Author Topic: Aspiring Mustachian seeks guidance  (Read 3916 times)

EM

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Aspiring Mustachian seeks guidance
« on: November 07, 2012, 01:07:59 PM »
I stumbled on the blog about two weeks ago and admittedly, I'm only through November 2011 but hey, the high stress consumer life doesn't leave much time for such leisure activities. 

Here's the rundown... I'm an automotive engineer, 27yrs of age, divorced, with a couple side businesses and what I would consider healthy income.  Some of the things about my consumer life are fixed (as in, unwavering) due to certain circumstances.

Age: 27
NET Income (primary job): $51,000
NET Income (secondary job): $32,000
Current Savings: $16,000
Current Investments: $0

Being good with numbers and a bit OCD has it's advantages.  I keep a spreadsheet of my monthly expenses and have been doing so since 2005.  For the sake of this thread, I'll simplify and only include things from the last two years.

Electricity: $360 (fixed, due to business)
Phone: $105
Water: $55
Car insurance: $210
Credit card (misc bills, using to build credit): $200
Internet/cable: $100 (partially fixed, due to business)
Student loans: $1000 (see below)
Fuel: $530
Groceries/restaurants/entertainment: $600
Total Monthly expenses: $3160
Total Yearly expenses: $37920

Obviously, I'm living below my means but I have a lot of frivolous spending that I need to control before I can see that $38k number come to fruition.  These numbers might be appalling to some like MMM but this is how I've been living my life.

First issue:
(8) Student loans (yes, 8): totaling $50,500
$1000 @ 2.39%
$4300 @ 6.80%
$4100 @ 6.80%
$5800 @ 6.80%
$11400 @ 4.32%
$5000 @ 6.00%
$4100 @ 5.60%
$14800 @ 6.80%

Now, I have a game plan for the student loans that entails contributing $1000/month. Once the loans start dropping off the payment is simply transfered to the next most volatile loan.  I've optimized the plan and could eliminate the principal in the next 5 years, paying just under $7,000 in interest.

Second issue:
I currently work 35 miles from work, resulting in an hour drive each way.  Move, you say?  Due to the divorce and various other complications, I was forced to file for bankruptcy which was final in summer 2011.  This has left my credit score less than desirable and giving me no chance to apply for a mortgage for awhile.  To make matters worse, I drive a 16mpg Expedition daily.  I'm currently working on finding a low cost commuter to reduce my gas expenses by 50%.  Between the primary job and secondary job (which requires quite a bit of driving on my part), I average 30,000 miles/year... landing my yearly transportation cost in the $6400 range, without considering vehicle maintenance or repairs.  Assuming that level of travel is fixed (it currently is), I could save a minimum of $3000 a year by changing vehicles.

Third issue:
I spend too much on food/beer/activities.  I'm starting to change this with packed lunches for work and starting to cook at home.  I'll also be changing my diet quite a bit after reading a few things, shifting over to a higher oat and rice content to minimize expenses.  I hope to cut that portion of my monthly expenses in half in the next two months.

Real reason I posted:
I have money to move around but I simply don't know what to do with it... do I start investing?  Do I take the savings I have and put it into the student loans to pay them off as fast as possible?  I'm currently living for free (but with an unspecified duration) but given the market, I'd like to find a low cost fixer upper near my primary job and buy the property outright.  This would both alleviate a lot of my transportation expenses and create some extra income once I finish it, possibly renting it out when my credit clears up and I move on to another property. 

Currently, I feel that buying a better commuter car and paying down the student loans as quickly as possible is my best approach.  The other option is to find a property near my job and work toward having my money work for me later on, continuing the current student loan approach and adding the savings I see in transportation to pay them down.


I'm sure I'm leaving some things out, feel free to ask questions.  Let me know, maybe you've thought of something I haven't!  Oh, and I'm big on math, so feel free to spit some numbers.

EM

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Re: Aspiring Mustachian seeks guidance
« Reply #1 on: November 07, 2012, 01:14:02 PM »
Actually, let's exclude the electricity and internet/cable expenses. I included them in my secondary job calculations when determining my net income.

AJ

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Re: Aspiring Mustachian seeks guidance
« Reply #2 on: November 07, 2012, 01:19:06 PM »
Did I miss it, or do you not have rent or a mortgage? Even if your mortgage is paid off, surely you still have taxes and insurance?

