a much longer commute than I would like.  To move closer, though, I would pay more for rent on an apt than I would pay for my mortgage.

Since we found YNAB and have been keeping track of where we were spending our money we:

1.Have recently sold our huge money pit of a house in favor of a much smaller house in the country. 
   a) Saving $333 in property taxes monthly.
   b) Saving $160 in sewer/water fees monthly
   c) Saving $200 in Nat Gas monthly.

2. Put Truck gas bills on Company costs since it is used for work daily.

I've made some really stupid decisions in the past.  We bought one of the biggest houses in town "because we deserved it", I bought a van and a truck on payments. I have put most of our "rainy day fund" into a recent funeral and the rest into the bad debt of the old house we sold and unexpected overruns of new house renovations.  Where do I go from here???? I have NO retirement savings and I am way behind. 

Questions:

1.  Should I continue to pay off my LOC and then snowball that into the vehicles or should I start investing after LOC is taken care of?

2.  Should I start investing in low MER index funds now?

3. What questions am I not asking that I should be?  I don't even have more than a "I want to be FIRE" let alone a year.

 

Monthly  Gross Income: $10,000.
Monthly Net Income:     $7,100.

Monthly Income Taxes:   $2,900

Monthly Expenses:

Mortgage: $1550
Cable & Internet: $0 (free b/c they have tower on property)
Netflix: $10
Cell Phone: $0 (paid by work)
Electric: $450 average  (More in winter, geothermal furnace runs on electric and is turned off in summer)
Auto Loan: $345
Truck Loan:$553 Now $0!
Propane: $70 (stove + heat for rear of house)
Gas: $200
Insurance: $259 (house and 2 vehicles)
Insurance: $170 (Life Insurance)
Groceries: $800
Restaurants: $50
Medical:  $200
Home maintenance:  $150
Car Maintenance:  $100
Tithe:  $200
Line of Credit Interest:  $125
Property Tax:  $150

Total Monthly Expenses:  $4,829.00 (5,382-$553 truck payment=$4,829))


Liabilities:

Line of Credit: $9600@ 8%
Mortgage:  $285,000@3%
Van loan:  $10,000@5%   (40 months left) Canadian black book value: $15,000
truck:  $15,000@4%   (34 months left)  Canadian black book value:  $16,000

We put large down cash payments on both to get them lower

Waiting to become a punching bag.....
« Last Edit: April 09, 2017, 01:59:08 PM by Josephus »

NoStacheOhio

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Re: Case Study: Brand new and figuring where to go from here
« Reply #1 on: March 29, 2017, 12:19:23 PM »
Could you explain your business a bit more? Since you're the owner, could you move the business? Do you use the truck, or is it just to look cool? What's the estimated resale value on the vehicles? Interest rates on all the loans?
The first step is acknowledging you have a problem, right?

https://forum.mrmoneymustache.com/journals/digging-out-of-a-hole/

Josephus

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Re: Case Study: Brand new and figuring where to go from here
« Reply #2 on: March 29, 2017, 12:36:53 PM »
NostacheOhio,

Sure!  I run a cleaning business and have to move the ride-on equipment and supplies quite regularly between contracts.  I could move the business but it would have to be to another city that requires commercial cleaning. Honestly, I got stuck in the dealership and bought more truck than I need.  These are the first two vehicles I have ever had payments on. I could sell the truck and buy a lower cost one.

Line of Credit: $9600@ 8%
Mortgage:  $285,000@3%
Van loan:  $10,000@5%   (40 months left) Canadian black book value: $15,000
truck:  $15,000@4%   (34 months left)  Canadian black book value:  $16,000

Thanks again!
« Last Edit: March 29, 2017, 01:01:11 PM by Josephus »

NoStacheOhio

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Re: Case Study: Brand new and figuring where to go from here
« Reply #3 on: March 29, 2017, 12:48:13 PM »
How much are the vehicles worth if you sell them?

Are you deducting all of your expenses (including qualifying vehicle expenses/mileage) against your business income?
The first step is acknowledging you have a problem, right?

https://forum.mrmoneymustache.com/journals/digging-out-of-a-hole/

PDXTabs

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Re: Case Study: Brand new and figuring where to go from here
« Reply #4 on: March 29, 2017, 12:58:17 PM »
Possibly a dumb question: do you need both vehicles?

