The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: sixkids on January 13, 2017, 08:39:18 AM
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I'm still not 100% sure I'm doing this MMM thing right, but from what I've read, I should get out of debt before I start investing. Seems like common sense, anyway.
Anyway, heres my plan...
I work on commission, so my monthly income varies. Some months I'll only make $2500, other months I'll make $10,000. For ease of budgeting, I've planned this out with the lowest income possible. On better months, I'll just "Dave Ramsey Snowball" toward the debt.
Current debts:
My car. 2008 Chevy Impala. 70k miles. Looks ok. Has developed a bit of a transmission issue. I owe about $6200 at 6.9% rate.
My wifes car. 2017 Chevy Traverse. Something like 2k miles on it. 3 months into a 36 month lease.
Extended warranty on the Impala. 0% interest, $95 a month. I owe about $1100.
Student loans $68,000. $200 a month payment on the income based repayment plan.
Rent. $950 a month. 4 BR, 2 Bath house. It's actually a really good price for what it is.
Cable/internet- $110 a month
Electric-$150 month
car insurance- $140 a month for full coverage on both cars
renters insurance- $120 a year for liability and $20,000 in stuff
cell phone- $150 a month for 2 lines and 2 iphone 7s.
Current savings account balance is about $10,000 and 401k has about $3000.
Quick math shows I have $2460 in bills every month, and thats without feeding anyone or putting a drop of gas in the cars. Slow months mean some stuff goes on a credit card to be floated a month and paid in the next higher income month. I've managed to not pay a penny of interest, but its still obviously less than ideal...
My thoughts--
Pay off the Impala and cancel the warranty, which will free up $280 a month. Reduce the full coverage to liability only, which will cut the insurance bill by about $60 a month, resulting in $340 extra every month.
The Traverse theres not much I can do with right now. The lease is too new, so I might as well suck it up, with the plan of buying a 2-3 year old Suburban at the end of the lease.
I could see about reducing the cell phone bill. I do need to have a smart phone for work, and they reimbursed me for the iphone 7, but my wifes is on a payment plan. If I pay it off, it'll go down about $35 a month. I'm not sure what else can be reduced from there, since we have low data.
I think that after I pay off the Impala, my next step should be trying to get the student loans paid off. I think the rate on them is about 4.25% so with my payment plan, its not really affecting the balance. I figure I should keep the $10,000 in savings, so I'll use tax refund to keep it there after paying off my car and send anything extra I get every month toward paying it off. I could probably get it paid off completely in three years, BUT by throwing everything extra at the loans, I won't be able to save toward replacing the wifes lease.
If I put the Impala payment and warranty amount into a savings account toward a car, I could have about $10,000 saved in the next 34 months toward a down payment. Depending on where my wife is with the plan at that point, it could almost pay for a 5 year old minivan, or be about 1/3 toward a 3 year old Suburban. I'll skimp on a lot of things, but my wife and kids are going to have a decent, safe, and reliable car. We've got 6 kids, so something like a Honda Fit won't work so a big vehicle is needed.
Also, as a side thought... I've considered getting rid of the Impala since there a transmission issue, and replacing it with an older 04-05 Prius or something, but I'm not sure that would be good. I can get one for $2-3000 with high miles, but I don't know if that savings would offset the fact I'd be trading in a paid for 08 with 70k miles. I just don't want to get stuck with a failed transmission because the Impala is NOT worth replacing a transmission in, and I think that is coming sooner than later.
Just seeking opinions, thoughts, face punches, etc.
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Sounds like a pretty solid plan. I think you have some room to squeak out another $100-150 in reductions between the cable/internet and cell phone plans. Shop around for car insurance too if you haven't already. Keep enough cash in your savings to cover a possible transmission rebuilt/replacement on the Impala or get rid of it now. If your employer has 401k matching, consider investing enough to get the match. That's free money!
You didn't put any figures on your variable expenses like food, gas, and entertainment. Don't neglect these as they can kill your budget/savings rate if left unchecked.
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Pay off the Impala and cancel the warranty, which will free up $280 a month. Yes.
Reduce the full coverage to liability only, which will cut the insurance bill by about $60 a month Can you afford to replace your car if you run off the road and total it? I wouldn't drop comprehensive and collision. What is your deductibe? How much can you save by raising it to at least $1k?
The Traverse theres not much I can do with right now. The lease is too new. Can you sell the lease? I am not sure what Chevy allows but some people can do that to get out of the lease. That being said, you need a big car for the fam and there aren't a lot of choices in that arena. See what your ideal vehicle would be and how much time it would take to get the money. Maybe you can save enough for a used Nissan NV or similar down the line.
