Author Topic: Feel like a loser: Where to start?  (Read 4661 times)

Vanchica

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Feel like a loser: Where to start?
« on: September 04, 2015, 11:01:55 PM »
From Zero to Zero – Facepunches, please!

Can I get a shit-ton of facepunch/guidance, if you don’t mind? I am going in circles trying to figure out priorities (savings, debt, budget first?) and don’t know if Mustachianism is the path for me…..

Dave Ramsey says: “OMG, never use credit, sell your car and get a beater, avoid credit it’s the devil”
Suze Orman says: “invest wisely NOW and never use your savings for anything other than retirement, even if you’re teetering on bankruptcy”
Gail Vaz-Oxlade says: “are you stupid? Stop using debit and credit, use cash and spend $3 a month on clothes”
MMM says: “OMG, you need to get a bicycle and retire as soon as possible, retirement is where it’s at”
The financial planner says: “Buy this fund. It’s a sure thing. Sign here, press hard, the fourth copy is yours.”

So I’d welcome your abuse and advice!  My biggest problem is my budget, I think, according to Mustachianism. I am gearing up some solid side gigs but seriously, I am single making six figures, this is so dumb, I live paycheck to paycheck.


Life Situation: I am single, Canadian, pay 36% in withholdings on income (which I can reduce through retirement savings that incur a tax deduction), I have pets (two dogs) and one has medical issues (for which I have heavily used and very useful pet insurance through Trupanion). I work in a banking related field and recently moved closer to aging family which required a home and a car. In this region, the real estate was (a) a screaming good deal (divorcing couple desperate to unload it) and (b) a good investment currently appreciating at 6% or more per year and (c) it allows me to get a homestay (paying) international billet student or offer AirBnB accommodation as well as (d) run a few small home businesses using the workspace available.

Gross Salary/Wages: $120k plus bonuses of 15%

Pre-tax deductions: I am contributing (starts in 4 weeks) $1,700 pre-tax  ($1100 after tax) to an account like an IRA called an RRSP (money deposited to these incur a tax-deduction and you can elect to have the equivalent to the deduction applied by your employer if contributions are made via payroll). We have Roth type accounts, too, called TFSAs for tax-sheltered investment growth, these are funded with after-tax dollars.

Other Ordinary Income: None yet: expect to average $200-$500 a month doing various services.

Qualified Dividends & Long Term Capital Gains: Capital gains on primary residences are not taxed here but we also don’t get any tax benefit on mortgage interest.

Adjusted Gross Income: $5300/mo.

Taxes: 36% roughly (includes EI, public pension, some small benefit costs)

Current expenses: 
RRSP   1100
Misc   65
Car fuel   170
Car Ins   140
Car Loan   255
Cell Phone   135- smartphone rquired for job (email and web access)
Personal needs   80
Condo Fee includes water   215
Food-groc. AND Pharmacy   400
Health insurance   75 (edited- gov't income based premium)
Hydro- electricity only   65 (edited - heat and lights)
Insurance (home)   75
Internet   95
   
Life ins   25 edited- dependent elder relatives
Household set up expenses, some shopping (fall clothes/shoes, etc)   100 edited- recent purchase pf home
Elder care   350
Mortgage   1750
Parking   115
Pet costs 365
Property taxes   140
Credit line interest and principal   250
Savings for home repairs   0
Side gig supplies   50
Vacation   50
VISA   25
Total:          6095
Missing/leaked/overspent   300


Expected ER expenses: (optional, if relevant) don’t know what this means.

Assets: Home: value $375,000 need to be near aging family. Commute is easy 45 min highway.

