Author Topic: Laugh at my mistakes...then help  (Read 3092 times)

Dr.Optimus

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Laugh at my mistakes...then help
« on: April 24, 2018, 02:32:12 PM »
Hello
I'm new to the forum and new to the FI community, I'm glad I found all this wonderful community!
While present me is learning, absorbing all this newfound FI stuff, and making important lifestyle changes, Past Me was kind of a doofus and made some stupid decisions for Present Me to deal with.  I'd like some input....

So...Past Me decided, being fresh out of grad school with a decent middle-income job, to get a NEW CAR!!!!  I got into a 2016 Jeep Grand Cherokee, a 3year 30,000 mile lease.  I have 13 months left on this lease and....I'm at 34,000 miles!  I worked for a place for a year and did alright, but wasn't happy so I changed to a different agency.  The downside to my current job is that I can be assigned anywhere in the region, which for me just so happens to be a 108 mile round trip commute to work every day (hence the mileage).  Now, beginning in August (I work in public schools, so summers off) I'll be transferred and will only be 10 miles from home, Hooray! 

I've talked with the dealer, and I'm $3,000 down in negative equity.  I can pay this out cash, and get a new car after that, however I don't have a lot of money saved up and I'm trying to buy a house.  Or, I can finance into a new vehicle.  Now I know that financing a vehicle is very anti-mustachian, but I do require a good reliable car for work as I travel between buildings and sometimes decent distances between offices for various work-related activities. 

My current financial state:  I have 11,000 in cash savings (trying for a house, remember), and I just started maxing out my 403(b), my take home salary is 2000/mo. 
My bills are 550 in Rent & Utilities, 105 insurance, 50 cell phone, 165 student loan payment, 353 lease payment.  I don't have any credit card or other consumer debt. 

Any advice about how I can improve my situation, or if I should just suck it up and deal with it, would be much appreciated.

Feel free to point and laugh =)

TheGrimSqueaker

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Re: Laugh at my mistakes...then help
« Reply #1 on: April 24, 2018, 02:45:22 PM »
So, starting in August, you'll have only 10 miles to go to get to work. That's do-able, for some, on a bike or with public transit.

You don't need a *new* vehicle; most people on this forum get by on a "new-to-me" vehicle. Also, a Jeep Grand Cherokee is heftier than anyone really requires. Just because a vehicle is used doesn't mean it's unreliable.

I recently bought a nifty little 2009 Nissan Cube with less than 48,000 miles on it, and paid less than $7,500 with tax, title, and license out the door. It's a good little car. I bought it from a dealer however the Carfax was clean and there really was only one owner.

If you were to pay out the lease now, you'd still have $8,000 and could most likely do as I have done and still have a nice, reliable vehicle. This would free up $353 a month from your regular cash flow, or $4,236 per year. If you were to designate this money as "car savings" and invest it, you'd be able to replace those savings in less than two years.

pbkmaine

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Re: Laugh at my mistakes...then help
« Reply #2 on: April 24, 2018, 03:27:36 PM »
Why do you want to buy a house?

JLee

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Re: Laugh at my mistakes...then help
« Reply #3 on: April 24, 2018, 03:30:35 PM »
Why do you want to buy a house?
^^^^^^^^

With rent and utilities at $550/mo, why would you want to buy anything?

Dr.Optimus

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Re: Laugh at my mistakes...then help
« Reply #4 on: April 24, 2018, 04:40:56 PM »
The 10 miles to work involves crossing the Missouri River over a highway bridge, I don't believe there is bike access, but I am looking into it.  I also tend to sweat more than the average person, and I have to maintain professional appearance.  Also, because I travel between buildings and offices during the day, I carry a "portable office" with me that includes a file case, computer and bag, and several testing kits, which are often rather bulky.

I don't need and/or want a NEW vehicle, a lightly used one would be ideal for me.  I'll never buy or lease a brand new car again, even if I fell into millions.  I'm looking for something along the lines of a Fusion, Impala, or Malibu.    Hopefully around 10k or so.

