Author Topic: Case Study: Actual budget after tracking spending (OMG)- what to do with $20k  (Read 3806 times)

RobinAZ

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Hi,

I posted a couple months ago, and on the advice of many, tracked our actual spending and got our balances and interest rates.  It is worse than I thought.  We are selling my husband's rental.  It wasn't supposed to close until next year, but the tenants' lender told them they qualify now.  So, I'd like some input on where we should put the $20k in proceeds.

I will take the budget face punches too.  We have a long way to go.

Not in the attached spreadsheet:  we have an emergency fun of $12,000.  Given we are both self employed at the moment, it should be $15k at the least.  At $30k, I'd sleep better :-)

I was dead set against changing jobs, moving houses, changing my son's school.  I am open to all of that now, within reason.  I spoke with our realtor-- values are rising so we can sell both houses right now and probably net $55k after commissions, etc.  But there is no way we can get a loan with our self employment status any time soon.  Maybe April 2016 after I file my 2015 taxes and have two full years.  And you can't buy anything in this area for $55k!! 

If we left town, moved to a LCOL area, we could buy something rural for close to that (or super urban, lol).  I have been fantasizing about Des Moines.  But then where do we work?? And my son is a creepy genius, he needs a very good school, lol.

Finding a law job from a distance is really hard.  My husband could relocate before us, as he can get a job teaching Special Education in a lot of areas.  But what if I can't find a job? I could go back to teaching too, I am certified, but the pay cut would be significant.  On the other hand, in ten years, all of our student loans would be forgiven.  But really, HE wants to teach and I want to practice law.  Not sure forcing myself to take a huge pay cut in exchange for student loan forgiveness is what I want. 

What I want... paid for piece of land with a tiny/small house, here in the Phoenix area, within 30 mins of my job and a school for my son (we are a school choice area so he can go to ANY school, but we have to transport him).  But housing here is just insane so...

OK, enough rambling, thank you in advance for the thoughts re: where to apply the $20k.  And the face punches.

Robin


MDM

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OK, enough rambling, thank you in advance for the thoughts re: where to apply the $20k.  And the face punches.

Cap One $4382 @ 18.99
IRS $4300 for 2014
AMEX $8000 @9.99
Wells Fargo $8000 @ 9.99
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Total = $24,682 at ~10% or higher (or owed to the IRS)

Taking the $20K, plus $4,682 from your e-fund, and getting rid of all four of the above debts gets my vote.

lhamo

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Get rid of that IRS debt first!  They have high penalties/interest and can come after you in ways that other creditors can't.

I would also lean toward paying of all the high interest consumer debt and considering dipping into your EF.  but if you can move the balance of the one remaining card onto a 0% deal until you get that paid off then I would keep the EF funded as is. 

If you son is really seriously gifted, you might look into relocating to Reno, NV.  The Davidson Foundation (which focuses on giftedness) is based there and there is a special school for gifted kids.  Not sure how easy it would be for you to get licensed to practice in NV, but it is a fairly low cost area.  Pretty part of the country, too.

Congratulations on confronting the reality.  Big step.  Now you just have to keep taking action to fix things.

former player

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Forget home ownership: it has done you no favours at all and being free of property ownership is the way to go.  Rent, keep your careers going, keep your son in a school that suits him (and if you are renting you can more easily move to help this happen), cut your costs, pay off your debts and put money into retirement funds and an education fund.  Good luck.

Mother Fussbudget

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OK, enough rambling, thank you in advance for the thoughts re: where to apply the $20k.  And the face punches.

Cap One $4382 @ 18.99
IRS $4300 for 2014
AMEX $8000 @9.99
Wells Fargo $8000 @ 9.99
----------------------------------
Total = $24,682 at ~10% or higher (or owed to the IRS)

Taking the $20K, plus $4,682 from your e-fund, and getting rid of all four of the above debts gets my vote.

+1.

jengod

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+1 to debt clearance. And then heck sell all the real estate too, move into a convenient rental, keep your existing jobs, stockpile cash and next time the real-estate market crashes, buy a new place.

Being out of debt is like getting out of hell. Get out and stay out (of debt) and then you can actually prosper in place.

rpr

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OK, enough rambling, thank you in advance for the thoughts re: where to apply the $20k.  And the face punches.

Cap One $4382 @ 18.99
IRS $4300 for 2014
AMEX $8000 @9.99
Wells Fargo $8000 @ 9.99
----------------------------------
Total = $24,682 at ~10% or higher (or owed to the IRS)

Taking the $20K, plus $4,682 from your e-fund, and getting rid of all four of the above debts gets my vote.


I agree with the above. But with some additional thoughts:

-- Cars: You have consumer debt of $88K of which approximately half is in two vehicles.  Can you sell the Civic Hybrid and replace with a older, cheaper car? I bet there will be significant monthly savings from car payments + insurance. If underwater on the loan, might be worth raiding the Emergency fund to pay it down. I would guess that without cars on loans, you could get your auto insurance to be under $100/month. 

-- Cell phones $325. Too much, no?  Might be worth paying ETF and get lower priced plans.

-- Is Husband and Wife Life Insurance rates for Term Life policies? The premiums seem bit too much. If not TERM life then look to see if it is worth it.

-- Banfield Vet: My understanding is that such pet health insurance policies are not financially good. There are significant restrictions and limits on what they cover and how much they will cover. If the dog is very OLLDDDDD, would you really perform expensive surgery in order to increase their life by a few months.

-- Negotiate your internet down if you can. Get rid of DirecTV. Netflix + Hulu is plenty good.

-- Massage Envy: ??

-- Mortgage on home:  I don't understand why the monthly housing payment of $1119.56 is so high especially given a mortgage of $16395 and a low rate of 3.75%. How much of it is prop taxes and homeowners insurance?

Mikila

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OK, enough rambling, thank you in advance for the thoughts re: where to apply the $20k.  And the face punches.

Cap One $4382 @ 18.99
IRS $4300 for 2014
AMEX $8000 @9.99
Wells Fargo $8000 @ 9.99
----------------------------------
Total = $24,682 at ~10% or higher (or owed to the IRS)

Taking the $20K, plus $4,682 from your e-fund, and getting rid of all four of the above debts gets my vote.

+1.

+1

dandarc

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Agree - pay off those debts!  Then don't run the cards up again.

And don't sit too long on the chase card either.

And given that you are both self-employed, you need to figure out your tax situation a lot better than you have so far.  Even in your good month, you don't have that much breathing room.  On 10K of self-employment income, you've got about $1500 in self-employment tax to pay.  Maybe another $1K between federal and state income tax.  So your good month is like $7500 after taxes.  The low month is more like $5200.

On the plus side, the majority of your expenses are tied to debt, so paying off debts will help your cash-flow situation tremendously.