Author Topic: Case study: Can't believe I am where I am  (Read 2587 times)

newb999

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Case study: Can't believe I am where I am
« on: March 14, 2017, 08:35:07 PM »

- Life Situation: Young professional, living in southwestern ON in the suburbs

- Gross Salary/Wages: 70,000CAD

Savings plan: 
- WAS putting $150/week to TD Canadian Index Funds e-series mutual fund, $50/week to a TD US index funds e-series and $75/week to an employer matched RRSP. This was in a previous role where I cleared $90k annually.

I'm now putting $25 to each bi-weekly until I get caught up.

I put $10/week to my TFSA (was putting $100/week).

No other income.

Current expenses:
- $850/month rent
- $600/month car loan (I was in a position where I received $650/month in a car allowance so I bought a car and set the monthly payments to match the loan. Now in my new role I do not have the allowance)
- $75/month internet
- $80/month cell phone
- $400/month public transit to work
- $30/month gas
- $300/month groceries
- $375/month eating out/entertainment
- $50/month misc (household stuff, shampoo, cleaning products, etc).

Assets: Car - purchased at $28k, probably worth close to $13k now - 2013 Ford Focus SE
- $11,000 in Manulife RRSP
- $10,000 in index funds RRSPs
- I used the TFSA to pay off a portion of my line of credit so it's almost at $0

Liabilities:
- Car loan, original at $28,722 at 4.97% interest over 48 months, paid off about $5k, paying $598/month
- Line of credit - owe $7,538 @ 8.35% interest.

I guess as I typed above I see the obvious. My spending is nuts, but I didn't see it. I was overpaying into savings when I took a $20k pay cut due to a job change.

I guess my question is, should I sell my car and just absorb that debt? We do use it, but could survive without. Things are messy up there and unfortunately I've tied up my cash in RRSPs and got snowed under with my line of credit.

Viking Thor

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Re: Case study: Can't believe I am where I am
« Reply #1 on: March 14, 2017, 09:39:31 PM »
How have you only paid off $5k on car when it is a 2013 and you are paying $600 per month? It's strange to be that underwater on a car loan and hard to see how the #s add up.

Having said that, although what's done is done next time would advise that is much more car than you can afford, it's a financial albatross for you.

Since you are paying $400 month for public transit could you sell the car and go without a car for a while?

Canadian Ben

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Re: Case study: Can't believe I am where I am
« Reply #2 on: March 15, 2017, 01:12:10 AM »
I second Viking, put up all the details on the car (Why it cost 28k, you only paid 5k and is only worth 13k, that's pretty steep depreciation).

#1 should be getting rid of the line of credit at the expense of everything else. If you can find a 0% credit card (MBNA has an offer for 0% for 12 months) that should free you from the interest until you have it payed off.

Next, put in enough to get the full RRSP match, and nothing more right now.

- $75/month internet - Look at providers, try to find one that is cheaper
- $80/month cell phone - You can easily find something better than this, Public Mobile, Koodo, Wind.
- $400/month public transit to work - Do you need a Car + public transit?
-$375/month eating out/entertainment - And here is the easiest fruit to pick! T

I'm also guessing you have insurance on the car, so getting rid of the car will also remove the insurance.

Laura33

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Re: Case study: Can't believe I am where I am
« Reply #3 on: March 15, 2017, 05:56:00 AM »
I guess as I typed above I see the obvious. My spending is nuts, but I didn't see it. I was overpaying into savings when I took a $20k pay cut due to a job change.

No.  You were not overpaying into savings.  You were overpaying on everything else.  Your listed transportation costs alone are almost as much as you were previously saving -- and that doesn't even include any kind of car insurance or maintenance. (I understand that the car used to be paid for -- the point is the mental shift, that it was the *spending* that put you in the hole, not the *savings*). 

What is the tax situation? I get @$2850/mo listed expenses + savings (w/o debt repayment) on a $70K income; do taxes really account for the rest of it, or is there other spending sneaking in there?  I suspect that your spending has exceeded even your prior income for a while (or else where did the line of credit come from?).  Given how tight things are, I think you need to do a little more detailed comparison of net monthly income vs. cash flow.  I suspect when you do that, you will see that your job change didn't cause the problem as much as reveal it, and that the car is just the start of the changes you need to make. 
Laugh while you can, monkey-boy

PJ

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Re: Case study: Can't believe I am where I am
« Reply #4 on: March 15, 2017, 09:56:16 AM »
I guess as I typed above I see the obvious. My spending is nuts, but I didn't see it. I was overpaying into savings when I took a $20k pay cut due to a job change.