As far as buying a house, I should probably clarify the situation.  I currently live with my girlfriend, her two kids, and my sister.  We split the rent 3 ways (full rent is $1350), and with utilities it amounts to $550 per person.  My sister is not living with us much longer, which will then require us to split the rent/utilities between two people, making the rent increase to around $750-800 per person (electric and gas bills have gone up, but we try to keep our usage down).  I want to purchase a house because even with a low 3% down payment, a 120k or so house will decrease our living expenses.  I'm hoping to find a duplex to "house hack", but pickings are slim.  I'm happy where I'm at right now, but we've had some challenges getting our landlord to respond to some issues in a timely manner, our basement has flooded 3 times, and the roof leaks.   

pbkmaine

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Re: Laugh at my mistakes...then help
« Reply #5 on: April 24, 2018, 08:04:46 PM »
Are you handy yourself? Do you plan to stay in the house you buy for at least 10 years?

VaCPA

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Re: Laugh at my mistakes...then help
« Reply #6 on: April 25, 2018, 07:09:32 AM »
Hello
I'm new to the forum and new to the FI community, I'm glad I found all this wonderful community!
While present me is learning, absorbing all this newfound FI stuff, and making important lifestyle changes, Past Me was kind of a doofus and made some stupid decisions for Present Me to deal with.  I'd like some input....

So...Past Me decided, being fresh out of grad school with a decent middle-income job, to get a NEW CAR!!!!  I got into a 2016 Jeep Grand Cherokee, a 3year 30,000 mile lease.  I have 13 months left on this lease and....I'm at 34,000 miles!  I worked for a place for a year and did alright, but wasn't happy so I changed to a different agency.  The downside to my current job is that I can be assigned anywhere in the region, which for me just so happens to be a 108 mile round trip commute to work every day (hence the mileage).  Now, beginning in August (I work in public schools, so summers off) I'll be transferred and will only be 10 miles from home, Hooray! 

I've talked with the dealer, and I'm $3,000 down in negative equity.  I can pay this out cash, and get a new car after that, however I don't have a lot of money saved up and I'm trying to buy a house.  Or, I can finance into a new vehicle.  Now I know that financing a vehicle is very anti-mustachian, but I do require a good reliable car for work as I travel between buildings and sometimes decent distances between offices for various work-related activities. 

My current financial state:  I have 11,000 in cash savings (trying for a house, remember), and I just started maxing out my 403(b), my take home salary is 2000/mo. 
My bills are 550 in Rent & Utilities, 105 insurance, 50 cell phone, 165 student loan payment, 353 lease payment.  I don't have any credit card or other consumer debt. 

Any advice about how I can improve my situation, or if I should just suck it up and deal with it, would be much appreciated.

Feel free to point and laugh =)

I'm not going to laugh, as I did the same thing many years ago. I drove a beater during and after college and it allowed me to pay off a lot of debt, including my wife's expensive engagement ring. So in my mid 20s in good financial shape with a good job I did what any rational person would, treated myself to my first new car! I regret it now but it didn't set my financial health back that much, I paid it off pretty quickly. Live & learn and don't beat yourself up too much for splurging once in awhile.

One bit of (obvious) advice I would give you which is to echo what others are saying is don't rush into the home purchase until you're ready. I see a lot of young people with their hair on fire to buy a house, thinking the longer they wait the further they will fall behind. I felt this way when I was younger too, but homes aren't going anywhere, and prices aren't going to get away from you by waiting. Alot of people in my generation found out the hard way trying to buy our first place in the mid 2000s. If you don't have any cash to get our from under the lease it makes me wonder if you're quite ready to buy a house.

Dr.Optimus

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Re: Laugh at my mistakes...then help
« Reply #7 on: April 25, 2018, 07:10:02 AM »
Are you handy yourself? Do you plan to stay in the house you buy for at least 10 years?
I'm not handy right now, but my dad is.  I want to learn and work on the house and eventually turn it into a rental.  I don't know if I plan to stay in it 10 years, if I can get out and turn it into an income-generating asset sooner then I'd do that once I felt comfortable.