Zero retirement savings (well, $2500 in an RRSP (like an IRA); company pension at age 65 of $2,400 per year)

Car, worth $20,000 under warranty: I drive 90km to work each day (round trip) and get edited: 27 mpg--------- 360km per ¾ tank at $28 per fill up. (budget of 6 fill ups per month for all necessary driving- $168 per month, note gas is edited $4.71 a gallon here (Cdn))

Liabilities:

Car loan: Bal of $18600 at 0% for 6 years
Unsecured line of credit: Bal of $24500 at Prime + 2% (currently 4.7% here), interest only required, can add principal payments of any size any time.
Credit card: $2,000 at 12.99% (intend to pay this off within 6 months, seem to have overspent with shopping).
Mortgage of $323,000 @2.64% and 20 year amort. Planning to pay in 12-13 years.

Specific Question(s): see above- where the heck to start, what are the priorities? edit: i feel retirement savings should be maxed and the mortgage slammed to EVER retire securely- all bonus income to those two things- I am 49

Thank you for not laughing too hard at my stupidity
« Last Edit: September 05, 2015, 04:07:16 AM by Vanchica »

Jack

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Re: Feel like a loser: Where to start?
« Reply #1 on: September 05, 2015, 02:40:09 AM »
(Note: throughout this post I mostly ignore the US-CAD exchange rate. They're similar enough I think most of my recommendations would apply even if the amounts were assumed to be Canadian dollars, but you can multiply everything by 30% if you want.)

(Note 2: Although this post is really long, it doesn't address everything. One significant thing it doesn't address is your alleged 36% tax rate, which I doubt is correct.)

Unsecured line of credit: Bal of $24500 at Prime + 2% (currently 4.7% here), interest only required, can add principal payments of any size any time.
Credit card: $2,000 at 12.99% (intend to pay this off within 6 months, seem to have overspent with shopping).

First things first, this is a hair-on-fire emergency!!!!!

Drop everything to the absolute bare minimum and get that credit card paid off in one month, not six. Then cut up the card, because if you're paying interest then you've already proven you can't be responsible with it.

(Note about the Dave Ramsey/Gail Vaz-Oxlade (who?)/etc. stuff you posted: if you can be responsible and are capable of paying in full every month, using credit cards is fine and their advice doesn't apply. But you can't, so their advice certainly applies to you.)

Once the CC balance is paid off, pay more than interest-only on your credit line. I'm not going to say prioritize it over everything else because 4.7% is less than you should be able to get in investment return, but the fact that it's variable makes it risky. I'd say that once your RRSP is fully funded, any remaining income should be applied here (before paying down your mortgage).

I recently moved closer to aging family which required a home and a car.

Why do you think it required a home (by which I assume you mean a townhouse/duplex/single-family house with several bedrooms)? Is your aging family living with you? If not, you could be living somewhere smaller and cheaper.

In fact, I'd say that with $1750 mortgage + $215 condo fee + $140 property tax + $75 insurance = $2180/month housing expenses (not including maintenance) you can't really afford to live there, regardless of how good of an alleged "investment" it is.

(From my perspective, Canadian property looks like a huge bubble, so I highly doubt that 6% return over the long term too.)

it allows me to get a homestay (paying) international billet student or offer AirBnB accommodation as well as (d) run a few small home businesses using the workspace available.

Have you done those things? If not, what it "allows" you do is irrelevant. Either actually leverage those assets, or move.

I don't know what the rental market is like in your area, but with a house that expensive I'd like to see you make some use of it (by taking on roommates or otherwise) that generates at least $1000/month in income.

I... get 360km per ¾ tank at $28 per fill up. (budget of 6 fill ups per month for all necessary driving- $168 per month, note gas is $4.98 a gallon here (Cdn))

Part of your issue is mindset. Your description just made it as hard as possible to calculate your car's efficiency, for example. Why couldn't you have just told us the miles (or km) per gallon? When you're trying to optimize your expenses, keep your mind focused on the numbers that matter (e.g. mpg and total miles driven per month) not the ones that don't (e.g. number of fill-ups per month). This principle applies in general, not just for your vehicle.

