Reader Case Study- How to Mustachian my current Budget?

[msnell]

Hello everyone,

I'm new to MMM as a blog and as a Forum. Would love some input on how I can fix this train wreck of household management. I am 24 years old, married with a 5 week old. I work in the finance industry- a perfect example of the cobblers kids being without shoes. I am a partner that business, but didn't include the illiquid asset on the information below. My wife is 29 and is staying home with our newborn for the time being. We have been in our home for 2 years and don't want to move.  My main hangup is that I know I have discretionary income, but it just doesn't feel like it. Any suggestions would be appreciated (gloves on or off)

Monthly Expenses   
Home Loan           1,068
Student Loan            57
Car Loan for CRV    240
Credit Card #1      62
Credit Card #2           150
Health Insurance    418
Internet                    45
Electricity and Gas    180
Water                     35
Gas                            135
Verizon                     140 (am exploring option of switching to Ting)
Life Insurance            125
Car Insurance            151
Food                            450
Tithe                            300
Total Expenses    3,556
   
Current Net Income    3,449
Other Income (Woodwork)   Varies

Total Liabilities:
Home Loan: $181,900   Rate=3.25%
Student Loan: $3,466   Rate=4.25%
Credit Card #1: $2,850  Rate= 17.24%
Car Loan: $5,525           Rate= 5.25%
Credit Card #2: $2,485  Rate= 24.99%

These are in reverse order of rank. I am paying down Credit Card #2 as aggressively as I can, but with a budget that has negative cash flow, it isn't at an emergency pace.

Total Assets:
Home:            $205,000
07 CRV:          $17,000
92 Accord:      $2,000
99 Silverado: $2,000
401k:             $2,500
Pension:        $5,000

Thanks to anyone for their suggestions.

Mills

[MustachianAccountant]

That life insurance seems pretty high per month.
And an easy one to fix.
Go get a 20 year term life insurance policy. If you're serious about Mustachianism, you'll have a nice stache in 20 years, and won't need life insurance any more.

(I'm guessing you bought a whole/universal life policy from a friend/relative?)

That's the first easy thing that jumped out at me.

(Car insurance seems high too. Should be in the $40-60/month range, I think...)

[msnell]

That life insurance seems pretty high per month.
And an easy one to fix.
Go get a 20 year term life insurance policy. If you're serious about Mustachianism, you'll have a nice stache in 20 years, and won't need life insurance any more.

(I'm guessing you bought a whole/universal life policy from a friend/relative?)

That's the first easy thing that jumped out at me.

MustachianAccountant- Close, but not quite! Honestly, a sharp guess.

My dad passed away at 55 with a heart attack (putting me into a standard rating), and my wife was pregnant when we ran the quotes(putting her at standard). We both have 20 year term policies though. I am working on exploring new policies because we are both healthy.

Very thankful for the tip and the reminder!

[msnell]

Would also be curious about the auto insurance tip!? We pay $151 for 3 vehicles, two of which are paid off. I'll track down an additional quote for comparison.

[warfreak2]

Why do you have three cars? Sell the CRV immediately, if it's really worth $17k then it will wipe out all your debts besides the mortgage.

[MissStache]

Well the first thing that jumps out at me is your tithing.  I'm not religious so I don't get that, but it seems like it isn't really smart (or morally ethical?) to give SO MUCH MONEY when you are in a debt emergency.  I'm certain you feel passionately about it, but there has got to be a way that you can lower that.  Can you give time and/or effort instead of money?  I'm sure your church needs volunteers to do stuff and surely that is as valuable as money?  Once you've gotten your debt emergency under control, you can look at ramping back up the monetary donations.

Your car insurance is really high- have you shopped around for a better rate or can you raise your deductibles?

Food budget is WAY high.  You can get that down to $350 easily and even lower with a bit of effort.

Verizon.  OUCH.  Get rid of that now.  That is crazy high!  Ting, Republic Wireless, something! 