I'm not going to laugh, as I did the same thing many years ago. I drove a beater during and after college and it allowed me to pay off a lot of debt, including my wife's expensive engagement ring. So in my mid 20s in good financial shape with a good job I did what any rational person would, treated myself to my first new car! I regret it now but it didn't set my financial health back that much, I paid it off pretty quickly. Live & learn and don't beat yourself up too much for splurging once in awhile.

One bit of (obvious) advice I would give you which is to echo what others are saying is don't rush into the home purchase until you're ready. I see a lot of young people with their hair on fire to buy a house, thinking the longer they wait the further they will fall behind. I felt this way when I was younger too, but homes aren't going anywhere, and prices aren't going to get away from you by waiting. Alot of people in my generation found out the hard way trying to buy our first place in the mid 2000s. If you don't have any cash to get our from under the lease it makes me wonder if you're quite ready to buy a house.

Currently I have enough cash to put 3% down on about a 150k home (I have excellent credit and can get a conventional loan) and pay for the PMI upfront instead of month to month, which is a savings of about $3000 over 5 years - I could pay $2500 up front or about 6000$ over the life of the mortgage until I reach 25% equity, after which the PMI drops off.  Would it be better to save up for 20% down? 
My current savings rate is about 50% of my gross , 40 goes into tax-advantaged retirement accounts and 10% into cash.  Any other suggestions or advice? 
« Last Edit: April 25, 2018, 07:30:26 AM by Dr.Optimus »

VaCPA

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Re: Laugh at my mistakes...then help
« Reply #8 on: April 25, 2018, 07:52:45 AM »
Currently I have enough cash to put 3% down on about a 150k home (I have excellent credit and can get a conventional loan) and pay for the PMI upfront instead of month to month, which is a savings of about $3000 over 5 years - I could pay $2500 up front or about 6000$ over the life of the mortgage until I reach 25% equity, after which the PMI drops off.  Would it be better to save up for 20% down? 
My current savings rate is about 50% of my gross , 40 goes into tax-advantaged retirement accounts and 10% into cash.  Any other suggestions or advice?

Seems like 3% down($4500), PMI buyout($2500), and closing costs would eat up most if not all of your savings. IMHO I think it would be better to wait and save more. If not 20% down at least enough to put a big chunk down and still have an emergency fund, although 20% is ideal to get the best rate and lowest fees. Home prices may even be cheaper 2 years from now, who knows.

Dr.Optimus

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Re: Laugh at my mistakes...then help
« Reply #9 on: April 25, 2018, 08:05:06 AM »
That is helpful.  Home prices in my area are very high right now, and there's very little selection on the market.  I probably only get about 1 or 2 new homes in my realtor's web portal per week, and often they are less than desirable.  I've been impatient in the past, but recently I've cooled down and I think I should probably keep saving.   

Dee18

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Re: Laugh at my mistakes...then help
« Reply #10 on: April 25, 2018, 08:20:01 AM »
The regret you voice over you car lease (essentially "buying" more than you need and more than is comfortable for your current budget) would probably be multiplied times ten if you buy a home with 3% down. It would be much better to wait until you have the 20% down. Owning a home is expensive, even if you DIY for lots of things.  Ownership requires a combination of money, time and skill and even if you up the skill quotient it still requires lots of the other two.  Keep in mind any professional encouraging you to buy (realtor, mortgage provider, etc,) has a financial interest in the deal. You might want to read the Frugalwoods blog about buying their first home in Cambridge, MA.  They explain how taking a long time to look at houses before buying can help you identify the best home for you and your family and get the best deal. Also, it might be wise to wait until you and your girlfriend decide if you are getting married.  Would you be so ready to buy if you were single? Would you buy the same place?