So if 3/4 of a tank of gas costs $28, then a full tank would cost $37.33. At $4.98/gallon, that means your tank holds 7.49 gallons. Also, 3/4 of a tank lasts 360km, so a full tank would last 480km (or 298 miles). 480km / 7.49 gallons = 64.085 km per gallon or 39.80 mpg.

That's actually not bad if it's accurate -- the idea that your fuel tank is only 7.5 gallons is suspicious. What make/model of car is this?

Car, worth $20,000 under warranty: I drive 90km to work each day (round trip)

Car fuel   170
Car Ins   140
Car Loan   255
Parking   115

(Total cost: $680/month, even before considering the time value of your commute or maintenance of wear items not covered by warranty.)

This, however, is a problem. First of all, a 56-mile round trip is ridiculous. Yeah, yeah, good job + aging family members means you feel stuck with it; I get it. But you should still recognize it as ridiculous. Also, don't forget to assign value to the huge amount of your life you're wasting on it (1.5 hours / day).

Second, even if it gets good fuel economy, $20K is 2-4 times as much as you actually need to spend on a car. Sell it and get an older one, which will still be reliable but won't cost you $140/month (HOLY SHIT!!) in car insurance alone.

Until recently, I also had a clown-car commute similar to yours, but I was doing it in a <$4000 car that cost me less than $140 per six months in insurance. If you did similar it would reduce your vehicle expenses by at least half.

$115 in parking is also absurd. If you can't bike/walk/take transit, can you at least find cheaper parking farther away?

I am contributing (starts in 4 weeks) $1,700 pre-tax  ($1100 after tax) to an account like an IRA called an RRSP (money deposited to these incur a tax-deduction and you can elect to have the equivalent to the deduction applied by your employer if contributions are made via payroll).

This statement doesn't make much sense. If it's tax-advantaged, then there is no such thing as "$1100 after tax" (except decades from now, and you don't really know what that number will be). Again, organize your mindset because I suspect you may be double-counting the taxes or something here.

I assume what you're trying to say is that your $1700 RRSP contribution reduces your take-home pay by $1100, so your net monthly income is $4200.

Misc   65
Personal needs   80
Household set up expenses, some shopping (fall clothes/shoes, etc)   100
Missing/leaked/overspent   300
Food-groc. AND Pharmacy   400
Internet   95
Credit line interest and principal   250
VISA   25

First of all, "credit line principal" and "VISA" (assuming that's referring to the credit card, and not the travel document) are not a valid expense categories. You're not spending money on the card/acccount, you're spending money on the stuff you bought with it plus the interest. The interest is an expense by itself, but the principal is an expense accounted for in a different category (whatever category the stuff you bought with it belongs to).

Second, you have three different bullshit "slush funds" ("misc," "household set-up expenses, some shopping" and "Missing/leaked/overspent"). You did not "leak" $300, you leaked $465. And that's every month?! Holy shit!

Cut that to zero.

Third, "personal needs" + "groceries" (which I think most people consider one category) at $480/month for a single person is ridiculous. Cut that in half.

Fourth, $95 Internet? Crazy! Even though I realize that Canadian ISPs can be about as shitty as US ones, I still believe you could downgrade the speed to somewhere between 3 and 10 Mbps and pay $20-$40/month for it.

Cell Phone   135- smartphone rquired for job (email and web access)

I call bullshit. Maybe your work requires email and web access, but I find it damned hard to believe it requires $135/month worth of it (or that if it is, that it isn't just paying the bill for you).

Quit streaming videos when you're not on Wi-Fi, realize that you don't need unlimited data, and cut this bill at least in half. (If I can get 5GB data for $30/month in the US, I have no doubt that you can get sufficient data in Canada for twice that much.)

Elder care   350

Why?

Shouldn't their own savings and/or insurance and/or the Canadian government be paying for that? Even if not, you should treat this like a plane crash: put on your own oxygen mask before attempting to help others.

Vacation   50
Savings for home repairs   0

Fix your priorities. If you can't afford to save for home repairs, you can't afford to take a vacation (or afford the house itself, for that matter).

