Advice on getting started: Paying off the catheter and bedpan

[SendingtheWolf]

Mustachians! This is my first post here. I've been looking into the FIRE lifestyle and exploring ideas, and came across MMM and have been spending all of my free time over the past month trying to absorb this game-changing information. In doing so, I found I need to make some serious changes if I want to retire early.

I'm 33 years old. I'm married and have two kids. I make a decent living; $120k/year and I live in an area with a low cost of living.

HOWEVER, I have been terrible with money. No, I haven't racked up a lot of credit card debt--I've kept that low. But I've financed a new truck a year and a half ago (Tacoma, 2WD). I've got a mortgage. And, I've not been shy of spending every dollar outside of a few thousand in an emergency fund.

I'm changing that. I've been sacking away every dollar possible for the past month. But now I have the question of what to do with it. I can pay off my debts and work towards owing nothing. I owe the following:

28 years left on $202k mortgage @ 4.5% interest. I have about $40k in equity. $1450ish/mo with escrow. No PMI.
4 years left on the newish truck, and I owe about $29k @ a 2% interest rate, and it's worth about $24k. $575ish/mo payment.
$3000ish on a 0% interest expensive-ass mattress

Yep, bad spending, I know. BUT, they are sunk costs. And now I'm looking at options for moving forward.

So, my mission: Acquire no new debt. Spend only on important things for now. The question is what to do with the leftover money.

Option 1: Throw all my extra money at debt. Pay off the truck. Drive the truck for another 15 years. When done paying off the truck, work on the mortgage. Pay off the freaking expensive mattress. Once all of this is done, years later, finally invest and begin the 10-year journey to RE!

Option 2: Throw all my extra money at debt. Save $ for a couple months, enough to get out from under the truck. Assuming I buy a $6k replacement and it costs me $4k to sell it, I'm out $10k. Shell out money to pay off the depreciation loss. Acquire inexpensive car with cash. Recoup the costs of change over two years of no payment (offset by increased cost of repairs/maintenance). Set aside some money to replace the $6k car since I drive a lot for work, and work on paying off the mortgage. Once all of this is done, years later, finally invest and begin the 10-year journey to RE!

Option 3: Accept the truck is a sunk cost. Accept that while I have debts, they are low interest rates. Make only minimum payments on everything and send every extra dollar to my TD Ameritrade no-commission-on-index-funds account, and earn greater interest on my money than I'm paying out in debt. Throw less money into investments, but at an earlier date. Begin the ?-year journey to RE!

So, to those who have been at it a while, or maybe have experienced a similar situation... What would you do if you were me?

[farmerj]

4.5% is high; even with the recent upswing you may be able to refinance at a rate low enough to make it worthwhile. Shifting to a 15 year almost certainly would -- and if you are bad with money, there are some advantages to "forced savings".

Altogether, though, I'd go with option#4. Beef up your emergency fund -- a few thousand seems awfully small to me.  Sell the truck and max out your 401K. You can put away $18000 of your income pre-tax. You may even be leaving an employer match on the table.

Going through the exercise of producing a case study might be really helpful to you, as far as identifying other areas of savings, tax strategies, etc. http://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

[SendingtheWolf]

Wow. I was not aware of the case study post. That is a serious spreadsheet! This will keep me busy for a time, getting into this. I'll have to get started on that.

Yes, the mortgage rate is high. I had the rate "premium priced" to cover the closing costs and PMI. I was planning on selling the home before 5 years but starting to change my mind. Paying it off seems to be the way to go, and a cursory look at interest rates shows 15 year rates at 3%. Nice! If I can get in with less than 1% in closing costs, it should be a no-brainer.

Selling the truck will be tough. Emotional attachment, plus all (not some, all) of my co-workers in my level of management drive new F150s. It's a shallow work culture, what can I say? So I'll have to get used to the idea of being the odd one (shouldn't be tough. I'm already the odd one!).

I'm maxing out contribution to the full-match portion of IRA employer match, so I'm not doing it all wrong. I just need to step it up closer to the $18k/year

Thanks so much for the reply!

[bigalsmith101]

Just to comment. Your truck is NOT a sunk cost. You could sell it, and buy a nice newer model car for $10k and come lightyears ahead.

Don't pay off that dumbass mattress any earlier than necessary. 0% interest is free money, and you've already spent it.

With your high level of income, and your low cost of living with a small mortgage and married with two children, you should still be able to pay off all of your outstanding debts other than your mortgage in the first year.

Then it's game time. There is no reason why you couldn't save 40k+/year. Get to work man.