JLee

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Re: Laugh at my mistakes...then help
« Reply #11 on: April 25, 2018, 08:22:01 AM »
Are you handy yourself? Do you plan to stay in the house you buy for at least 10 years?
I'm not handy right now, but my dad is.  I want to learn and work on the house and eventually turn it into a rental.  I don't know if I plan to stay in it 10 years, if I can get out and turn it into an income-generating asset sooner then I'd do that once I felt comfortable.

I'm not going to laugh, as I did the same thing many years ago. I drove a beater during and after college and it allowed me to pay off a lot of debt, including my wife's expensive engagement ring. So in my mid 20s in good financial shape with a good job I did what any rational person would, treated myself to my first new car! I regret it now but it didn't set my financial health back that much, I paid it off pretty quickly. Live & learn and don't beat yourself up too much for splurging once in awhile.

One bit of (obvious) advice I would give you which is to echo what others are saying is don't rush into the home purchase until you're ready. I see a lot of young people with their hair on fire to buy a house, thinking the longer they wait the further they will fall behind. I felt this way when I was younger too, but homes aren't going anywhere, and prices aren't going to get away from you by waiting. Alot of people in my generation found out the hard way trying to buy our first place in the mid 2000s. If you don't have any cash to get our from under the lease it makes me wonder if you're quite ready to buy a house.

Currently I have enough cash to put 3% down on about a 150k home (I have excellent credit and can get a conventional loan) and pay for the PMI upfront instead of month to month, which is a savings of about $3000 over 5 years - I could pay $2500 up front or about 6000$ over the life of the mortgage until I reach 25% equity, after which the PMI drops off.  Would it be better to save up for 20% down? 
My current savings rate is about 50% of my gross , 40 goes into tax-advantaged retirement accounts and 10% into cash.  Any other suggestions or advice?

PMI should automatically drop at 78% LTV and you can request it at 80%.  You can also get an appraisal from someone approved by your lender if your house value goes up, and then eliminate PMI based on your updated LTV.

Laura33

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Re: Laugh at my mistakes...then help
« Reply #12 on: April 25, 2018, 08:58:52 AM »
This is all about priorities.  There is never enough money for everything you want when you want it; life is an "or," not an "and," no matter what your income level is.  So you have to triage your needs and wants.

First, stop the bleeding.  That lease is costing you ridiculous amounts already.  Always remember the First Rule of Holes:  when you're in one, stop digging.

Getting rid of the Jeep then leaves you with a need for alternative transportation, because you need to get to your job to keep your paycheck coming in.  Which brings us to the Second Rule of Holes:  don't dig a new one.  Do not use debt to finance a depreciating asset.* Ergo, you can either buy a reliable used vehicle with the money you have, or you can find alternative transportation to work like biking or public transit. 

If you choose to buy another vehicle instead of biking, that means you cannot afford to buy a house just yet.  That is ok, because you are drastically underestimating the actual costs associated with owning a home.  Start with assuming 1-2% of the property's value just for maintenance and upkeep.  If you want to buy an older unit to fix up to gain equity, that fix-up is going to end up costing you thousands of dollars a year, even if you do most of it yourself; ditto if you want to buy a unit with a rental.  You absolutely do not want to take on a house until you have a sufficient cash kitty to cover the downpayment and still have a significant "shit happens" fund for when your sewer line backs up or your roof leaks or your AC breaks.  Because all of that stuff will happen; it's a "when," not an "if."  And if you don't have cash on hand to handle it, then you're back to resorting to more debt to cover those necessities. 

You are doing a good job saving, and that will serve you well long-term.  Just don't get ahead of yourself with big purchases, and you will do fine.

*Emergencies excepted.  You have cash, so this exception does not apply.

Dr.Optimus

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Re: Laugh at my mistakes...then help
« Reply #13 on: April 25, 2018, 09:33:43 AM »
This is all about priorities.  There is never enough money for everything you want when you want it; life is an "or," not an "and," no matter what your income level is.  So you have to triage your needs and wants.

First, stop the bleeding.  That lease is costing you ridiculous amounts already.  Always remember the First Rule of Holes:  when you're in one, stop digging.