Josephus

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Re: Case Study: Brand new and figuring where to go from here
« Reply #5 on: March 29, 2017, 01:04:44 PM »
PDX,

I think so.  I work 40 miles one way and my wife is 5 miles from town.  She would have still have to pick up all 3 kids from school.  Not that we have a private school, just that we moved away from town and that is where the school is. 

Mother Fussbudget

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Re: Case Study: Brand new and figuring where to go from here
« Reply #6 on: March 29, 2017, 01:45:06 PM »
If you wouldn't BUY the truck and/or van today, you should SELL the truck and/or van today, and buy what you WOULD buy today.
Please edit your OP to include the interest rates on your mortgage, and HELOC.  It may make more sense to invest than aggressively pay down the line of credit/heloc.

Look over the Investing Order, and apply it to your situation.   

Welcome, and all the best!



farfromfire

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Re: Case Study: Brand new and figuring where to go from here
« Reply #7 on: March 30, 2017, 04:19:51 AM »
I'll be 'that guy':

* No more restaurants until LOC is paid off.

* Do your best to minimize the groceries budget, reduce at least 200$ (not sure what the costs are by you).

* No tithing until LOC is paid off.

* Find ways to save on electricity, reduce at least 100$ (not sure what the costs are by you).

If you do the above, that's 550 a month towards the LOC. With the payments you're already making, plus one months net income, you'll pay it off. Next pay off the van.

Linda_Norway

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Re: Case Study: Brand new and figuring where to go from here
« Reply #8 on: March 30, 2017, 04:45:32 AM »
If you can replace your car by a cheaper/older car, you could pay less on car insurance. If you get a really cheap car, you might not need all risk insurance.

You don't need a truck and a van. You need one car big enough to carry your business tools. Your wife can drive any smallish second-hand passenger car with good fuel consumption.

Laura33

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Re: Case Study: Brand new and figuring where to go from here
« Reply #9 on: March 30, 2017, 08:01:21 AM »
Honestly, I don't think you're in a horrible situation -- assuming your listed expenses are complete and correct, you have @$1700 left to save/throw at debt each month, which is @1/3 of your take-home.  And almost 20% of your take-home is going to those car loans!  Once you get the debt paid off, you will free up over $1K more per month to save, which will add up quickly.  So I would encourage you to double down on getting that debt paid off ASAP, to free up space in both your budget and your head -- it will truly be a clean slate to work from.  Yes, there are areas of your budget you can tighten up on, and it's worth doing to clear the debt more quickly, but the big monkey is the $1K+/mo. that you have to earn today to pay for your past consumption.

One question:  why is the life insurance so high?  Please tell me it's not whole life.  ;-)  If it is, get thee to a term insurance policy ASAP -- at your age, you should be able to get plentiful coverage for much less than that a month (DH and I have @$1M on him and $500K on me for like $900/yr -- and we're over 50!).
Laugh while you can, monkey-boy

Josephus

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Re: Case Study: Brand new and figuring where to go from here
« Reply #10 on: April 01, 2017, 08:06:05 AM »
Thanks Laura,

In this updated view we are doing a LOT better.  We sold our old 3400 Sq ft house that was electric and gas heat and also had a $1700 water bill, $4000 higher property taxes.  It was also in a town farther from work and our children were in private school that cost over 10,000 a year.  We were honestly hemorrhaging cash everywhere.

The life insurance is term and as bought at a time when I needed to be able to cover the present bills at the time. 

Thanks everyone for the kind words,

J

Hargrove

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Re: Case Study: Brand new and figuring where to go from here
« Reply #11 on: April 01, 2017, 04:40:33 PM »
I make a great income but somehow don't end up with it at the end of the year.  I run my own business which gives me a much longer commute than I would like.  To move closer, though, I would pay more for rent on an apt than I would pay for my mortgage.

Welcome to the forums. YNAB that you already started should give you a better clue than "somehow." As pointed out, based your own numbers, you have a great savings rate potential with no changes other than "stop blowing money on expenses that aren't listed."

How is it possible that you have a long commute but you're above water on both vehicles? Are you already paying them off early? Are you sure those values are accurate? Because if you can sell the van... at a massive gain from its remaining bill... and buy a reliable used sedan for your wife to get the 3 kids, you'd eliminate the van payment basically for free.