And why- WHY!?- do you have three cars?  You cannot afford that CRV.  Can you sell it?

There is a good bit of fat to trim for your budget, and I really commend you for doing it, especially with the new baby (congrats!) which I'm sure is terrifying and hard and wonderful. 

Are there any plans for your wife to go back to work after a while?  Can she earn any income from home?

[bugbaby]

++++1

Facepunch alert for ridiculous clown car!!

Sell the CRV yesterday. Not only all your debts go away, your cash flow instantly increases by 500 a month (paymentss +lower car insurance). then save 200 a month towards a mustachian car - http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/

If your wife is home she should find ways to cut the food budget to <300 by smart cooking, shopping bulk etc. this topic has been covered exhaustively in other threads.

[lackofstache]

I'll add another "GET RID OF THE CRV." Sell it & payoff your other debts. Then you can be in the positive and at least have a bit of breathing room to figure everything else out.

[msnell]

Why do you have three cars? Sell the CRV immediately, if it's really worth $17k then it will wipe out all your debts besides the mortgage.

WarFreak- The 92 accord has 250k miles, and the 99 Silverado has 200k. Both of them are on the verge of calling it quits, but both of them are paid off. I use the truck weekly, especially on weekends. The Accord gets great gas mileage and I couldn't replace it for twice what it is worth.

Interesting thought on the CRV though, definitely has been a blind spot. I'll do some more digging.

Thanks!

Miss Stache-

Well the first thing that jumps out at me is your tithing.  I'm not religious so I don't get that, but it seems like it isn't really smart (or morally ethical?) to give SO MUCH MONEY when you are in a debt emergency.  I'm certain you feel passionately about it, but there has got to be a way that you can lower that.  Can you give time and/or effort instead of money?  I'm sure your church needs volunteers to do stuff and surely that is as valuable as money?  Once you've gotten your debt emergency under control, you can look at ramping back up the monetary donations.

Your car insurance is really high- have you shopped around for a better rate or can you raise your deductibles?

Food budget is WAY high.  You can get that down to $350 easily and even lower with a bit of effort.

Verizon.  OUCH.  Get rid of that now.  That is crazy high!  Ting, Republic Wireless, something! 

And why- WHY!?- do you have three cars?  You cannot afford that CRV.  Can you sell it?

There is a good bit of fat to trim for your budget, and I really commend you for doing it, especially with the new baby (congrats!) which I'm sure is terrifying and hard and wonderful. 

Are there any plans for your wife to go back to work after a while?  Can she earn any income from home?

Appreciate the candor on tithing.

Going to shop on auto insurance.

Food- noted.

Verizon- It's worse than you think. That is for 1 phone. Changes in the works.

Cars- See notes above. We have 3 since 2 are paid off. Terrible logic, I know.

And thanks for the encouraging words. My wife doesn't want to, but I am trying to find things she would be interested in doing from home. Anyone have links to a thread that discusses?

Thanks again!

[MustachianAccountant]

Would also be curious about the auto insurance tip!? We pay $151 for 3 vehicles, two of which are paid off. I'll track down an additional quote for comparison.

I'm not sure, but I don't think whether or not a car is paid off affects your rates. Having three cars does though. And you probably need to drop some components of the insurance (collision? comprehensive? the name escapes me) and, yes, SELL AT LEAST ONE CAR. (The CRV. But everyone already said that.)
From what I've heard, Geico is fairly cheap.

[warfreak2]

5.25% is ridiculous for buying a car, but you have two credit cards much higher at 17% and 25%. Sell the CRV, kill those your hair is on fire credit cards debt, and if you really really need a truck because it actually brings more money in than it costs to run, finance another one (preferably one which is cheaper) at 5.25% and you're still much better off. But what do you use the truck for if you work in finance?

[msnell]

5.25% is ridiculous for buying a car, but you have two credit cards much higher at 17% and 25%. Sell the CRV, kill those your hair is on fire credit cards debt, and if you really really need a truck because it actually brings more money in than it costs to run, finance another one (preferably one which is cheaper) at 5.25% and you're still much better off. But what do you use the truck for if you work in finance?

