Author Topic: Blow load on newER car or go with old? HELP!  (Read 6663 times)

femmestache

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Blow load on newER car or go with old? HELP!
« on: April 12, 2012, 02:18:38 PM »
First post to MMM forum!

Ok, so here's a quick rundown on me. I'm a 23 year old woman that just graduated from college in December 2011. I'm currently living in Omaha, Nebraska but am planning to make the move to Austin, TX at the end of July of this year.  I've got $9000 in loans I'm trying to pay off before the grace period ends in August. I make around $1000/mo.

Recently, my 1998 Jeep Grand Cherokee was t-boned and the insurance company decided to total it out and gave me $4000 so I am currently carless. Now, I'm not mustachian enough yet to be able to go without a car, especially in a city that doesn't seem to have stellar public transportation. Also, I've never been to Austin and would feel more comfortable if I had a vehicle at first. The cost of living is a bit higher than it is in Omaha as well and it's going to cost around $1500 to move (moving truck, gas, rent, deposit, etc.), so I have been saving every single penny I make/find.

So, here's the deal. I'm sitting on $4000. I have $9000 in student loans. My parents have a 1994 Buick Park Avenue that has 168k miles on it. My mom purchased it from a 90 year old guy for $1500. She then put $3000 worth of work into it, mainly into the ABS & the suspension, I believe. There are no mechanical issues with it. It gets around 18mpg in the city and 25 on the highway if it is driven poorly. This car is basically like driving a sofa perched on top of a pat of butter that glides around on a cloud. I took it to my mechanic and it seems to be a solid car. There are a few minor things that would need to be tuned up, but nothing totaling more than $500 max. My mom has said that she would generously let me purchase the Buick for $1500. My stepdad (and others) keep telling me that I would be better off buying a newer model car (say, a 2000) that has less miles and gets better mpg. I believe their reasoning is that a newer car would not only get better mpg, but would need less repairs in the long run.

So here's my question: Do I purchase the Buick and use the rest of the money for moving expenses & loans? Or do I blow my entire load on a $4000 car and just scramble to save the rest of the money, loans be damned? I am worried about future repairs and the price of gas, although I am hoping to be able to be car free in the next two years or so. I'm feeling pressured by my stepdad & friends to get something newer, but it just doesn't seem right... but I can't really explain why.

Any advice, fellow Mustachians?

Mr Mark

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Re: Blow load on newER car or go with old? HELP!
« Reply #1 on: April 12, 2012, 03:02:01 PM »

I'd go with your Mum's cheap land-yacht, and when in Austin drive it as little as possible, live close to work & bike/walk, etc.

State minimum insurance too.

Learn how to check the car's vital fluids & change your own oil & filter regularly and it'll probably run forever.

nolajo

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Re: Blow load on newER car or go with old? HELP!
« Reply #2 on: April 12, 2012, 08:24:11 PM »
Given the current used car market, you might have trouble getting as much bang for your buck as you could've in years past. I think a mechanic-approved car for $1500 is your best bet, even if there are sexier options out there.

I am a little curious as to how you plan to pay off $9000 in loans with, as I tally it, $6000 in income (if you were to pay them off before they came due). That aside, I think you'd be best using that $4000 pay out as such:
$1500 for the car
$1500 for direct, known moving expenses
$1000 for new-place expenses. It'll take a little bit before you're as familiar with the frugal options in Austin and moving is exhausting so you may take the easy option a bit more than you would normally. Also, in my experience, there are always hidden expenses associated with moving - a landlord that wants a deposit plus first month's rent immediately, utility deposits, random crap for the new apartment that you've never needed before, etc.

Do what you can about the student loans - I do hope that this $1000 a month salary is temporary. Most of the rates on student loans are such that there's not a whole lot of advantage to paying them off early, so I would only do that from your income, not the money from the insurance settlement, and not at the expense of saving.

AJ

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Re: Blow load on newER car or go with old? HELP!
« Reply #3 on: April 12, 2012, 10:27:45 PM »
My initial reaction was that you could probably find a decent toyota or honda with better mpg for $1500 bucks, but a quick perusal of your Omaha Craigslist proved me wrong. I didn't realize how regional used car prices were. Even searching CL up to $4k I didn't find anything that really stuck out as much better than the deal your mom is offering, since it has already had repairs and been checked out by a mechanic. I agree w/Mr. Mark: take the offer and just try not to drive much to keep gas costs (as well as wear and tear) down.