[ChpBstrd]

The truck costs a lot more than its payment. Depreciation is eating you alive at about $3-4k per year, I'd estimate. Insurance is sky-high. Swapping the truck for a well used economy car would involve the realization of some sunk costs, but it would save you thousands per year. The fact that your coworkers purchase their masculinity at the finance lot is now irrelevant to your goals.

I agree that 0% interest is a minimum-payment situation. Check to see if the mattress has a warranty that could justify a return. If not, let that debt irritate you for the term of the loan, and make you debt-averse. ;))

In a truly LCOL area, a $242,000 house is living high on the hog. If it is more than you need, there's no time like the present to lock in a lower cost of living. Nice 3BR houses are $140k in my neighborhood.

With all 3 purchases, you must face the psychological pain of "realizing" your losses. Yet, failing to realize them doesn't mean you avoid losing money. Instead it usually means you spend more on interest, insurance, taxes, depreciation, and so on. This could go on for years or you could stache up and make the required changes ASAP. It would be tragic to continue driving that truck just to avoid facing the fact it was a mistake. That sort of denial might cost you $30k over the years.

Mustachianism is about psychological strength. You have to find the strength to admit mistakes, accept radical change, and not give a damn about what others think you should buy. Consider whether you've built up the stamina to endure the big reductions in luxury you're contemplating.

[SendingtheWolf]

You're right on all counts, ChpBstrd. The house is in a great area/best school zone. And, the price tag shows it. $200s is the entry point and new construction in the area costs $300k+. But that doesn't change the fact that there are homes available at $150k in other parts of town that are smaller, cheaper to heat and cool, insure, etc.

And yeah, I'm going to see about $10k in depreciation for the first year and a half for selling the truck. Like all have hinted/directly stated so far: better to cut the losses than suffer another $10k depreciation over the next few years.

That psychological strength... to say no to what everyone else thinks is normal... that's going to take some getting used to. It'll be worth it, though.

[pbkmaine]

Is your wife on board?

[SendingtheWolf]

@pbkmaine

She supports the idea of reducing overhead and paying debts, but when she see's the extent of what I'd like to do, she's going to resist. I'm going to have to get her buy-in somehow. She's been in school for her PhD and about to graduate with sizeable student loans, so early retirement is the last thing on her mind.

[aspiringnomad]

Selling the truck will be tough. Emotional attachment, plus all (not some, all) of my co-workers in my level of management drive new F150s. It's a shallow work culture, what can I say?

This might be the saddest justification I've seen for owning a clown car/truck. Sell and replace with used car in the 6-9k range ASAP.

[pbkmaine]

Selling the truck will be tough. Emotional attachment, plus all (not some, all) of my co-workers in my level of management drive new F150s. It's a shallow work culture, what can I say?

This might be the saddest justification I've seen for owning a clown car/truck. Sell and replace with used car in the 6-9k range ASAP.

This is how you show your wife that you are committed.

[Trifle]

Welcome SendingTheWolf!  You are definitely on the right track mentally and in the right place for support.

X2 on the Case Study.  Just the exercise of doing it will show you new things.

X9 on sell the truck.  It will hurt, but you will be stronger afterward.  And it will show your commitment to your wife.   

Also --if you have not already read the excellent threads about how to get a spouse on board, highly recommend that.  There's a sticky right at the top of 'Ask a Mustachian.'

Best of luck! 

[MayDay]

Welcome!

Similar income and housing costs here, 2 kids, I'm the wife and I work half time.

We have two old paid off cars. At our income level we have the crummiest cars of others I know. It's a bit weird, yes. But at the same time in our area there is definitely a culture that smart people buy Hondas and Toyotas and drive them a long time. So I joke that we've thought about getting new ones, but the darn civic just won't break down!

Regarding your wife looking for jobs soon, the reality may be that she is considerably busy (I don't know how busy she is with school) once she is working. So you may have some resistance from her if you are trying to cut convenience products that save her time. Start with yourself.

[SendingtheWolf]

Thanks, All!

@Trifele: I'm almost done with the excel part of the case study. The good news is I recently put a similar spreadsheet available, so I had the info on hand.

@Mayday: Thanks, and good advice. I don't think selling the truck will impact her in any meaningful way, so at least there's that.

Thanks for the feedback and comments, all. I'm convinced on selling the truck. I know keeping it is a bad idea. I'm looking into how to get out from under the note. I'll owe $4-6k on the loan beyond what it's worth. If anyone has tips or resources on selling a used car with that sort of note, I'm all ears!