Author Topic: Help me use this windfall well  (Read 7307 times)

Pixie

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Help me use this windfall well
« on: October 31, 2013, 12:08:37 PM »
 Reader Case Study - Previously living paycheck to paycheck, trying to do better, but not gaining any traction.  We're about to recieve an inheritance that will clear our debt & leave us with savings equal to 3 months of expenses.

Income: Dh's teacher's salary $4590/month (take home)

Current expenses:
Mortgage $1180. (Actual min. payment is 1111.)
Utilities: $381
Auto ins. $118.17
Health ins. $465.66
Cel phones $33.38 (switched dh to airvoice & mine to republic in July)
Landline $35.
Internet $29.99
Netflix:  $16.66
Violin lessons $160 ($20/wk x 2)
Musical theatre class $65
Costco $750
Other grocery: $100
Gas (auto) $310
Auto repairs $150
Orthodontist $120 (ends 5/'14)
Debt:
Visa $263
Mastercard $60
Student loans: $145


**we buy 98% of clothing used, new clothes are usually gifts (christmas, birthday), vacations are mostly camping, rarely eat out, never buy Starbucks.  I know there are things I am not accounting for because we never have money at the end of a pay period.  I also know that money isn't being frittered away on luxuries.  :/



Expected ER expenses:
Not sure what to list here, I suppose the one emergency we continue to have is auto repairs.  Dh does all the work himself, I drive a 96 Volvo wagon, he drives a '99 suburban (I know, gas guzzler, but he leads a venture crew, needs to transport groups of teens, & uses this vehicle for work on the side, remodelling jobs) which we just bought to replace a '98 truck which we still haven't been able to sell.  We should have sold the truck first.  The Suburban was $2,000 and runs beautifully.

Assets: Dh has a retirement plan, employer matched, set contribution from his pay is 10-15%.  I don't have all the details, but I do know that he can retire in about 10 years (he'll be 54) with 80% of his salary (calculated as an avg. of the salary he earns in his final three years)

Liabilities:

Visa $8601.22 10.9%
Mastercard $2923.49
Student loans: $8680.09 5.375%
Mortgage $139,000. 5.5%

Additional, life changing, information: So, here's the amazing thing that is about to happen, I am going to receive a check for $40,000.00 and 500 shares of Bank of America.  I really, really want to use this money effectively to change our lives!  I know we will pay off all of our debt (not the mortgage) first. That leaves aprox. $19,000.  There are a few purchases we would like to make.  Our computer is 8 years old & limping along, but we only need to replace the "brain" and the keyboard, the monitor is fine.  I'd also like to purchase a basic laptop, with 3 kids homeschooling this seems practical.  We need to buy support beams for our house (current beams circa 1894 were not installed well, house is slowly caving in), dh already has a plan & will do the work himself.  And we want to pay for the first round of classes toward's dh's 'plus 30', once he achieves the plus 30 he will get a salary increase of $5,000./year.  Total cost will be $7500, employer will reimburse $2100, so our cost will be $6400.

Specific Question:  How do I use this inheritance to our benefit?  Where do I go from here?  WHat would a Mustachian do?  ;)
« Last Edit: October 31, 2013, 02:16:45 PM by Pixie »

gimp

  • Handlebar Stache
  • *****
  • Posts: 2348
Re: Help me use this windfall well
« Reply #1 on: October 31, 2013, 12:27:06 PM »
What really stands out:

- COSTCO + groceries. HOW ARE YOU SPENDING 850/month on food. Do you have 10 people living in your house?
- You have credit card debt! Why? What spending patterns got you into it? Also, what's the APR on the mastercard?
- Utilities look high. What can you do there?
- Can you get side work? As low as an extra hundred a month will help you immensely.

Also, less important:

- Why pay for a landline? Do you have to? $35 is a bunch of money.
- Gas, can you drive less?
- Violin lessons are a luxury and you're in debt.
- Can you negotiate a lower auto insurance without reducing coverage?

Now, the things you want to buy:

- If your house is slowly caving in, that seems like a priority.
- Basic laptop is a good idea. You can get something decent for $400 these days.
- Upgrading your computer is not a bad investment. You can keep the screen, yes, but if it's a really bad screen, consider that a modern screen may be better on the eyes and only cost $150 or so. A new PC (sans screen) can also be gotten for around $400 without it being utter crap. However, consider two laptops instead of laptop + desktop. Also note that a tablet is an entertainment device (someone will likely suggest you one) in almost all cases.