WarFreak- Sorry, I thought I included that before. Woodworking. I do odd jobs on the side, building furniture and cabinets.

[warfreak2]

Sell the CRV and one other car, pay cash for a second hand van. When the other car craps out, you'll have saved enough to buy a decently-mustachian second hand car to replace it.

[GregO]

Monthly Expenses   
Car Loan for CRV    240
Credit Card #1      62
Credit Card #2           150
Car Insurance            151 100

Total Expenses    3,556 3,053
   
Current Net Income    3,449
Other Income (Woodwork)   Varies

Total Liabilities:
Home Loan: $181,900   Rate=3.25%
Student Loan: $3,466   Rate=4.25%
Credit Card #1: $2,850  Rate= 17.24%
Car Loan: $5,525           Rate= 5.25%
Credit Card #2: $2,485  Rate= 24.99%

Total Assets:
Home:            $205,000
07 CRV:          $17,000
92 Accord:      $2,000
99 Silverado: $2,000
Cash      $8,000

I'm sure your wife drives the CRV with the baby and you (and/or her) are reluctant to sell it.  But if you don't want to make her drive the other two cars, you can still sell the CRV, pay off the debts, and have $8,000 for another car.  As I laid out above, you will immediately have cash and a positive cash flow just from that one move!  You can still use that $8k to buy some combo of a nice used car, build an emergency fund, and/or pay off SL debt.  And even better, you now have a $400/ month surplus in your monthly budget.

And if you do insist on owning 3 cars, make sure you only have liability coverage on the accord and truck.  But look at the insurance quotes and realize what it's costing you in insurance (and DMV fees) to own those extra cars.  They don't depreciate much at this point, but there's still recurring costs (and maintenance costs) that will continue to cost you money.

[msnell]

Monthly Expenses   
Car Loan for CRV    240
Credit Card #1      62
Credit Card #2           150
Car Insurance            151 100

Total Expenses    3,556 3,053
   
Current Net Income    3,449
Other Income (Woodwork)   Varies

Total Liabilities:
Home Loan: $181,900   Rate=3.25%
Student Loan: $3,466   Rate=4.25%
Credit Card #1: $2,850  Rate= 17.24%
Car Loan: $5,525           Rate= 5.25%
Credit Card #2: $2,485  Rate= 24.99%

Total Assets:
Home:            $205,000
07 CRV:          $17,000
92 Accord:      $2,000
99 Silverado: $2,000
Cash      $10,000

I'm sure your wife drives the CRV with the baby and you (and/or her) are reluctant to sell it.  But if you don't want to make her drive the other two cars, you can still sell the CRV, pay off the debts, and have $10,000 for another car.  As I laid out above, you will immediately have cash and a positive cash flow just from that one move!  You can still use that $10k to buy some combo of a nice used car, build an emergency fund, and/or pay off SL debt.  And even better, you now have a $400/ month surplus in your monthly budget.

And if you do insist on owning 3 cars, make sure you only have liability coverage on the accord and truck.  But look at the insurance quotes and realize what it's costing you in insurance (and DMV fees) to own those extra cars.  They don't depreciate much at this point, but there's still recurring costs (and maintenance costs) that will continue to cost you money.

GregO: Very very helpful to see it laid out that way. Accurate insight into the wife and baby sensitivity!  Since you guys have been suggesting selling the CRV I have been doing some research. Compelling evidence all around.

Thanks again.

[MsSindy]

.......
And thanks for the encouraging words. My wife doesn't want to, but I am trying to find things she would be interested in doing from home. Anyone have links to a thread that discusses?

Don't try to find things for her to do from home right now - now is not the time!  Let her enjoy being home with the baby, adjusting to motherhood.  Let her focus on optimizing the household (groceries are a good place to start!).  Once she has time to breathe, THEN bring up the subject.  Surely you guys discussed a plan of whether she would stay home or go back to work BEFORE you had the baby, no?