I think the rule of thumb is that repairs can be estimated at 1% of the house value per year, which for a $375k house works out to $312/month.

Once you're out of CC and unsecured credit line debt and have your expenses under control, then you can start thinking about a vacation again.

Condo Fee includes water   215
Hydro- electricity only   65

No gas bill? Is heat free, or is it electric and included in that $65/month, or is Canada a lot warmer than I've been lead to believe? I'm suspicious.

Pet costs 365

That is a ton of money to be spending on pets, but I don't really expect you to act rationally about it. I'm going to let others address that issue in more detail.

Life ins   25

What for? If you're single, who are you expecting the beneficiary to be?

Health insurance   75

What for? Aren't you guys famous for your socialized medicine?

Expected ER expenses: (optional, if relevant) don’t know what this means.

It means "how much more or less money do you expect to spend after early retirement?"


Okay, so here's a first stab at a new budget:

Net pay (i.e., not including RRSP): 4200

Housing & utilities (this category still needs to be cut unless you get renters)
   Mortgage   1750
   Hydro- electricity only   65
   Condo Fee includes water   215
   Insurance (home)   75
   Property taxes*   140

Car
   Car fuel   170
   Car Ins   140 25
   Car Loan   255 36 (the difference in cost between your $20K car and a $4k car, amortized over the same time period as your current loan)
   Parking   115

Telecom
   Cell Phone   135 60 <- still overly generous
   Internet   95 30

Household expenses
   Personal needs   80 40
   Food-groc. AND Pharmacy   400 200
   Household set up expenses, some shopping (fall clothes/shoes, etc)   100 0
   Savings for home repairs   0 312
   Side gig supplies   50
   Vacation   50 0

Insurance
   Health insurance   75 0
   Life ins   25 0

Elder care   350 0

Pet costs 365 (this category still needs to be cut)

Credit line interest and principal   250 (accounted for separately)
VISA   25 (accounted for separately)
Total:          6095 3648

Debt service: $552 + ALL additional income

----------------------------------------------------------

Now, all of the above was what I could assume based on what you told us. The real big-ticket savings would be if you significantly modified your lifestyle by moving within walking/biking distance of your job and moving your aging family in with you. That would render most of the advice above moot, however, and would require a bunch more details (e.g. how many aging family members we're talking about, housing costs near your job, etc.) to analyze.


Zamboni

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Re: Feel like a loser: Where to start?
« Reply #2 on: September 05, 2015, 06:43:19 AM »
I will never laugh at your financial situation, I promise you that, until you are wealthy and laughing all the way to the bank.

Kudos: Good job reading some financial advice from different sources and taking the hardest step: getting started.

Face punches: Wow, your expenses are a train wreck along all fronts. And you are WAY WAY WAY under water, which I'm sure you are realizing becomes more and more of a problem as you get older. Jack's proposed budget for you looks much more reasonable, but as he points out there is still a ton a fat.

More face punches: Do you have a 30 year mortgage? A 20 year mortgage? Are you really planning to work (and thinking you will even be able to work) until late into your 60's or 70's? A total and absolute change in your housing situation should be first priority. Move much closer to your job and rent; you cannot afford to own right now. Period. MMM had a recent article about renting vs owning in Toronto recently that you should read as it is very enlightening.

The car is also a problem, but I think you need to address the house first. Looking beyond the obvious big items of housing and car, you are leaking money on all kinds of little things. For example, I have a smartphone and have been paying only $10 per month to use it through Airvoice wireless. So your $135 phone that you "need" is just bullshit. I mean absolute and total bullshit.

I think you need to follow both Dave Ramsey and Suze Orman's advice at this point. No credit cards, sell the house, sell that car, and max out retirement. Obviously pay off what you owe on the credit card and line of credit, but I think moving should be your first priority because that will free up more money for debt payment and retirement. MMM early retirement is out of the question for you right now, but you can still apply some of his principles of constant optimization.

