The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: katstache92 on July 17, 2015, 10:56:40 AM
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Topic Title: Reader Case Study - What to do about the car and this extra cash?
Life Situation: 28 and single, living in Pittsburgh
Gross Salary/Wages: $73,500 (before any bonus, but bonus is not guaranteed), paid semi-monthly = $3,062.50
Pre-tax deductions: Per paycheck:
- Current 401k contributions (10%) = $306.25
- Insurance (dental, medical, vision, life) = $37.90
- Charity (United Way) = $4.50
- Company match on 401k is (3.5%) = $107.19
Adjusted Gross Income: I think this is $2,365.20/month, please let me know if that's wrong.
Taxes: per paycheck
- Federal = $671.48
- State = $125.35
- Local = $2.16
Current expenses: Monthly spend on food, activities, etc. is not my main focus at this point. Once things get back to normal (ie. one house) I'll track for a few months and maybe post a new case study if (when) I need some face punches. My focus here is on the mortgage and the car.
I am in the process of selling my former home. I estimate I'll make around $30k if all goes well. All mortgage info below is for the new house.
P&I = $701.02
MI = $64.13 - this cannot be removed, even if I reach 80%, until 2 years of on-time payments have occurred. I closed last September and payments started in 11/14.
T&I = $257.64 (local, city, county)
HOA Fee = $209 (this is a condo in townhouse form, includes all outside maintenance)
Assets: About $51k in Vanguard Target Retirement 2050. This is split between an old 401k rollover, a traditional IRA, and a Roth IRA. I also have about $3,200 in stock (a gift) that I need to sell and put into an index fund. I currently have just under $8k in my checking account.
Liabilities: I am almost finished paying off my car loan (so many face punches here) for the car that was new in 2011. It's a 2012 Hyundai Accent hatchback. My last payment will be in 10/15 and payments are $324.88/month.
I currently owe $1.1k on my credit card that gets paid in full each month.
Specific Questions:
- Someone talk me out of taking a celebratory "you sold the house" dive trip in Indonesia.
30k
- What is the best use of the ~$30k? My current plan is to use it to open a new checking account to get the new account bonus before doing something else with it. I'm working on finding the best option now that won't require me to let the money sit for months. I'm also planning on funding this year's Roth contribution from this money.
- Should the 30k be dumped into an index fund? At least some part of this money will need to go into an index fund, do I put it into the target 2050 as well or just VTSMX?
House
- Should part of the 30k be dumped into the house to get to the magic 20% more quickly? I am planning on increasing my principal payment once the other house is sold. Right now I just put in an extra $25 a month. Keep in mind that I can't get rid of the PMI until 11/16. Or is there a "right" amount of additional principal to put into the house? If I put a lump sum into the house, is there any advantage to having the mortgage recast?
- Is it worth refinancing? My rate is 4.250% on a 30 year. I like the flexibility of a 30 year, rather than the 15 year, in case I would lose my job at some point I could cut back on the extra payments.
- I did some remodeling (well... I paid someone to do it before I found MMM) so there are new hardwood floors. This will factor into a new appraisal if I refinance, right? Do lenders let you get your own appraisal and then determine the additional amount you are putting down to get to 20%?
- Do I need to keep a certain amount easily accessible (ie. savings account/CD that ends in April) for taxes next April? I have no idea what the tax situation will be.
Car
- Should I ditch the Accent? It's one of the cars that had the incorrect mileage posted when I bought it. I really like the idea of a used Prius - but I've never bought a used car before and I'm a little overwhelmed. Ideally I would like to spend little to no additional money to swap cars.
- I got a fake handwritten letter from the car dealer saying their inventory was low on my car and the possible value was almost 3k higher than KBB. What is the deal with this? I talked to someone today and they said I could just sell to them and it's not a trade in only amount, but it must be done by the end of July. If I go this route, how quickly can you buy a car from Craigslist?
Thank you! Let me know if I missed anything.
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Unless you are good at getting the best price when selling cars, and good at getting deals when buying (being able to evaluate condition and compare to market alternatives) you aren't likely to save a whole lot of money "downgrading" your car. Additionally, while it's newer than you need, it's not a bad choice. If you were to downgrade, you should sell it yourself, ideally using Craigslist/online listings, being patient to get what it is worth, and have some options lined up that are worthwhile. Have you looked on CL and cars.com/autotrader.com to see what other people are selling '12 Accents for (private party)?
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I would like more info:
What kind of mileage are you getting from the Accent?
And how much driving do you do that you feel you would benefit from the MPG of a Prius?
It might be worth it to swap if your Accent is worth a decent amount.
Normally those letters from dealers are scams. They want to get you into the dealership to finance a newer, shiny car. Think about it - a dealer is going to buy your car for $3k OVER KBB and then sell it for... even more? Doesn't make sense and a dealer loses money each day the car sits on the lot unsold.
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Thanks guys/gals!
neo - I would say I do not excel at negotiating. What you said is kind of what I was guessing about the situation. The Prius is definitely more of a want than a need, I was hoping there would be some basis for having one. I'm also kind of bitter since I specifically bought this car because of the mileage and then the numbers I based that decision on where incorrect.
lb - I'm getting about 25mpg on my average tank of gas which is mostly city with a splash of highway thrown in. This lousy mileage is very frustrating. My commute is back down to 7 miles and I'm working on driving less (maybe someday I'll bike to work/ to run errands) but I'm usually the person in the family that does the driving for long trips. The past several years I've been right around 15k miles, but my goal for this year is 10k as a stretch goal, more likely 12k. Oh, the car has 55k miles on it.
Yes, I'm suspicious about the dealer letter, thanks for the confirmation. 'If it seems to be to good to be true...'