[GregO]

GregO: Very very helpful to see it laid out that way. Accurate insight into the wife and baby sensitivity!  Since you guys have been suggesting selling the CRV I have been doing some research. Compelling evidence all around.
Thanks again.

I'm glad it was helpful, but I did make a mistake.  You would actually have $7000 left after paying off all the debts.  I'm not sure how I came up with $10k, but I should have checked my numbers a little closer.  It doesn't change my opinion, but does reduce the money left over for another car.

Good luck.  I'm sure it'll all work out great for you and your new family.  Congrats!

[Milspecstache]

For car insurance, at least keep the deductible at $1000 which will help reduce your costs (as you should have at least $1000 available via an emergency fund).

I switched from Verizon ($65/mo) to Tmobile ($50/mo) to Republic Wireless ($10/mo).

If the truck is making money then it becomes an asset and not a liability.

[Rebecca Stapler]

I support all the previous posters' suggestions to sell the CRV, but would like to add that if you do it, you will have truly Mustacian-ed your budget. Yes, there are the little expenses that you can -- and should -- cut down. But the quintessential sign that you've come over to the Mustacian side is selling a car :P

[La Bibliotecaria Feroz]

We actually just sold OUR CRV! It can be tricky to sell a car with a lien; escrow.com is one option or what we did was take it to We Buy Any Car. They paid about $4K over what the "stealership" had offered us.

I see why people would say that it's a bad time to suggest that your wife start working from home, and I do get that. But I started working part-time from home while I was pregnant (we moved and I quit my job) and I was back at the laptop in less than a week after giving birth! I really enjoy putting my feet up with a cup of coffee and making a little money. So it might be something to talk about within the next month or two. Bonus: It keeps there from being such a giant gaping hole in the resume.

That said, it only works if baby is a good sleeper. Sleep comes first! And it also only works if YOU are willing to do a little more. Maybe say, "Honey, if you want to get a little work done, I'll put baby in the bouncy seat/Ergo/etc. and make dinner," or take baby grocery shopping with you while your wife works or catches up on chores.

I did a blog post about the advantages and disadvantages of my online job, Leapforce At Home, so that I would never have to type it all out again :-). I hope it's not a taboo to post a link: http://frugalparagon.com/2014/02/05/why-the-frugal-paragon-loves-leapforce-at-home/

Please note that the link to Leapforce in that post is a paid referral link (only if people sign up and earn a paycheck), so if anyone reading this is interested, help a fellow Mustachian out, huh?

Congrats on your new baby and best of luck!

[homehandymum]

I see why people would say that it's a bad time to suggest that your wife start working from home, and I do get that. But I started working part-time from home while I was pregnant (we moved and I quit my job) and I was back at the laptop in less than a week after giving birth! I really enjoy putting my feet up with a cup of coffee and making a little money. So it might be something to talk about within the next month or two. Bonus: It keeps there from being such a giant gaping hole in the resume.

That said, it only works if baby is a good sleeper. Sleep comes first! And it also only works if YOU are willing to do a little more. Maybe say, "Honey, if you want to get a little work done, I'll put baby in the bouncy seat/Ergo/etc. and make dinner," or take baby grocery shopping with you while your wife works or catches up on chores.

YMMV on this!  My SIL did this with her first baby, and frankly she is superwoman.  Her baby slept predictably and she has a VERY high drive to be achieving visible stuff, so nobody was surprised she pulled it off.  (Her baby #2 had colic, however, and that was a completely different kettle of fish).

Me, however?  Well, a baby that doesn't sleep that well, and undiagnosed post-natal depression.  If my DH had suggested that now that I was home all day it would be a great opportunity to work from home, well, I can't imagine how I would have reacted but it would not have been good! 