Getting rid of the Jeep then leaves you with a need for alternative transportation, because you need to get to your job to keep your paycheck coming in.  Which brings us to the Second Rule of Holes:  don't dig a new one.  Do not use debt to finance a depreciating asset.* Ergo, you can either buy a reliable used vehicle with the money you have, or you can find alternative transportation to work like biking or public transit. 

If you choose to buy another vehicle instead of biking, that means you cannot afford to buy a house just yet.  That is ok, because you are drastically underestimating the actual costs associated with owning a home.  Start with assuming 1-2% of the property's value just for maintenance and upkeep.  If you want to buy an older unit to fix up to gain equity, that fix-up is going to end up costing you thousands of dollars a year, even if you do most of it yourself; ditto if you want to buy a unit with a rental.  You absolutely do not want to take on a house until you have a sufficient cash kitty to cover the downpayment and still have a significant "shit happens" fund for when your sewer line backs up or your roof leaks or your AC breaks.  Because all of that stuff will happen; it's a "when," not an "if."  And if you don't have cash on hand to handle it, then you're back to resorting to more debt to cover those necessities. 

You are doing a good job saving, and that will serve you well long-term.  Just don't get ahead of yourself with big purchases, and you will do fine.

*Emergencies excepted.  You have cash, so this exception does not apply.
That is helpful advice, thank you. 
Would you recommend buying out of the lease now?  Would cost me 3k, plus a new car (don't know how much to spend on one - need something reliable) - I do need one for transportation to work because I have a 54 mile one way commute.  So that would eat a good chunk of my cash.

Rural

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Re: Laugh at my mistakes...then help
« Reply #14 on: April 25, 2018, 05:40:33 PM »
This is all about priorities.  There is never enough money for everything you want when you want it; life is an "or," not an "and," no matter what your income level is.  So you have to triage your needs and wants.

First, stop the bleeding.  That lease is costing you ridiculous amounts already.  Always remember the First Rule of Holes:  when you're in one, stop digging.

Getting rid of the Jeep then leaves you with a need for alternative transportation, because you need to get to your job to keep your paycheck coming in.  Which brings us to the Second Rule of Holes:  don't dig a new one.  Do not use debt to finance a depreciating asset.* Ergo, you can either buy a reliable used vehicle with the money you have, or you can find alternative transportation to work like biking or public transit. 

If you choose to buy another vehicle instead of biking, that means you cannot afford to buy a house just yet.  That is ok, because you are drastically underestimating the actual costs associated with owning a home.  Start with assuming 1-2% of the property's value just for maintenance and upkeep.  If you want to buy an older unit to fix up to gain equity, that fix-up is going to end up costing you thousands of dollars a year, even if you do most of it yourself; ditto if you want to buy a unit with a rental.  You absolutely do not want to take on a house until you have a sufficient cash kitty to cover the downpayment and still have a significant "shit happens" fund for when your sewer line backs up or your roof leaks or your AC breaks.  Because all of that stuff will happen; it's a "when," not an "if."  And if you don't have cash on hand to handle it, then you're back to resorting to more debt to cover those necessities. 

You are doing a good job saving, and that will serve you well long-term.  Just don't get ahead of yourself with big purchases, and you will do fine.

*Emergencies excepted.  You have cash, so this exception does not apply.
That is helpful advice, thank you. 
Would you recommend buying out of the lease now?  Would cost me 3k, plus a new car (don't know how much to spend on one - need something reliable) - I do need one for transportation to work because I have a 54 mile one way commute.  So that would eat a good chunk of my cash.


That commute is another issue. How long until you can get out of your lease? You will almost certainly win by moving closer if that's possible (are you in the center of the region you have to serve?) Also, you should be thinking about fuel mileage in your used replacement vehicle.


I think the short time you've been in the two jobs is another good argument against buying a house now. You need time to be sure of the area, and you need to be fairly sure of your job.

Indexer

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Re: Laugh at my mistakes...then help
« Reply #15 on: April 25, 2018, 09:34:19 PM »
Lots of great advice on here so far!