James

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Re: Blow load on newER car or go with old? HELP!
« Reply #4 on: April 13, 2012, 08:51:24 AM »
Absolutely get the Park Avenue.  At $1500 you have a easy transition to a vehicle and can throw $2500 straight on your loans.  Make sure you live close as possible to work and what you need in the new city, and limit use of the car as much as possible.  Also, transitions are when we tend to let our guard down and money flows, so try to use simple releases for the stress during your move and while getting started down there.  Go for a walk and learn the city, but eat home instead of trying out all the hot spots.  Don't think you need to furnish your place or get everything set up all at once.  Find simple cheap quality food to enjoy, spend time trying to make quality friends, and use craigs list as much as possible for the items you need.  Once you are settled in and have time to reflect, you can make any bigger purchases needed.

Good luck!

arebelspy

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Re: Blow load on newER car or go with old? HELP!
« Reply #5 on: April 13, 2012, 09:11:14 AM »
Absolutely get the Park Avenue. 

Agree.  As a bonus, if you pair it with Boardwalk, it's a killer combo.
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femmestache

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Re: Blow load on newER car or go with old? HELP!
« Reply #6 on: April 13, 2012, 10:15:30 AM »
My initial reaction was that you could probably find a decent toyota or honda with better mpg for $1500 bucks, but a quick perusal of your Omaha Craigslist proved me wrong. I didn't realize how regional used car prices were. Even searching CL up to $4k I didn't find anything that really stuck out as much better than the deal your mom is offering, since it has already had repairs and been checked out by a mechanic. I agree w/Mr. Mark: take the offer and just try not to drive much to keep gas costs (as well as wear and tear) down.

AJ-- That's been my experience as well. The CL used car market is a little bit better down in Kansas City, but cars in Omaha & Lincoln seem to be ridiculously overpriced. I've been having trouble finding anything decent for under $5k, which is a serious stretch with my budget.

Looks like I'll be going with the Buick! Thank you guys for your responses! Now I just have to attempt to convince my stepdad & others that I'll be just find with the old man Buick. Might be difficult, seeing as how these are the same people who told me it was "normal" and "adult" to have a car payment. Pfft.

Thanks again!

femmestache

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Re: Blow load on newER car or go with old? HELP!
« Reply #7 on: April 13, 2012, 10:18:46 AM »


I am a little curious as to how you plan to pay off $9000 in loans with, as I tally it, $6000 in income (if you were to pay them off before they came due).

Oh, Nolajo, btw -- I should have been clearer. I'm not trying to pay off ALL my loans by the time the grace period is over. Just as much as possible. I've been throwing every dollar that isn't put towards bills or savings for moving towards my loans. The interest on the loans isn't too bad -- about $30/mo., but it's still more money than I like to throw down the drain.

My $1000/mo salary is hopefully temporary. I'm still working the same part-time job I've had since I started college. I'm hoping to find a big kid job when I move, but we shall see. Thanks for your response!

poko

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Re: Blow load on newER car or go with old? HELP!
« Reply #8 on: April 13, 2012, 10:38:22 AM »
I'm hoping to find a big kid job when I move, but we shall see.

Sorry to derail, but what kind of job are you looking for? I'm in Austin already, maybe I can help or give suggestions?

femmestache

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Re: Blow load on newER car or go with old? HELP!
« Reply #9 on: April 13, 2012, 10:55:21 AM »
Poko--

Virtually anything! I've been working in a hotel for the last 5 years while I was in school, and now I have a BA in philosophy & poli sci. Which gives me no career direction at all. 

At this point, I'll take whatever I can get. I'm not sure if I want to go back to grad school, so for now I'm kind of just wandering and just want to get my loans paid off/start some legit saving.

Any advice you've got would be much appreciated!

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Re: Blow load on newER car or go with old? HELP!
« Reply #10 on: April 13, 2012, 11:28:03 AM »

 This car is basically like driving a sofa perched on top of a pat of butter that glides around on a cloud.

Haha - nice imagery.
I also would go with the Buick.  The new car just doesn't fit the numbers and your plans.

nolajo

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Re: Blow load on newER car or go with old? HELP!
« Reply #11 on: April 13, 2012, 05:07:06 PM »
Poko--

Virtually anything! I've been working in a hotel for the last 5 years while I was in school, and now I have a BA in philosophy & poli sci. Which gives me no career direction at all. 

At this point, I'll take whatever I can get. I'm not sure if I want to go back to grad school, so for now I'm kind of just wandering and just want to get my loans paid off/start some legit saving.

Any advice you've got would be much appreciated!

Haha, your situation sounds so much like mine three years ago - you have my utmost sympathy. From a similar combination of aimless majors to the move without a firm plan to the car. My parents fronted me the money for mine. It's certainly newer than yours but decidedly not glamorous and they've been asking when I'll replace it for a year now (they're still driving cars from the mid-90s; I have no idea why they think I wouldn't too).