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My vote is not to sell the car especially not to dealer and here is why:
-Accent is a fairly mustacian car: GF has an accent albeit a few years older than yours (2005) but it gets very decent gas mileage. I'm shocked if you actually get 25 with reasonable attempts at conservative driving.
-The dealer will absolutely not give you more than you can attain in a private party sale: If you decide to sell I would go private party. You can buy a car very fast on craigslist as long as the car you want is on there. You might have to wait around a while to find the right car but if you have 30k laying around you could always buy the new car and store it in your driveway for a month while you sell the accent if you so desire to do so.
-Accent vs Prius have way different values: The accent is a very basic car and has lost a good bit of it's value already compared to the prius which holds its value very well (thanks toyota). I doubt you would come out $+ selling the accent and buying an older prius unless the prius had at least 3 times as much mileage.
As for the cash I think most people would vote to open a vangaurd account and pick some long term stock market index/mutual funds and hold for the long haul
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If scuba diving is important to you, I'm going to vote yes on the Indonesia trip. That kind of shit/opportunity usually comes around once. And when it comes, one should take it. I would be kicking myself from here to next Sunday if I had said "no" to my once-in-a-lifetime memory diving trips to Palau/Yap/Guam/Micronesia and to Bonaire/Curacao. (And you know what? Palau's coral reefs went to hell in a hand basket not too long after I got to see them in their prime.)
As for the car question, I'm a dyed-in-the-wool oldie-goldie vehicle advocate. My own ride is a 1996 Dodge Dakota pickup. My wife's is a 1998 Subaru Forester. Older cars are as good, safe and reliable as you choose to make them via proper maintenance.
So, how about this. Sell your newish 2012 car, buy an older one and then take the net surplus and throw it into your Indonesia diving trip pot.
Good luck.
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lb - I'm getting about 25mpg on my average tank of gas which is mostly city with a splash of highway thrown in. This lousy mileage is very frustrating. My commute is back down to 7 miles and I'm working on driving less (maybe someday I'll bike to work/ to run errands) but I'm usually the person in the family that does the driving for long trips. The past several years I've been right around 15k miles, but my goal for this year is 10k as a stretch goal, more likely 12k. Oh, the car has 55k miles on it.
Thanks for the info! Based on that, here are some thoughts:
Your Accent is coming in around $8-$13k on Autotrader, varies on location, mileage, etc.
I think the best bet for mostly city driving is a Prius C. Also significantly cheaper than the reg Prius, depending on trim level.
It looks like you can get a Prius C (2012ish) around $12-$14k with <50k miles, which isn't bad. You could probably break even depending on what you sold the Accent for and what Prius C you got. If it's an even trade, I don't see the problem.
If you are paying MORE for the Prius C (or if you want the larger Prius, which means you may be getting an older one with more miles) then I would carefully calculate how much you will actually save with the increased MPG vs the extra cost you pay. Even $2000 is quite a few gas tanks - and gas is rumored to drop down in price significantly thanks to the new Iran deal.*
*Also means that Prius prices may tank because they tend to not sell well when gas prices are cheap.
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Thanks for the advice all, I really appreciate it.
Apparently the banks are behind so the closing has been pushed back. So, at least for now, everything on my end is on hold. I will be extremely irritated if the closing gets pushed into August since I will lose all of the interest for the August payment, but everything is out of my hands at this point.
Since the accent is already almost paid off and there doesn't seem to be a great reason to do the swap immediately, I will probably stick with it, at least for a while, once the house does sell. Mostly so I can enjoy not having any stressful financial stuff going on for a bit.
Does anyone have any opinions on when to get rid of comp and collision? I just paid my car insurance for the next year and I'm wondering if the next time my renewal comes up it might be worth pursuing dropping that portion of the coverage.
This one has been on my mind recently and I know it's a basic question but I haven't worked it out yet. I know the 50% savings rate has you retiring in 17 years. Since I already have some money saved up - how do I figure out my new estimated date to reach my spend x 25? Is there a nice neat equation I've been missing or do I just need to keep trying a variety of retirement calculators at this point?
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Thanks for the advice all, I really appreciate it.
Apparently the banks are behind so the closing has been pushed back. So, at least for now, everything on my end is on hold. I will be extremely irritated if the closing gets pushed into August since I will lose all of the interest for the August payment, but everything is out of my hands at this point.
Since the accent is already almost paid off and there doesn't seem to be a great reason to do the swap immediately, I will probably stick with it, at least for a while, once the house does sell. Mostly so I can enjoy not having any stressful financial stuff going on for a bit.
Does anyone have any opinions on when to get rid of comp and collision? I just paid my car insurance for the next year and I'm wondering if the next time my renewal comes up it might be worth pursuing dropping that portion of the coverage.
This one has been on my mind recently and I know it's a basic question but I haven't worked it out yet. I know the 50% savings rate has you retiring in 17 years. Since I already have some money saved up - how do I figure out my new estimated date to reach my spend x 25? Is there a nice neat equation I've been missing or do I just need to keep trying a variety of retirement calculators at this point?
Plug everything into MDM's awesome spreadsheet, available in the case study sticky. You can try out various years to RE and it'll tell you how much you're over or under.
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Thanks! I thought I had seen something somewhere, but I couldn't remember where.
I'll run through this tonight/this weekend, since google docs is blocked at work.
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I had a similar situation with my home in WV (couldn't remove PMI until a certain time), and I decided to refinance. I went with a 15 yr loan. It worked out well for me, because interest rates fell around that time (with the 15 yr significantly less). With this and the removal of PMI, my payment was a couple dollars less a month.
The balancing act here is how much is the overhead to refi. I was able to do it through a brick and mortar bank out of Ohio for $399. The payback period was less than 3 months, so it was a pretty easy decision.