No.  You were not overpaying into savings.  You were overpaying on everything else.  Your listed transportation costs alone are almost as much as you were previously saving -- and that doesn't even include any kind of car insurance or maintenance. (I understand that the car used to be paid for -- the point is the mental shift, that it was the *spending* that put you in the hole, not the *savings*). 

What is the tax situation? I get @$2850/mo listed expenses + savings (w/o debt repayment) on a $70K income; do taxes really account for the rest of it, or is there other spending sneaking in there?  I suspect that your spending has exceeded even your prior income for a while (or else where did the line of credit come from?).  Given how tight things are, I think you need to do a little more detailed comparison of net monthly income vs. cash flow.  I suspect when you do that, you will see that your job change didn't cause the problem as much as reveal it, and that the car is just the start of the changes you need to make.    

I always find Laura33's posts in the case studies to be so wise.  The thing that stood out for me is the bolded part above. 

newb999, I've also been at the point that she highlighted, the point where you suddenly realize that your problem doesn't lie where you thought it did - or at least not completely.  Being Canadian also, did you ever watch the show "Til Debt Do Us Part?"  The host, Gail Vaz-Oxlade, would take several months of financial records, and analyze them, then review with the family.  Sometimes, what would be revealed is a pattern of frivolous spending - "Look how you went to the bank machine this day and this day and this day and three times this one day!"  And the look on their faces.  Sometimes, she'd add up how much was being spent on clothing, electronics, books, and at department stores in general (hard to categorize, but basically - "stuff!")  And the other shoe would drop.  Bank fees, and NSF fees for some families.  Or the amount of interest they were paying just to service their debt <--- that's the one that really got me.  I felt like I was working hard to pay off my debt, paying hundreds of dollars a month toward it.  But when I realized how much was going to interest, I suddenly realized why I wasn't really making any headway.  Well, that and my absurdly expensive pets, but that realization came more gradually.

Anyway, the point is that I think you do still need to figure out the rest of your spending, at the same time as you start to cut back in the obvious areas.  Where is your insurance (car, home/contents, etc)?  Gifts, vacation, clothing?  Car repairs and oil changes?  Any other utilities you need to pay (water, heat, electricity?)  Do you have cable or Netflix or anything like that?  Dental deductibles or prescription co-pays?  Charitable contributions?  Occasional but large purchases like furniture?  (If you buy a couch one year for $600, and a dining room table the next year for $600, then you do need to add $50 to your monthly average spending, even though they may feel like "one-off" purchases.)

I guess as I typed above I see the obvious. My spending is nuts, but I didn't see it. I was overpaying into savings when I took a $20k pay cut due to a job change.

I guess my question is, should I sell my car and just absorb that debt? We do use it, but could survive without. Things are messy up there and unfortunately I've tied up my cash in RRSPs and got snowed under with my line of credit.   

So, obviously you've woken up to realizing that there's a bigger problem than just your car, but I agree with others that the savings wasn't the problem.  Around here, we're going to support you for trying to save money!  Though you may need to temporarily suspend saving to get the debt paid off, depending on interest rates. 

You and others have identified the car.  And the entertainment budget is way high too.  You'll get the most bang for your buck addressing those areas.  I also have to ask about rent and transit - $400 a month in transit is a lot.  I assume that means taking the GO train into the city, maybe even having to use TTC as well?  But your rent is low, so it may be a reasonable trade-off.  But is there any reason why you couldn't look for something closer to work, even if just inside the city limits, so you're only paying for one transit system?  Shared accommodation, basement apartments (some, like the one bedroom I sublet to a young couple for $900 a month, are very nice!) and so on, may be similar in price to what you're paying now but save you a lot on the transit side.

There are other smaller categories you can look at as well.  Groceries is more than twice as much as I spend as a single person.  I'm vegetarian, and do get a fair amount of food at work, but household needs are also included in my grocery budget.  Your mileage may vary, but check out the grocery threads in the Gauntlet section, and you'll see that others also spend a lot less than you on food.  Also, there's no way that I spend $50 monthly on household stuff, so you'll want to examine what you're buying in that category (fancy brands, lots of different types of cleaners to do different jobs), and how you use it as well.  A small dab of shampoo will do you, most people in office jobs don't need to use the full amount of laundry detergent, etc.  I would start with challenging yourself to get all that stuff within your grocery budget, and you've already freed up $50 a month.