Anyways, should you ever need moral support or a place to vent, feel free to message me. I've been there, and am still kind of there, too.

arebelspy

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Re: Blow load on newER car or go with old? HELP!
« Reply #12 on: April 15, 2012, 09:22:04 AM »
now I have a BA in philosophy & poli sci. Which gives me no career direction at all. 

Hey, me too! (Got a BA in Philosophy and minored in PolySci, graduated in 07.)

Gives you lots of options.  I considered various ones (law school, business school, launching a company, etc.), and ended up going with Teach for America to try it out for the two year commitment and see what impact I could make.

Ended up loving it and am just finishing my fifth year of teaching.  And, though teachers are paid very little, if you're Mustachian it's more than enough; looks like we'll be FI in about 5 more years (and that's after one very stupid financial mistake costing me around six figures).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
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We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

DB

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Re: Blow load on newER car or go with old? HELP!
« Reply #13 on: April 16, 2012, 05:47:18 PM »


I am a little curious as to how you plan to pay off $9000 in loans with, as I tally it, $6000 in income (if you were to pay them off before they came due).

Oh, Nolajo, btw -- I should have been clearer. I'm not trying to pay off ALL my loans by the time the grace period is over. Just as much as possible. I've been throwing every dollar that isn't put towards bills or savings for moving towards my loans. The interest on the loans isn't too bad -- about $30/mo., but it's still more money than I like to throw down the drain.

My $1000/mo salary is hopefully temporary. I'm still working the same part-time job I've had since I started college. I'm hoping to find a big kid job when I move, but we shall see. Thanks for your response!

It sounds like you don't have much cash on hand aside from this $4000.  I feel it's pretty important to maintain some liquidity (either cash in the bank or assets that can be sold quickly and easily) to prevent major setbacks from unexpected expenses.  This is especially important as you are moving, and driving an older car makes it more important as well (so you can afford any necessary repairs, etc.)  I'd resist the urge to put every last dollar towards the debt and instead try to save up a small 'stache to get you through any unplanned expenses or interruptions in income.  Once you are settled in in Austin, and comfortable in your new job, maybe you can reduce this 'stache by putting part of that money towards the loan, but for now, it's necessary.  I'd put no money toward the loan right now, aside from the normal required payments.

To make this less painful, it's helpful to realize that paying $30/month in interest doesn't cost you $30.  You should search around for credit unions or other banking options that will pay you interest on your account balance each month.  I am currently getting 2.5% (this account requires that I use my debit card 10 times/month and get my statements electronically, but has no monthly fees, etc.)  That means if you had, hypothetically, $9000 in the bank, you'd earn $18.75/month in interest.  Yes you'd pay taxes on that income (and you are probably taking the standard deduction, meaning the student loan interest deduction probably doesn't help), but with $1000/month in income, I'd assume you are in the 10% bracket, so you're still earning about $17/month in interest on the $9000 of savings.  So your real cost of keeping that debt versus paying it off, would be $13/month, or about 1.7% ($30 - $17).  I think it's worth that to have some financial flexibility.  Obviously there is some space in between.  Maybe you don't need $9000 in the bank, but maybe you save $5000, then attack the debt, for example.

One other alternative, once you have a little bit of a cushion in savings, would be to use your extra money to invest in dividend producing stocks, as MMM has explained in the blog.  I have no experience in this, but if you can purchase stocks with dividend yields equal to or greater than what you pay in interest on the student loans, a $9000 investment will generate income that will pay the interest on the loans, but the dividends will likely increase over time so that over the next few years, your dividend income will increase while the loan interest stays the same or decreases (as the balance is paid down).  While I don't buy individual stocks (I buy index funds), I prefer to invest my extra income instead of paying down my low interest mortgage debt because I believe the long term expected investment gains exceed the interest I pay along the way, and I am comfortable with the risk of this approach.  You would need to decide if you could earn sufficient investment gains to make this worthwhile and whether you were comfortable with the risk, although the dividend investing approach limits the risk quite a bit if you are only concerned with the income stream and not the current stock price.