Quote
Should I continue to pay off my LOC and then snowball that into the vehicles or should Istart investing after LOC is taken care of?

LOC rate is high enough that it beats any taxable account. If you can use tax-sheltering accounts, max those before LOC, then pay LOC, then invest. Your electric bill is stupendous - look into lowering the heat from 80 or putting glass in your window holes! Your grocery bill could be easily halved or better.

http://www.mrmoneymustache.com/2012/03/29/killing-your-1000-grocery-bill/
http://www.mrmoneymustache.com/2011/08/23/grocery-shopping-with-your-middle-finger/

Quote
3. What questions am I not asking that I should be?

"Does anyone want to see a photo of the private waterfall I ran at my previous house?"

Me, me!

MrsPB

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Re: Case Study: Brand new and figuring where to go from here
« Reply #12 on: April 02, 2017, 04:35:45 AM »
Another Canadian here! Just looking at your listed comparable expenses, the ones that stand out are your electric bill and life insurance. We live in NS so have similar long, cold winters (snowing today!) and similar high power rates.  We have a propane furnace and a heat pump. Our electric bill at the peak of the year (Jan/Feb) is around $250/month. Propane us annually  is low, they usually only fill up once a year in late winter, with tiny top ups the other times. We have two young kids so our hot water and laundry will be less than yours but not that much. Any idea why your bill is so high?

We have life insurance (term) and pay less than $50/ month.

As for groceries, for Canadian prices and a family of 5, I think $800 is ok. We spend $600-$700 with two little kids, not including non food items at the store. Where do you shop and what's your shopping style? Do you meal plan?

I noticed you have no expenses listed for :
Clothing
Gifts
Travel
Kids activities/sports/school trips
Miscellaneous (tax prep fees, stamps/postage etc)
Personal care (haircuts, toiletries etc)
Education savings (are you doing RESPs?)

I'm sure you must have some expenses in these categories and with a family of 5, these may be significant when added up.

I know your questions were more related to savings and debt payments but if you are not accurate with expenses then you will not have the $$ left to do either of these.

ElleFiji

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Re: Case Study: Brand new and figuring where to go from here
« Reply #13 on: April 02, 2017, 05:23:29 AM »
The big changes you've made are an awesome start! I'm going to assume that your family has already adjusted to them, and you're ready to slash a little more:
Cars, I don't understand them, and no one does what I say with them, but please either find a way to make them cheaper, or at least to ensure you never have this car problem again

Gifts and other expenses  - all need an annual or monthly category. You can find this when you slash groceries

Groceries - you can do better, and then, when you are debt free, you can have a little back, but the habit will be broken. Slowly scale this back. I bet that incrementally you can whittle this to $400. But start with $700, then 6, etc.

Restaurants -$50 is a perfect, ninja like number allowing you to retain sanity and a pretext of fanciness. Well done.

Josephus

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Re: Case Study: Brand new and figuring where to go from here
« Reply #14 on: April 04, 2017, 08:12:48 AM »
Hi again everyone,

I've only been in this house a full year now so am unsure why hydro is so darn expensive.  The range is from almost under $80 in summer to nearly $785 (Feb) in the winter!  We keep it at 68 degrees in the house in the winter.  I just checked and the actual heat bill was $329.00 for Feb but the rest was delivery/regulatory fees/taxes...loads of fun!  It is the only heat for 90% of the house and I will have to get it looked at.  The actual furnace is almost new (2013) so shouldn't be a problem.  I live in a farmhouse that's over 100 yrs old so the windows need updating as well.

I've talked to my accountant and can expense the truck to the business as its only used for business anyway.  I will only be out of pocket insurance and any personal non-business mileage...which will be nil since we have the other vehicle :-)  Still working on moving out of the van...

And we put another 2k onto the LOC last month too!

Clothing 100
Gifts  100
Travel  0-we are focusing on getting rid of LOC before we go anywhere.
Kids activities/sports/school trips  $45
Miscellaneous (tax prep fees, stamps/postage etc) $40 average "Stuff I forgot to budget for" from YNAB
Personal care (haircuts, toiletries etc)$25.  I'm bald and shave my own head, my wife gets her hair done every 3 months, all other personal care was included in groceries
Education savings (are you doing RESPs?)None at the moment

So thats another $320 on the budget! these were averages from YNAB...