I could see about reducing the cell phone bill. Pay off the phone. Then you're down to $115/mo, right? Get on a plan with Cricket and you have the same coverage as ATT but for $60/mo. Or you can do what we do and find 3 more trusted people to get on a Cricket plan with you. That drops it to $100/mo for 5 people, which you can average out to $20/pp. So your $115/mo bill drops to $40/mo, saving you $75. My brother-, sister-, and father-in-laws are all on our Cricket plan. They pay for a year of service at a time.
Cable/internet- $110 a month Ditch cable. We have Charter internet for $60/mo and it's super fast. Get a roku box and use that to watch tv for free ($50/mo savings). Even if you pay for online Netflix or Amazon prime, you're coming out ahead by $40/mo.
Do you have emergency savings? Make sure you have at least 3 months worth. Set up an account and every time you cut a monthly bill, set up a monthly deposit to that account so you don't have budget creep.
Then max out tax advantaged retirement accounts. The average return of 7% of the stock market is way better than the 4.25% cost of the student loans and you'll be able to harness time to help your investments grow.
If you think you can sell your Impala before the transmission drops and get a decent price, I'd do it. I don't know what you would buy but I've never been impressed with Chevy's so I'd get rid of that if you can. Then you can buy a true beater for you - one that you wouldn't worry about dropping the insurance down to liability only.
In good months, save that money for the new vehicle for your wife so you can get out of the lease ASAP. Once you're on track with retirement savings and vehicle savings, throw the extra at the student loan debt.
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I second VBACmama. You should consider contributing to your 401k or IRAs before aggressively paying down your student loans. The student loan interest rate is pretty low and the tax savings could be substantial. You'd need to play with your numbers to see if the 401k/TIRA or roth IRA would make more sense for your situation.
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Are you tracking your actual expenses? With a service like Mint, or Personal Capital, or YNAB? You need to have every dollar accounted for.
I would definitely do *something* about those are loans. I didn't see the rate for the 2017, but 6.9%?! That's awful for a car loan.
If you can give a real month, line item breakdown, you'll get even more feedback. There's usually a surprising amount of fat to cut =)
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It sounds like you already got most things on lock! And the biggest place you'll benefit is from those car loans.
Might be worth considering selling the Chevy Impala and using those funds to pay off the lease in full (especially with the start of a transmission problem). Then you could buy a more gas efficient, longer lasting car like the Mustache Mobile -- the Scion Xa (newer ones are Xd's).
Here's MMM's kick ass article on buying a new/used car: http://www.mrmoneymustache.com/2011/04/19/how-to-come-out-way-ahead-when-buying-a-used-car/
And here's his article about the Scion Xa: http://www.mrmoneymustache.com/2011/12/08/turning-a-little-car-into-a-big-one/
I got a 2005 Xa for $3,600 with 160,000 miles on it, and haven't had one problem in the last two years (that's with a 5,000 mile road trip too!)
$35/mo is what I pay for my iPhone carrier with 2GBs of data. Cheaper plans with less data are available too. Definitely check out Cricket Wireless. They have been incredible.
Good luck! Let us know how it goes!
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Just wanted to say, I have been in that fluctuating income scenario, and it requires a lot more advance planning than most people have to do, just to keep from falling off the cliff. So first, I 100% agree with the idea of tying your budget to your lowest months. But when you do that with your figures, your mandatory expenses are higher than your low-income months. That is just a stressful way to live, even if your good months give you plenty of space, because you're always just one month away from a crisis. It also means that you absolutely cannot afford any additional mandatory expenses (like, say, a car payment if the Impala breaks down).
Therefore, your highest priorities are (i) decreasing mandatory monthly nut, and (ii) increasing cash savings to prepare for inevitable costs that you know are going to happen at some point. I.e.:
(i) Do what the other folks are saying about reducing your ongoing mandatory monthly nut that does not involve spending down your $10K savings. Getting some space between your mandatory expenses and your minimum income will decrease your stress level dramatically. (I would not cancel the car insurance, though, because right now you can't afford to replace the Impala if you're in an accident -- the idea is to cut extras, not cut holes in your own safety net).
(ii) Evaluate/increase your $10K cash on hand to make sure you have enough to cover a series of down months. Is your business cyclical/predictable, or is it more month-to-month? If you know XX months are typically slow, put aside the cash now to cover that stretch, with a comfortable cushion. I would view this more as a "cash flow" fund than a traditional e-fund, at least as long as your minimum expenses exceed your low-commission months.