Just some thoughts I had while reading about your situation :-)

trammatic

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Re: Blow load on newER car or go with old? HELP!
« Reply #14 on: April 17, 2012, 08:38:36 AM »
You can also double-check the $1500 price, and it's also a good deal.  Not a knock-your-socks-off sort of deal, but both fair and generous.

http://www.kbb.com/buick/park-avenue/1994-buick-park-avenue/sedan-4d/?vehicleid=8673&intent=buy-used&mileage=168000&category=sedan&condition=good&pricetype=private-party

menorman

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Re: Blow load on newER car or go with old? HELP!
« Reply #15 on: April 18, 2012, 07:18:42 PM »
You can also double-check the $1500 price, and it's also a good deal.  Not a knock-your-socks-off sort of deal, but both fair and generous.

http://www.kbb.com/buick/park-avenue/1994-buick-park-avenue/sedan-4d/?vehicleid=8673&intent=buy-used&mileage=168000&category=sedan&condition=good&pricetype=private-party
Hmm, it is right at kbb value, but I'd still consider it a decent buy since known maintenance is next to nothing. Although they do tend to be owned by old people, other examples on the market might not be in such good condition.

As for the original question, the Park Avenue is still better than say a 2001 Civic. Most vehicles in that arena were bought to be driven and I don't think you'll find many examples w/ significantly lower miles, definitely not under 120k, which is the last recommended service interval IIRC. As a result, anything in that range may very well need some additional maintenance work after you buy it to get everything up to current. Then there's the price difference vs. mpg charade. Sure, the Civic might get better mileage, but anything in the same price range (or even $1000 more) may very well need at least that much put into it after purchase for repairs. I'd say $4000 is the floor for a decent car with no major problems in this day and age--$2500 more than you're getting a car offered to you for. I went on the government's website and compared the Park Avenue to some hypothetical options w/ better mpg and it would still take about 2.5 years for you to break even on any of the other options at current fuel prices. If after the move, you can manage to arrange your life to require minimal or no regular driving, then it makes even less sense to spend money on something you'll rarely use anyway and driving less will also raise the time required to break even. Also, the Park Avenue is pretty much as depreciated as it will be, but the newer options will probably still depreciate down to around the $2000 level as well.

bdub

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Re: Blow load on newER car or go with old? HELP!
« Reply #16 on: April 18, 2012, 08:36:48 PM »
Sounds like you need the proverbial face punch!  :)

If you read MMM's post today, you would realize that having debt while only working one part-time job and planning a move is insanity.  You should be in absolute panic mode.    Like search-your-best-friend's-couch-cushions mode.   I wouldn't even be considering moving or buying a car until all that debt was G-O-N-E.

But, if you do decide to move to Austin, I did live there for 12 years so I can offer you some guidance:  There is a shit-ton of hospitality jobs because the town is full of flush-with-cash 20 and 30 somethings who spend money like it is going out of style.  Seriously, the BMW 3-series is the Honda Accord of Austin.  You should have no problem landing 3 or 4 jobs in no time since unemployment is around 4%.  Just beware of the young Austinite trap:  there are a ridiculous # of great restaurants and awesome bars.  They will suck your wallet dry.  Trust me, I know 1st hand.

Good luck.

femmestache

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Re: Blow load on newER car or go with old? HELP!
« Reply #17 on: April 21, 2012, 04:40:06 PM »
Sounds like you need the proverbial face punch!  :)

If you read MMM's post today, you would realize that having debt while only working one part-time job and planning a move is insanity.  You should be in absolute panic mode.    Like search-your-best-friend's-couch-cushions mode.   I wouldn't even be considering moving or buying a car until all that debt was G-O-N-E.

But, if you do decide to move to Austin, I did live there for 12 years so I can offer you some guidance:  There is a shit-ton of hospitality jobs because the town is full of flush-with-cash 20 and 30 somethings who spend money like it is going out of style.  Seriously, the BMW 3-series is the Honda Accord of Austin.  You should have no problem landing 3 or 4 jobs in no time since unemployment is around 4%.  Just beware of the young Austinite trap:  there are a ridiculous # of great restaurants and awesome bars.  They will suck your wallet dry.  Trust me, I know 1st hand.

Good luck.

Haha, bdub, while I appreciate the concern, I've definitely already had the proverbial punch in the face. While I'm aware this isn't the best time to be moving, I couldn't pass up this opportunity. A very good friend already has a teaching job down there, so we will be splitting the moving expenses. I've stayed in Omaha for so long so I could get in-state tuition for college, so now that I've graduated I really have no reason to stay here.

Also, I've already paid down $2k in my loans over the past 5 months by tossing my graduation money at it, along with selling all extraneous possessions. So I'm well aware this is basically an emergency. This is my only debt, though.

Anyway, I'm not trying to make any excuses about this. I know my financial situation isn't ideal, but NOW is the time to move. Once I get down there and get settled, I'lll have that debt knocked down in no time. I give it one year before it's entirely gone.