Reepekg

  • Bristles
  • ***
  • Posts: 255
  • Age: 35
Re: Help me use this windfall well
« Reply #2 on: October 31, 2013, 12:44:44 PM »
First of all, get rid of the landline. It's 2013, you can use the internet as your phone at home for free.

Second, I'd say choose either a laptop or new brains for your computer, not both. For a majority of people including myself, a laptop does everything a desktop can do.

Pro Mustachian tip: You already have a monitor and keyboard. Instead of replacing your computer by buying a new CPU or "brains" for hundreds or thousands, consider using a raspberry pi (http://www.raspberrypi.org/faqs). It is a $35 computer that can go on the internet, do word processing, play video, etc. They were developed so that kids could learn how to program a computer and use electronics without any fear of breaking anything expensive. This seems like a particularly good fit for you, because you could integrate the project into your homeschooling efforts.

Pixie

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: Help me use this windfall well
« Reply #3 on: October 31, 2013, 12:54:30 PM »
Good points, gimp, $850/month at Costco, so not just food, includes household items, sometimes auto (oil for diy oil changes), sometimes socks.  Not 10 people, 5.  Oh, and sometimes gas for the car, yes I know I have that listed as well. So, yeah I'm not keeping track very well.

Another purchase I would like to make is the YNAB software.  ;)

Landline, yes we would like to give this up, I have to figure out a few things first.  Utilities are gas (budget billing $134/month) electric ($148/month, budget billing), msd (sewer) $45, and I didn't include water which is about $20.  We only run the a/c when it is so hot that the kids are cranky & then we set it at about 82 (just enough to cut the humidity) when needed we keep the heat at about 65 & wear sweaters. 

Violin, maybe a luxery, but we spend very little overall on our homeschool, so no we're not going to cut it.

Why two laptops?  Would that make much of a difference?

Maigahane -  refinance might be possible, although replacing the support beams needs to be done first, and it isn't cosmetically appealing right now.  We will try to figure out a refi if at all possible.

Reepekg - The kids need to run programs from disc for certain aspects of our homeschooling.  I'll look into the raspberry pi. 



« Last Edit: October 31, 2013, 01:05:48 PM by Pixie »

SunshineGirl

  • Pencil Stache
  • ****
  • Posts: 751
Re: Help me use this windfall well
« Reply #4 on: October 31, 2013, 01:03:17 PM »
Here's my advice:

1. Sell the Bank of America shares the first day possible.

2. Immediately pay off those credit cards and cancel all but one. Going forward, pay off that one every time your husband gets a paycheck - if it's twice a month, go online and pay it off the day the check hits your bank account. It's eye-opening and the money/charges seem more "real" that way when they're paid for soon after purchase.

3. Go ahead and buy a new laptop and/or computer.

4. Set aside what you've got left in a savings account for three months and see how you can best get your budget in order. See what a financial difference it makes to not have the credit card payments anymore. See what kind of savings rate you can achieve without the cc debt. Using tracking software (I recommend YNAB) during this time. The simple act of tracking things and accounting for where your money goes is very helpful.

5. After three months, see where you're at and how you feel. With your finances in much better shape, you indeed could could use it to pay down your mortgage or refinance to a 15-year mortgage. You might decide to keep it as an emergency fund. Or a car replacement fund, as your cars are pretty old.

This money is a gift, and I hope you use it wisely and honor the giver by doing so. It doesn't sound like you'll go crazy with it based on what you've written, but your cc bills are quite high and you've been living beyond your means, so you may find it quite tempting to spend the money on short-term things.


Pixie

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: Help me use this windfall well
« Reply #5 on: October 31, 2013, 01:14:00 PM »
Here's my advice:

1. Sell the Bank of America shares the first day possible.

Why?  Why not hang onto it?  I can pay off the debt (cc's & student loan) out of the $40k and still have $19k to go forward with your other suggestions.

2. Immediately pay off those credit cards and cancel all but one. Going forward, pay off that one every time your husband gets a paycheck - if it's twice a month, go online and pay it off the day the check hits your bank account. It's eye-opening and the money/charges seem more "real" that way when they're paid for soon after purchase.

Why would I charge anything?  Why not just pay out of my checking account?

3. Go ahead and buy a new laptop and/or computer.

4. Set aside what you've got left in a savings account for three months and see how you can best get your budget in order. See what a financial difference it makes to not have the credit card payments anymore. See what kind of savings rate you can achieve without the cc debt. Using tracking software (I recommend YNAB) during this time. The simple act of tracking things and accounting for where your money goes is very helpful.