Finally, think about joining us for future Toronto area meet-ups!  Check out the Meet-Ups section of the forum.  We just had one recently, but have already set a date for the next (late April, if I remember right).  Love to have you join us!
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RidetheRain

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Re: Case study: Can't believe I am where I am
« Reply #5 on: March 15, 2017, 11:56:11 AM »
Can you give us a bit more detail in your budget?

It's hard to give suggestions other than surface level but just some thoughts:

What kind of entertainment is included? Movie nights, bars, hobbies, video games? Different activities give you more entertainment over time so spending on fun things can be optimized for maximum time and minimum expense. For example, video games often come with say 40 hours of gameplay for $60, a few movies ($10X6 movies) will cost the same and last 10-15 hours. How does your fun stack up? (Just an example - if you hate video games and love movies then it might be worth it for you)

How do you use the dining out money? Restaurants, fast food, work lunches? This also shows habits and what can be changed.

If you have the ability to go without on the car, I probably would in your position. It's a huge expense that you really just can't afford. Especially if you're using public transit that much. It's almost as much as your rent! Is your car worth the same to you as your home?
And I may be getting into the bad advice area here... but if you cannot sell your car and take the hit on the underwater loan for whatever reason (it had better be good) then refinancing for a longer lease term may be your best option. Lots of places don't have early payoff fees anymore so you can still pay that amount, but you're not locked in if something happens. You don't say if you have money set aside for emergencies so I'm extra wary of that expense.

Goldielocks

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Re: Case study: Can't believe I am where I am
« Reply #6 on: March 25, 2017, 11:44:45 PM »
I am going to be contrarian here.   The car was not a problem. The problem was not paying off the car loan, and acquiring the other loan.

Buying a Ford Focus in your 20's when you make a lot of money is a pretty solid choice.   Especially if you keep the car for at least 10 years, it can become exceptionally affordable, but should have been paid off within 4 years.   So, figure out how to pay it off very quickly.     Tax refund -- that would be a great use of your refund.

$400 a month for transit to work does seem insane.   How the heck?   I know I was paying $179 per month for bus passes, plus another $50-$60 a month in park and ride parking costs here, plus of course, the car to get to the park and ride, and found it pricey.  I can't imagine what you pay $400 a month for.

Maybe look into car pool / ride share programs -- I assume you travel a long distance, so maybe you can figure out a cheaper way to get to work, using occasional transit as a back up.

$300 per month of groceries - despite the generous eating out budget (I assume your eating out is just paying for you, or your alternate 50/50 who pays..?)   This does seem high.  My budget is high, at well over $800 per month for 4 adult eaters, and we buy / eat a lot of meat, pop and some packaged items (teenagers!).  Ontario groceries are a bit lower than here, too.



dess1313

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Re: Case study: Can't believe I am where I am
« Reply #7 on: March 26, 2017, 05:08:51 AM »
Consider starting You Need a Budget.  it will help you get a handle on where you money goes, if you find it just seems to disappear into nooks and crannies.  If you think you're spending $350 on entertainment, but haven't really analyzed it in depth, then you could easily be spending more on that category and others.

also Gail Vaz Oxlade is AMAZING!!!!!! watch her shows.  read her books.  you can learn a lot from her.

SweetLife

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Re: Case study: Can't believe I am where I am
« Reply #8 on: March 26, 2017, 05:33:22 AM »
Take a deeeeep breath ... You are 29 years old :) Hurray!!! You found MMM and are seriously looking at your finances (another BIG WIN in my book!!!) Don't beat yourself up ... NOW take a look at all the lovely advice that our fellow MMM's have provided and start step by step YOU ARE ON YOUR WAY TO EARLY RETIREMENT !!!! YOU ARE BADASS!!!!

I wish at your age I would have found MMM ... I would be FI already and not paying down silly debt (LOC) and trying to get the most of my middle years of work to retire at 55 !

Good luck - if you haven't already - read all of MMM posts - they are not all "Canada relevant" but most will apply and get you thinking in a different light.