Paul der Krake

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Re: Aspiring Mustachian seeks guidance
« Reply #3 on: November 07, 2012, 01:21:43 PM »
Your student loans are pretty high, and unless you can find investments with a guaranteed return above the loan rates, you should focus on paying those off ASAP.

Like you said, your groceries/restaurant/entertainment budget can easily be halved. How much can you get out of your car if you sold it tomorrow?

EM

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Re: Aspiring Mustachian seeks guidance
« Reply #4 on: November 07, 2012, 01:58:23 PM »
Did I miss it, or do you not have rent or a mortgage? Even if your mortgage is paid off, surely you still have taxes and insurance?

I currently live for free (although for an undetermined duration).  Obviously, if this changed, I would be seeking housing near work to eliminate a lot of my costs.  My sister currently lives with me so packing up and moving out of my current place without very good cause is not an option right now.  The investment property closer to work would be a secondary living arrangement.

Your student loans are pretty high, and unless you can find investments with a guaranteed return above the loan rates, you should focus on paying those off ASAP.

Like you said, your groceries/restaurant/entertainment budget can easily be halved. How much can you get out of your car if you sold it tomorrow?

The investments is basically off of the table. It would be foolish of me to store money unless I could guarantee an return rate above ~6.7% (the weighted average across all 8 loans).

Part of my other businesses warrants me to keep the Expedition, even if I'm not commuting with it, as I tow a car trailer.

happy

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Re: Aspiring Mustachian seeks guidance
« Reply #5 on: November 07, 2012, 02:47:36 PM »
So you are planning to have 2 cars?  A low mileage car and the Expedition as a hopefully lesser used grunt vehicle? If the Expedition is needed for your business, can you claim this as a business expense? Sorry don't know US tax laws but down under one could organise it this way.


EM

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Re: Aspiring Mustachian seeks guidance
« Reply #6 on: November 07, 2012, 02:53:30 PM »
So you are planning to have 2 cars?  A low mileage car and the Expedition as a hopefully lesser used grunt vehicle? If the Expedition is needed for your business, can you claim this as a business expense? Sorry don't know US tax laws but down under one could organise it this way.

I currently own 6 cars, lol.  Part of my second side business (not quite off the ground yet) requires me to hold these vehicles for testing and fabrication purposes.

I would certainly be able to claim the Expedition as a business expense, but I need to determine if it would be beneficial as the truck would need to be insured as a work vehicle, changing my rates.

thurston howell iv

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Re: Aspiring Mustachian seeks guidance
« Reply #7 on: November 08, 2012, 07:38:18 AM »
What sort of trailer are you pulling with the Expedition? A car hauler?  Or a small utility trailer? If the latter, MMM would probably tell you to dump the Expy and find a minivan  that can do the same thing and get better mpg at the same time...

BTW, can any of the 6 gars go? (I have 6 as well and am looking into liquidating the fleet or at least part of it)--- They cost money to register, taxes, insurance....

As for the debt, personally, I'd keep a grand or two in cash as (just in case money) and take the rest of the savings and pay off those crazy student loan rates! Maybe doing this will help to change your DTI ratio which in turn would allow you to better your credit score.  I assume the CC is paid in full on a monthly basis? If not, that would need to be paid down as well.

Once your score is high enough, you may be eligible for the nice 0% CC's which, if nothing else, help to alleviate the hemorrhaging while you pay the balances down to zero.... Then you can start the saving...
 
Just some ideas...
 

KingCoin

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Re: Aspiring Mustachian seeks guidance
« Reply #8 on: November 08, 2012, 01:05:40 PM »
$105 is really high for phone service.  You should be able to get that below $40, even with fairly heavy use, with a program like Ting or Republic Wireless. It's probably worth buying yourself out of a long term contract if you have to.

$100 for internet/cable? I assume you can chop that to $50 if you go with internet alone (I'm guessing cable television isn't necessary for you business).

As for your housing situation, I'd keep the possibility of renting cheaply near work on the table. As you get closer to moving, you may want to have 4 months of rent on hand given your poor credit rating (landlords may require 3mo+ security deposit).