Good luck to you!

justajane

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Re: Feel like a loser: Where to start?
« Reply #3 on: September 05, 2015, 06:59:00 AM »
Can you clarify the side gig? Right now you are spending $50 a month on that and only have a projected income of $200-$500. I would say ditch that idea for the time being and spend the time you get back lowering your other bills. With batch cooking and shopping sales, you should be able to lower your food bill considerably. I daresay you would get a better ROI that way than with a side gig that hypothetically might bring in $200. 

Jakejake

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Re: Feel like a loser: Where to start?
« Reply #4 on: September 05, 2015, 07:51:30 AM »
With batch cooking and shopping sales, you should be able to lower your food bill considerably. I daresay you would get a better ROI that way than with a side gig that hypothetically might bring in $200.
100% agreed. This is a spending problem, not an income problem.

pbkmaine

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Re: Feel like a loser: Where to start?
« Reply #5 on: September 05, 2015, 07:55:43 AM »
It would also be good to know what exactly the eldercare situation is. For example, could you all find a place (or two places) to live close to work?

Noodle

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Re: Feel like a loser: Where to start?
« Reply #6 on: September 05, 2015, 08:05:45 AM »
Agree, could you give us more specifics about what eldercare is looking like for you at this point? Depending on your family circumstances, that can range from dinner a couple nights a week and doing home repairs to daily hospital visits and handling all the driving for multiple people. That would help us in terms of making suggestions for sustainable change.

The changes that will make the biggest impact is if you can change the home/car/job/wherever you are going for eldercare situation. For instance, if the people you are taking care of are near your home, then moving closer to work isn't going to help you a lot. You might be better off looking for a job closer to home, which would also let you be comfortable with an older vehicle because the commute would be shorter. Renting could be a plus for you, not just financially, but also because then someone else is taking care of the place while you are taking care of your family.

You also need to look for low-cost options for self-care in your new home, because eldercare can be really draining and that often turns into exhausted/reckless spending. Church (if that's your bent), a support group, the library's book group, hanging with the pets...whatever gets you some mental space. As you start working through the changes people suggest, remember time is also a resource. Start with the changes that save the most money or take the least time (cellphone, for instance) and then start worrying about things that involve more time, like saving money on groceries.

The upside is that with a good salary coming in, you've got wiggle room to fix things and move ahead. Good luck!


pachnik

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Re: Feel like a loser: Where to start?
« Reply #7 on: September 05, 2015, 09:07:01 AM »
Hi there, fellow Cdn. here!

You gave us a pretty detailed break down of your expenses but are you consistently tracking your expenses?  If you aren't, start doing it now.  Don't need anything fancy - just an Excel spreadsheet or even just pen and paper.  Track consistently for a few months and review at the end of the month.  I started tracking expenses after I found this website to get an idea of where my $ was going.  I do it still today because it keeps me conscious of what I am spending $ on.

The groceries is pretty high for one person.  We are a household of 2 and our groceries come in about $300/month.  Your grocery bill sounds to me like you are eating a lot of prepared foods/convenience foods.  I don't know why you are doing this - maybe to save time?  Check out the Budget Bytes website for recipes that are good and pretty fast.  No fancy skills required either.

Stop using credit cards to shop.  Just stop it!  :)   And focus on paying them off.   

The housing is pretty expensive.  I am guessing you just bought it recently.  You really need to look at this as you know.   

Keep coming back to this website and let us know about the eldercare situation.  You will learn new ways to do things here and your attitude to money will change.  Plus you will be inspired to continue.  As an above poster said, yours is an expenses problem and not an income problem, so half the battle is already won.

Cwadda

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Re: Feel like a loser: Where to start?
« Reply #8 on: September 05, 2015, 09:39:17 AM »
This is a hair-on-fire emergency. Echo everything in Jack's post.