YNAB should be really helpful & I am looking forward to using it.  I think the wait & see approach is a very good idea.

5. After three months, see where you're at and how you feel. With your finances in much better shape, you indeed could could use it to pay down your mortgage or refinance to a 15-year mortgage. You might decide to keep it as an emergency fund. Or a car replacement fund, as your cars are pretty old.

Our cars are old, but dh has replaced so much of the Volvo that it should last another 5 years.

This money is a gift, and I hope you use it wisely and honor the giver by doing so. It doesn't sound like you'll go crazy with it based on what you've written, but your cc bills are quite high and you've been living beyond your means, so you may find it quite tempting to spend the money on short-term things.

This makes me feel a bit defensive.  ;).  Most of the cc debt is actually quite old & some is due to lack of emergency fund or savings.  There is no doubt that we haven't made good decisions along the way.

NumberCruncher

  • Pencil Stache
  • ****
  • Posts: 612
Re: Help me use this windfall well
« Reply #6 on: October 31, 2013, 01:21:26 PM »
Having shares in a singe company (such as Bank of America) can be really risky. Selling the shares and investing in a low-fee total market index fund would historically be a really good move.

StarryC

  • Bristles
  • ***
  • Posts: 283
Re: Help me use this windfall well
« Reply #7 on: October 31, 2013, 01:23:37 PM »
Your Plan is pretty good. 
1) Pay off the debt (except mortgage)
2) Based on your budget, I think 3 months of expenses would be about $9,000.  You have a one income family, with multiple children, and a history of going in to debt for either emergencies, wants, or needs.  I think you need more in an emergency fund than $9,000 because of that.  But, $9,000 should immediately go into a savings account at an online only bank where it would take you a few days to access the money.
3) Spending $1,000 on a new CPU/ tower for the computer and a new laptop combined seems like an appropriate splurge.  A $300 laptop should be perfectly sufficient, perhaps a Chromebook?  I think a $400 computer would be good, and then a $150 screen.

This leaves you with $10,000.  I'd spend the money on the house beams before the education. Then, if the money will help you refinance the mortgage to a lower rate (either the same payment/shorter term, or longer term lower payment) I'd do that next.  Then, I'd save the rest either for a replacement car when that comes up, other house emergencies, or needs you aren't seeing right now.

Then, you need to figure out your spending.  $850 on food/ Costco is pretty high for a family of 5.  Do you think you could get it down to $600 a month total?  Your utilities also seem pretty high to me. Cut the landline. 
Will your health insurance go down with an Obamacare subsidy? Maybe you can cut $50 a month off of that somehow?  $150 a month seems high for car maintenance, do you really use $1,800 annually?  Do you think you can, with these means (insurance, food, healthcare, landline, mortgage refinance), cut your budget $200 a month?  Then, without the debt, you'd also cut your budget an additional $468 a month.  "Pay yourself first" with this $668, into the savings account until you can afford the 30+ classes from new savings not from the emergency fund. 

You say you have nothing left at the end of the pay period, but it isn't going to luxuries.   You need to figure that stuff out and budget for it.  Is it: Personal/medical care (haircuts, contact solution, pharmacy expenses, co-pays, dental, underwear/socks), Restaurants/ fast food? Gifts/parties/ activities for the kids and their friends? Gifts for adult friends and family?  School supplies/ curriculum?  It is probably all of these things over the course of a year. 

SunshineGirl

  • Pencil Stache
  • ****
  • Posts: 751
Re: Help me use this windfall well
« Reply #8 on: October 31, 2013, 01:32:39 PM »
I'm sorry. I didn't mean to make you feel defensive. That is a lot of debt, and I don't know what it was for; I only know what you wrote, and I've read that often when people get a windfall like an inheritance or take out a 401K loan,  or even a home-equity line of credit, and pay off their debt for a fresh start, they very often quickly go back into debt because the pay-off felt like it came so easily. This is compared to the other way of getting out of debt, which is over a period of several years where they really have to make a choice every single month to pay extra on their debts. (which you might already be doing)

So, I'm sorry.

As far as the Bank of America stock, you never want to go all-in on one company's stock. ANY company.

YNAB has a thirty-day free trial, so there's no reason you can't get started with it today! 

Lans Holman

  • Bristles
  • ***
  • Posts: 276
  • Location: North by Northwest
Re: Help me use this windfall well
« Reply #9 on: October 31, 2013, 01:34:46 PM »
I'm a little surprised we're not seeing more enthusiasm for the extra education.  An expenditure of $6,400 now that returns 5k a year for the rest of his working career is a pretty fantastic investment. 