(iii) Build up a car fund for both the missus AND you. Because a 2008 Impala with a transmission problem is not a viable long-term solution, and you don't have room in your budget for your current car payments, much less another one. Note also that you're not saving for a down payment, you're saving for two new (old) cars -- see (i), above.
The Impala worries me -- you say it's not worth replacing a transmission, but you still owe $6,200K on it! What's the value of a 9-yr-old Impala with a busted transmission? If it's less than $6,200K, you're in a world of hurt if (when) that happens. So either sell it before the transmission goes and buy a reliable beater with whatever is left after paying off the loan (if anything), or pay the loan off ASAP so you can afford to sell it for whatever you can get when the transmission goes (and buy a beater with whatever the car will bring you at that time), or put aside money now to cover the loan + beater when the transmission goes. Note that all three of these require cash -- and that this issue is a "when" not an "if" -- so you need to put that cash aside now in your good months so you have it when the inevitable happens.
I do agree that the student loans will be an awesome monkey off your back. But right now, you are in triage mode -- you have to make sure next month, next year, etc. are covered before you tackle 5 years from now. The loans will take several years to pay off to free up that $200/mo; you will likely have two cars to deal with before then, so the cars are a higher priority now for your extra cash in the good months. After that, I'd do 401(k)/IRA -- that is tax-advantaged space that you cannot make up in future years, so I'd do at least up to the match before throwing the rest at the loans.
Finally, I'd suggest YNAB -- it's sort of designed to force you to plan ahead on your budget, and it allows you to set up future goals that you contribute to each month, so I think it will help you internalize the "proactive instead of reactive" approach that your fluctuating income really requires.
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Are you tracking your actual expenses? With a service like Mint, or Personal Capital, or YNAB? You need to have every dollar accounted for.
I would definitely do *something* about those are loans. I didn't see the rate for the 2017, but 6.9%?! That's awful for a car loan.
If you can give a real month, line item breakdown, you'll get even more feedback. There's usually a surprising amount of fat to cut =)
I just got a mint account. First thing I notice is that I spent an embarrassingly high amount of money on fast food. $245.51 in November. $159.08 on gas. Income for that month was $5836.66. $180 went to savings. The rest was spent on what I would call misc. Target, Walmart, J.Crew, Home Depot, etc. Probably 90% of it was unneccessary stuff, since I can't even remember half of what we got. May have been some Christmas gifts in that mix, too.
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Awesome! Sounds like some low hanging fruit to me! Other key places to look can be cash withdrawls, if you use cash. Be sure you know where those sneaky cash dollars are going too!
So what's the 'eliminate fast food' plan? Your wallet, AND your waist, AND your children's future health will all thank you =)
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I already posted in the gauntlet section. Trying to keep fast food to $20 the rest of the month.
Also, connecting back to the original post here. I called my cable company and got my bill down to $83 for a smaller cable package and internet. Still more than I wanted, but it's $10 more than just internet would be.
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I already posted in the gauntlet section. Trying to keep fast food to $20 the rest of the month.
Also, connecting back to the original post here. I called my cable company and got my bill down to $83 for a smaller cable package and internet. Still more than I wanted, but it's $10 more than just internet would be.
Awesome! Seems like you're taking some actionable steps there, which is great. Thanks for the updates!
Did you say what you'd decided to do about the Impala issue?
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I already posted in the gauntlet section. Trying to keep fast food to $20 the rest of the month.
Also, connecting back to the original post here. I called my cable company and got my bill down to $83 for a smaller cable package and internet. Still more than I wanted, but it's $10 more than just internet would be.
Awesome! Seems like you're taking some actionable steps there, which is great. Thanks for the updates!
Did you say what you'd decided to do about the Impala issue?
Yeah, I have my wife ok with switching our cell phones to cricket, too. That'll save me another $40 or so
As far as the Impala, I'm not sure yet. I work at a pretty good sized car dealership, so I can get an awesome deal on a used beater status car. The problem is that my dealership is in a pretty high end area, and so beater trades are few and far between. The last one we got in recently (08 Honda Civic hybrid, one owner, company car with 249,000 miles was traded because she had to replace it at 250k. That one we took on trade for $600, but one of the porters bought it. That was about a year ago, and he's still driving it 90 miles a day.
We get our share of old GM and Ford and stuff, but I think I'll just wait for a good trade in. I don't think the impala is going to fail in the next couple of weeks. I'll just have to do some research. Working where I do, it gets kinda ingrained than any car over five years old or with more than 60,000 miles is basically scrap metal. I know it's not true, though.
As for your earlier question, i rarely use cash. I have $50 cash in my wallet that's been there about six months.