Having said that, I did cook from scratch and line-dry clothes, and we dropped to one car at this point, so we did make lots of changes to accommodate me being at home - both to take advantage of it, and to mitigate the financial loss.

[Neustache]

I see why people would say that it's a bad time to suggest that your wife start working from home, and I do get that. But I started working part-time from home while I was pregnant (we moved and I quit my job) and I was back at the laptop in less than a week after giving birth! I really enjoy putting my feet up with a cup of coffee and making a little money. So it might be something to talk about within the next month or two. Bonus: It keeps there from being such a giant gaping hole in the resume.

That said, it only works if baby is a good sleeper. Sleep comes first! And it also only works if YOU are willing to do a little more. Maybe say, "Honey, if you want to get a little work done, I'll put baby in the bouncy seat/Ergo/etc. and make dinner," or take baby grocery shopping with you while your wife works or catches up on chores.

YMMV on this!  My SIL did this with her first baby, and frankly she is superwoman.  Her baby slept predictably and she has a VERY high drive to be achieving visible stuff, so nobody was surprised she pulled it off.  (Her baby #2 had colic, however, and that was a completely different kettle of fish).

Me, however?  Well, a baby that doesn't sleep that well, and undiagnosed post-natal depression.  If my DH had suggested that now that I was home all day it would be a great opportunity to work from home, well, I can't imagine how I would have reacted but it would not have been good! 

Having said that, I did cook from scratch and line-dry clothes, and we dropped to one car at this point, so we did make lots of changes to accommodate me being at home - both to take advantage of it, and to mitigate the financial loss.

Yep, and it can vary baby to baby.  With my first I was a mess hormonally, stressed, and having a super rough time of it without the added stress of being expected to produce income.  With my second I was working away merrily at my part-time job while he snoozed on my chest as I could still type on my laptop while he did that.  I got a lot of work done those first few weeks!  But I would not put any expectations on how it will go.  You just don't know until you are there!

[zarfus]

Monthly Expenses   
Car Loan for CRV    240
Credit Card #1      62
Credit Card #2           150
Car Insurance            151 100

Total Expenses    3,556 3,053
   
Current Net Income    3,449
Other Income (Woodwork)   Varies

Total Liabilities:
Home Loan: $181,900   Rate=3.25%
Student Loan: $3,466   Rate=4.25%
Credit Card #1: $2,850  Rate= 17.24%
Car Loan: $5,525           Rate= 5.25%
Credit Card #2: $2,485  Rate= 24.99%

Total Assets:
Home:            $205,000
07 CRV:          $17,000
92 Accord:      $2,000
99 Silverado: $2,000
Cash      $10,000

I'm sure your wife drives the CRV with the baby and you (and/or her) are reluctant to sell it.  But if you don't want to make her drive the other two cars, you can still sell the CRV, pay off the debts, and have $10,000 for another car.  As I laid out above, you will immediately have cash and a positive cash flow just from that one move!  You can still use that $10k to buy some combo of a nice used car, build an emergency fund, and/or pay off SL debt.  And even better, you now have a $400/ month surplus in your monthly budget.

And if you do insist on owning 3 cars, make sure you only have liability coverage on the accord and truck.  But look at the insurance quotes and realize what it's costing you in insurance (and DMV fees) to own those extra cars.  They don't depreciate much at this point, but there's still recurring costs (and maintenance costs) that will continue to cost you money.

GregO: Very very helpful to see it laid out that way. Accurate insight into the wife and baby sensitivity!  Since you guys have been suggesting selling the CRV I have been doing some research. Compelling evidence all around.

Thanks again.

That was what I was about to suggest.  You should be able to find something like an 05 escape with ~100k miles for $5-6k.  Plenty of safety and reliability.

[Jules13]

What about things like toiletries and household essentials (soap/laundry and dishwashing stuff/etc) and clothes/shoes/haircuts and office supplies like tape/postage/paper and gifts and diapers?  Where are the diapers for your newborn?

I feel like there is a lot missing from your expenses.  Maybe I just have more categories.