SunshineGirl

  • Pencil Stache
  • ****
  • Posts: 751
Re: Help me use this windfall well
« Reply #10 on: October 31, 2013, 01:36:13 PM »
I'm a little surprised we're not seeing more enthusiasm for the extra education.  An expenditure of $6,400 now that returns 5k a year for the rest of his working career is a pretty fantastic investment.

Very true! I forgot about that in my replies.

Pixie

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: Help me use this windfall well
« Reply #11 on: October 31, 2013, 01:58:08 PM »
I'm sorry. I didn't mean to make you feel defensive. That is a lot of debt, and I don't know what it was for; I only know what you wrote, and I've read that often when people get a windfall like an inheritance or take out a 401K loan,  or even a home-equity line of credit, and pay off their debt for a fresh start, they very often quickly go back into debt because the pay-off felt like it came so easily. This is compared to the other way of getting out of debt, which is over a period of several years where they really have to make a choice every single month to pay extra on their debts. (which you might already be doing). **Yes, we are guilty of this (though not due to excesses like clothes shopping or dinners out) I want to make a course correction to avoid it this time around. 

So, I'm sorry.

Not your fault at all, totally *my* feelings & baggage.  Splurges are rare for us.  When I've read an online article about how to cut $$$ from your monthly budget, it lists things we gave up so long ago I don't even really miss them, or things we never got into anyway (like Starbucks).

  As far as the Bank of America stock, you never want to go all-in on one company's stock. ANY company.

I guess the 500 shares of BOA seem like an after thought to me, something to deal with once the debt free order settles.  I will keep that in mind though.

YNAB has a thirty-day free trial, so there's no reason you can't get started with it today!
. Except that my computer does not work.  :). Soon.



Pixie

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: Help me use this windfall well
« Reply #12 on: October 31, 2013, 02:02:30 PM »
I'm a little surprised we're not seeing more enthusiasm for the extra education.  An expenditure of $6,400 now that returns 5k a year for the rest of his working career is a pretty fantastic investment.

Dh & I are really excited that he will be able to start working on this, he can start a 3hour class in the spring semester, there are some summer classes too.  If we pay for the first three hours out of this disbursment, we're hoping to save for the summer classes.  He should be able to earn the plus 30 in about one year.

Pixie

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: Help me use this windfall well
« Reply #13 on: October 31, 2013, 02:13:07 PM »
Your Plan is pretty good. 
1) Pay off the debt (except mortgage)
2) Based on your budget, I think 3 months of expenses would be about $9,000.  You have a one income family, with multiple children, and a history of going in to debt for either emergencies, wants, or needs.  I think you need more in an emergency fund than $9,000 because of that.  But, $9,000 should immediately go into a savings account at an online only bank where it would take you a few days to access the money.
I was thinking $12k as an emergency fund, with one month of expenses in the checking account, following YNAB, and the rest in an online savings.  That leaves $7,000 to use otherwise (not necessarily spending it)

3) Spending $1,000 on a new CPU/ tower for the computer and a new laptop combined seems like an appropriate splurge.  A $300 laptop should be perfectly sufficient, perhaps a Chromebook?  I think a $400 computer would be good, and then a $150 screen.

This leaves you with $10,000.  I'd spend the money on the house beams before the education. Then, if the money will help you refinance the mortgage to a lower rate (either the same payment/shorter term, or longer term lower payment) I'd do that next.  Then, I'd save the rest either for a replacement car when that comes up, other house emergencies, or needs you aren't seeing right now.

The house beams should be less than $300.  I think we can do the classes $750 for the first 3 credit hours, next semester as well.

Then, you need to figure out your spending.  $850 on food/ Costco is pretty high for a family of 5.  Do you think you could get it down to $600 a month total?  Your utilities also seem pretty high to me. Cut the landline. 
Will your health insurance go down with an Obamacare subsidy? Maybe you can cut $50 a month off of that somehow?  $150 a month seems high for car maintenance, do you really use $1,800 annually?  Do you think you can, with these means (insurance, food, healthcare, landline, mortgage refinance), cut your budget $200 a month?  Then, without the debt, you'd also cut your budget an additional $468 a month.  "Pay yourself first" with this $668, into the savings account until you can afford the 30+ classes from new savings not from the emergency fund. 

Our healthcare might go down, I haven't been able to register yet.  I'm a little worried that it will go up, but I won't know for sure until I register.