So,if I take $552.25 off the budget for the truck but then add on the other $320 at least thats SOME progress.

wintertell

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Re: Case Study: Brand new and figuring where to go from here
« Reply #15 on: April 04, 2017, 01:01:16 PM »
Wow! I am posting to follow because I can't wait to see your journey! You can tell your are serious because you have already made huge changes AND already are budgeting.

I use YNAB too and love it. I feel like YNAB puts things in buckets for me so I can truly estimate my costs on a monthly basis instead of always being surprised by the irregular bills.

That truck payment is monster! Your salary is high enough that you don't have to sell a car if you don't want to, but man, that is a ton of margin every month eaten up by that truck.

You can pay off the debt either way, but if you sold the truck and got a cheaper one in cash, then you'd be out of debt within less than a year. You could take a couple of months for the LOC, then knock out the van and you'd be done! Then you could supercharge retirement - which it seems you need to do since you haven't started saving for that. 

Josephus

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Re: Case Study: Brand new and figuring where to go from here
« Reply #16 on: April 09, 2017, 02:05:08 PM »
Hi Everyone,

I just officially got the truck payment negated! Since its for work I figured out how to get the business to pay for everything but the insurance. I need to keep personal insurance so I can use it occasionally for personal stuff (ie, loads to dump, picking up wood for winter...). Finally looking brighter, especially since the snow is gone!

Josephus

Gronnie

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Re: Case Study: Brand new and figuring where to go from here
« Reply #17 on: April 09, 2017, 04:12:49 PM »
You own the business, right? How does shifting the cost to the business help you in any way besides maybe saving some on taxes and being able to depreciate it?

dess1313

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Re: Case Study: Brand new and figuring where to go from here
« Reply #18 on: April 10, 2017, 05:03:34 AM »
Hi again everyone,

I've only been in this house a full year now so am unsure why hydro is so darn expensive.  The range is from almost under $80 in summer to nearly $785 (Feb) in the winter!  We keep it at 68 degrees in the house in the winter.  I just checked and the actual heat bill was $329.00 for Feb but the rest was delivery/regulatory fees/taxes...loads of fun!  It is the only heat for 90% of the house and I will have to get it looked at.  The actual furnace is almost new (2013) so shouldn't be a problem.  I live in a farmhouse that's over 100 yrs old so the windows need updating as well.


Fellow manitoban here, i know ontario rates are quite high, but thats a tough pill to swallow in winter for you
Does your hydro program offer any energy audits/assessments for home owners?  here they would come out and do measurements and find out where air leaks and such were. 
Easy to hit spots for insulation are attics, basement walls (interior or exterior, depending on what is there) and windows are always a good fix down the road.
Take something smokey like an incense stick and walk around the house with it. hold it near doors, floor joists in basements, etc and see if you can find out where your drafts are.  you should see the smoke billowing if you find a drafty place.  any specific colder rooms than others? 
is it an old lathe and plaster house?  those have basically nothing in them for insulation so ontario winters would hit you harder than average.  if it is, you may have to look at reno'ing to improve wall insulation.  some do it from the inside, room by room, some do it from the outside depending on the condition of the house.
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Josephus

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Re: Case Study: Brand new and figuring where to go from here
« Reply #19 on: July 18, 2017, 06:22:51 PM »
Hi Everyone! 

It's been a while but I finally payed off my entire L.O.C. 

Linda_Norway

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Re: Case Study: Brand new and figuring where to go from here
« Reply #20 on: August 06, 2017, 01:55:35 PM »
Hi Everyone! 

It's been a while but I finally payed off my entire L.O.C.

Congrats. Now you can start saving for your future.

Imma

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Re: Case Study: Brand new and figuring where to go from here
« Reply #21 on: August 08, 2017, 08:35:18 AM »
Well done! You're in a much better position now where you can start saving up !

pbkmaine

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Re: Case Study: Brand new and figuring where to go from here
« Reply #22 on: August 08, 2017, 08:43:28 AM »
Have you thought about a wood or pellet stove for some of your heat?