When looking for a reliable used car, I would stick to reliable brands... in other words, not domestic. You mentioned spending about $10,000. I wouldn't trust a $10,000 used Fusion or Malibu nearly as much as I would trust a $10,000 used Corolla, Camry, Fit, or Accord. IMO a 5 year old Toyota is likely more reliable than a 2 year old Jeep*. You could save money on the car, save money on gas, and still feel confident that the vehicle will get you to your destination.


*Toyota/Lexus are consistently ranked 1&2 in the rankings for vehicle reliability. FIAT/Chrysler/Jeep/Dodge(all 1 company) are consistently ranked at or near the bottom for vehicle reliability.

Dr.Optimus

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Re: Laugh at my mistakes...then help
« Reply #16 on: April 26, 2018, 07:07:03 AM »
That commute is another issue. How long until you can get out of your lease? You will almost certainly win by moving closer if that's possible (are you in the center of the region you have to serve?) Also, you should be thinking about fuel mileage in your used replacement vehicle.


I think the short time you've been in the two jobs is another good argument against buying a house now. You need time to be sure of the area, and you need to be fairly sure of your job.
I'm pretty confident in the new area I'll be working (same company, just different location);  I actually requested the transfer when the opportunity came up.  I'm pretty sure one of the reasons I was placed in a more remote area my first year of employment here was because I was low on the totem pole and internal transfers get priority over new hires.  Now that I'm moving closer I'll be at my new location until I decide I want to leave. 

In other news, I did pull the trigger and get out of my lease.  I paid $3k, but that headache is gone.  Don't get me wrong, I loved that Jeep, it was very nice to drive, but the stress of dealing the lease and mileage overage was just too much of a burden.  Also the payment and upkeep was expensive - no reliability issues on this one, but I baby my cars.  In 2010 I bought an 05 Pontiac Grand Prix for 8500 with 54k miles, still running at around 170k miles (girlfriend has it now).  She's getting old though, needs a bit of structural work (struts, chassis, etc all worn out) but she's still going.  Hopefully I have the same luck with the next car.

I will say one thing about the Jeep that might be applicable to other drivers: watch how you drive.  By not stomping the gas pedal and cruising whenever possible, and driving the speed limit or 5 under (I tried not to get above 65mph) I was frequently able to squeeze an average of 25-26 MPG out of it, combined city and highway driving.  Once, during a highway commute on a mostly flat stretch, I was able to get 28 MPG out of an entire tank - not bad for a bulky SUV.  But, now that's gone, I'm hoping to aim for over 35 in the next car.
« Last Edit: April 26, 2018, 07:41:08 AM by Dr.Optimus »

Laura33

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Re: Laugh at my mistakes...then help
« Reply #17 on: April 26, 2018, 02:17:02 PM »
Good job cutting the losses on the Jeep.  I guess I should have said that the First Rule of Holes is “know when you’re in one.”  That Jeep (cost/depreciation) + that commute (poor mileage/more depreciation) + that lease (excess mileage penalties + no car at the end of it) was a hole that would continue to dig itself deeper every month that you kept it.  If you must manage a long commute, prioritize gas mileage for your next vehicle (along with reliability) - something like a used Corolla or Prius will pay massive dividends over time, especially with your excellent frugal driving skills.

Dr.Optimus

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Re: Laugh at my mistakes...then help
« Reply #18 on: April 26, 2018, 03:58:10 PM »
Good job cutting the losses on the Jeep.  I guess I should have said that the First Rule of Holes is “know when you’re in one.”  That Jeep (cost/depreciation) + that commute (poor mileage/more depreciation) + that lease (excess mileage penalties + no car at the end of it) was a hole that would continue to dig itself deeper every month that you kept it.  If you must manage a long commute, prioritize gas mileage for your next vehicle (along with reliability) - something like a used Corolla or Prius will pay massive dividends over time, especially with your excellent frugal driving skills.
Yeah, it's hard to stop digging, especially when you have a REALLY nice shovel =)