You say you have nothing left at the end of the pay period, but it isn't going to luxuries.   You need to figure that stuff out and budget for it.  Is it: Personal/medical care (haircuts, contact solution, pharmacy expenses, co-pays, dental, underwear/socks), Restaurants/ fast food? Gifts/parties/ activities for the kids and their friends? Gifts for adult friends and family?  School supplies/ curriculum?  It is probably all of these things over the course of a year.

Yes, really need to figure out where these $$ are slipping away.  Not haircare, I have my cosmetology license & cut everyones hair, I get one or two haircuts a year.  Dental has been an issue recently & I forgot to include my littlest orthodontist bill.  Could be birthday gifts, modest celebrations, homeschool curriculum & supplies. 

I'm goint to edit my original post to reflect dd's orthodontist payment & add the $20 for utilities.

StarryC

  • Bristles
  • ***
  • Posts: 283
Re: Help me use this windfall well
« Reply #14 on: October 31, 2013, 02:16:58 PM »
It looks to me like Bank of America is at $14 right now. 500 shares is $7,000 (more or less/ fees/rates/ taxes, etc.)  It's not an afterthought!

I do think that $270 could be going to perfectly reasonable things each month.  Part of your problem seems to be unexpected but necessary expenses come up, (say on the 16th or 20th of the month if you get paid once a month) and you have to put that on the credit card.  To get that problem under control you need to start making those "expected" so that you don't go out to dinner on the 14th for $50 and then find out that you need to pay $50 for a field trip/ filling/ next book on the 16th with the credit card. 

Pixie

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: Help me use this windfall well
« Reply #15 on: October 31, 2013, 02:17:54 PM »
I'm a little surprised we're not seeing more enthusiasm for the extra education.  An expenditure of $6,400 now that returns 5k a year for the rest of his working career is a pretty fantastic investment.

Dh & I are really excited that he will be able to start working on this, he can start a 3hour class in the spring semester, there are some summer classes too.  If we pay for the first three hours out of this disbursment, we're hoping to save for the summer classes.  He should be able to earn the plus 30 in about one year.

Of course that will be the last increase he sees, that is as high as he can go on the ladder.  :/

Pixie

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: Help me use this windfall well
« Reply #16 on: October 31, 2013, 10:15:39 PM »
It looks to me like Bank of America is at $14 right now. 500 shares is $7,000 (more or less/ fees/rates/ taxes, etc.)  It's not an afterthought!

No, not an afterthought in the true sense of the word, just not the first step.  I figured that could sit while we adjust.  Maybe that is silly.

I do think that $270 could be going to perfectly reasonable things each month.  Part of your problem seems to be unexpected but necessary expenses come up, (say on the 16th or 20th of the month if you get paid once a month) and you have to put that on the credit card.  To get that problem under control you need to start making those "expected" so that you don't go out to dinner on the 14th for $50 and then find out that you need to pay $50 for a field trip/ filling/ next book on the 16th with the credit card.


bugbaby

  • Bristles
  • ***
  • Posts: 387
Re: Help me use this windfall well
« Reply #17 on: November 02, 2013, 04:05:34 PM »
Is the 40k taxable? never mind i googled it's not -whew
« Last Edit: November 02, 2013, 04:22:55 PM by babybug »

TrulyStashin

  • Handlebar Stache
  • *****
  • Posts: 1030
  • Location: Mid-Sized Southern City
Re: Help me use this windfall well
« Reply #18 on: November 02, 2013, 06:53:01 PM »
My daughter has her cosmetology license and she often drive around to people's houses to cut or color their hair.  She charges less than a salon but still rakes in a tidy sum and schedules people when it works around the rest of her life.  She actually has a portable chair and shampoo bowl that she takes with her in her Mazda 3.

I bet you could bring in a couple of hundred per week doing that.  ESPECIALLY doing color or highlights which, in my area, goes for between $60 and $100 a pop.

Pixie

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: Help me use this windfall well
« Reply #19 on: November 03, 2013, 07:37:53 AM »
My daughter has her cosmetology license and she often drive around to people's houses to cut or color their hair.  She charges less than a salon but still rakes in a tidy sum and schedules people when it works around the rest of her life.  She actually has a portable chair and shampoo bowl that she takes with her in her Mazda 3.

I bet you could bring in a couple of hundred per week doing that.  ESPECIALLY doing color or highlights which, in my area, goes for between $60 and $100 a pop.

Hmm, I like that idea.  I do haircuts for a few people (their home or mine), I make about $20 a haircut.  Do you know the brand name of her portable equipment?  I'll google.