You will be able to do a complete 360 in just a few months if you're willing to put in the effort. I think you will.

lauren214

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Re: Feel like a loser: Where to start?
« Reply #9 on: September 05, 2015, 09:52:44 AM »
First of all, good for you that you are recognizing that your current financial situation is a problem and that you want to take steps to improve it. Honestly, that's a hard thing for most people to admit to themselves. If you're feeling overwhelmed, try starting with reducing expenses in one area at a time. Don't get discouraged and give up!

Vanchica

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Re: Feel like a loser: Where to start?
« Reply #10 on: September 05, 2015, 10:18:40 AM »
Thanks, all of you, especially the first poster even though after I read that post I backed out of the site and swore I wouldn't come back- ouch ouch ouch, thank you sir, may I have another?

I will

a- track expenses
b- work on slashing them to the bone
c- look at selling the car
d- prepare to get that billet or list on Air BnB (both of which would be about $850 a month though the AirBnb would be less predictable, I may follow a friend's tactic of focusing on long term stays). I could also get a room-mate for at least $850 a month.
e- thanks all of you, for the facepunches and especially the follow up encouragement

PS (Edit): I'll be growing my own vegetables in the spring/summer next year and have a bicycle for local trips.

Jack

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Re: Feel like a loser: Where to start?
« Reply #11 on: September 05, 2015, 10:33:33 AM »
Thanks, all of you, especially the first poster even though after I read that post I backed out of the site and swore I wouldn't come back- ouch ouch ouch, thank you sir, may I have another?

Thanks for coming back!

Could you give us some more details about your housing situation and your aging relatives' situation? I'd love to help you figure out how to get the "big-ticket savings" I mentioned at the bottom of my previous post.

d- prepare to get that billet or list on Air BnB (both of which would be about $850 a month though the AirBnb would be less predictable, I may follow a friend's tactic of focusing on long term stays). I could also get a room-mate for at least $850 a month.

For $375K, is it really only a 2-bedroom home? Or could you shove in more than one renter? Is there a basement you could finish and move into yourself, so you could rent out the entire main part of the house? How much could you rent the whole thing for if you moved out yourself?

davisgang90

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Re: Feel like a loser: Where to start?
« Reply #12 on: September 05, 2015, 10:36:50 AM »
I'll just chime in and tell you that you aren't a loser, you are a Mustachian!  You've arrived at the fount of knowledge.  Drink deep and take the good advice you've been given!

Zamboni

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Re: Feel like a loser: Where to start?
« Reply #13 on: September 05, 2015, 10:38:31 AM »
Sounds like you are getting started with you plan.  Hooray!

A lot of folks on this site swear by the expense tracking tool called You Need a Budget (YNAB for short.) You can try out on the internet for free for 30 days I think, and if you enroll in their video classes they give a free 1 year subscription out to one person each time as a prize. It has a phone app that works well for on the go tracking. Personally I just use excel, but I tried it out just to see what it was like, then bought it for a loved one who tracks other things on his phone. It took him awhile to get going with it, but, now that he's really entering everything, it's clear that some of the categories have been eye opening for him.

I hope that getting a roommate or billet or AirBnB work out for you. Some folks make a good amount of dough via AirBnB, but I've seen others flounder around pretending it is an income stream when really the money they spend on "upgrades" to make the space rentable (+ownership costs on having much more space than they need) puts them far, far into the red. So just be aware of that and be sure you are treating that like a business, which means carefully tracking both income and related expenses such as added water, electricity, maintenance, etc.

Cathy

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Re: Feel like a loser: Where to start?
« Reply #14 on: September 05, 2015, 10:42:44 AM »
For $375K, is it really only a 2-bedroom home? Or could you shove in more than one renter? Is there a basement you could finish and move into yourself, so you could rent out the entire main part of the house? How much could you rent the whole thing for if you moved out yourself?

There is one clue that this CA$375,000 home is probably not that spacious, namely the fairly low condo fee of CA$215 per month. My guess is that the home is 700-900 square feet.
« Last Edit: September 05, 2015, 10:45:46 AM by Cathy »