Author Topic: I'm new and learning, so many questions...lol  (Read 2577 times)

Fishinshawn

  • 5 O'Clock Shadow
  • *
  • Posts: 52
I'm new and learning, so many questions...lol
« on: April 22, 2016, 04:22:12 PM »
  So here is the deal on our finances, I'm sure I will need to provide a better details but here we go:
Currently we rent, our rent is $1150 a month for a 3bed 2 bath house.  My tribe reimburses us $725 of that. That $725 goes directly into a down payment account for a house and gets about a measly 1.25% interest.

We live where we do because it is near the center of town, 1 mile from my work, 1 mile to one of the kids schools, 1.5miles to a grocery store, .25 miles from a nice park.  Last summer I sold my dream Jeep wrangler, giant 4x4 gas guzzler, and purchased a 2004 Pontiac Grand prix. Unfortunately I didn't research the mustache life until recently and didn't realize that it would only get me 15-16 around town and that I still needed a punch in the face.  Our other vehicle is a 2007 Toyota Seinna, automatic v-6 that gets worse mileage around town and the highway.

We paid cash for both vehicles, we have no debt what so ever. we have 20K in a long term savings(our down payment fund) and another 10K in a CD that expires soon.  That leaves on any given day about 3-5K combined in a checking and savings account at the local credit union where bills are automatically taken out.

Our gas consumption right now is budgeted for $100 a month total, for both vehicles. We have 4 children at home 3 in car seats and 1 teenager. Im doing my best to minimize my gas consumption, walking as often as possible to pick up children or to check the mail.   We purchased the Grand Prix and immediately ended up having to put 2 tires on it and some brakes. So after purchase, tires, alignment, and brakes we are in it for about 4600. We sold my jeep for 8250, which was $500 more then I paid for it.  The idea with the grand prix was that it easily fit 3 car seats across the back, and honestly I liked the style and peppy engine. I'm doing my best to look at both vehicles as just money sucks, and hating to drive them. I grew up in a culture of loving automobiles, the bigger the better, the more off road prowess the better. So it is completely against my nature to want to purchase a scion or matrix, which is basically what I am thinking of doing. Anyway my wife feels we would be lucky to get 3600-4000 for the grand prix, and locally a scion, matrix or similar 4 door hatch is going to run about 5000 with about 100K miles on it. Her feeling is that our gas bill is so low it doesn't make sense to take essentially a $1000 loss on the car to save at most $50/mn on gas. What is your opinion on this?


PowerMustache

  • Stubble
  • **
  • Posts: 129
  • Age: 34
  • Location: Seattle
Re: I'm new and learning, so many questions...lol
« Reply #1 on: April 22, 2016, 04:46:51 PM »
Hi Fishinshawn, first of all good job on having a positive net worth that is increasing over time. That puts you in a good position already relative to lots of people. Also, good job for even considering moving to a scion or matrix. I know how strong car culture can be and it is a big step to convince yourself it is a good idea at all.

To evaluate your car decision, you should not directly consider money that you have already spent on the Grand Prix; those are 'sunk costs', and it is a common error to consider sunk costs in any investment decision.

If I were you, I would write down all of the expected future costs of each scenario and compare them. You already mentioned gas, but what about expected repairs and insurance? Would those be the same with both cars? You could come up with an expected payoff period for switching cars.

I don't know cars well enough to plug in the correct numbers, but below is a template of what I would do. I know repairs are hard to estimate, but you can probably get an idea if you understand the reliability reputation and age of each car. While you should not directly include the previous repair expenses in the comparison, you can also take into account that you have recently repaired the Grand Prix and thus it's expected future repair costs will likely be lower, at least in the short term.

Scenario 1: Keep the Grand Prix

Up-front cost: $0 (since you just keep what you already have)
Gas: $x/month
Repairs: $y/month
Insurance: $z/month
Total Scenario 1 cost after m months: $0 + (x+y+z)*m



Scenario 2: Sell the Grand Prix, get a scion or matrix

Up-front cost: [Purchase Price of Scion or Matrix] - [Selling price of Grand Prix] (about $1000 according to your numbers)
Gas: $a/month
Repairs: $b/month
Insurance: $c/month

Total Scenario 2 cost after m months: $1000 + (a+b+c)*m


If you plug in your estimates for gas, repairs, and insurance of each (and any other monthly costs I am forgetting), you can try different values for "m" and get an idea of your relative economic situation after different amounts of time in the future. With the numbers you have already provided, assuming Gas is the only difference in cost per month and repairs and insurance are the same, then the payoff period would be 20 months (in 20 months you will be exactly the same financially in either scenario. After that, you will be better off with the Scion/Matrix option). So, switching cars would pay off in less than 2 years. That's not too bad, and I would go for it, but others may decide differently.

Hope this helps!

chemistk

  • Bristles
  • ***
  • Posts: 360
Re: I'm new and learning, so many questions...lol
« Reply #2 on: April 22, 2016, 05:57:20 PM »
I'll keep my thoughts short and sweet. If I were you, I would look into selling the grand prix. I want to preface this by saying that you probably don't have to since otherwise, your finances are I order.

Selling the pontiac? If I were a betting man, I would say that you're going to be running into trouble with it if you haven't already. Early 00's GM is not known for its reliability.

I would keep the Toyota. It has the space for everyone right now and you can always find uses for the cargo capacity of a minivan.

The question then is whether you need another car right now. You could take the proceeds of the sale and put it towards the house, or you could try to find something more efficient and reliable. In the end you're looking more at long term gains with the swap than short term gains. After all the transactions, it's going to be a wash for a while. In this instance, your wife is totally correct.

Bottom line: long term benefits for short term hassle.

lhamo

  • Walrus Stache
  • *******
  • Posts: 9547
  • Location: Seattle
Re: I'm new and learning, so many questions...lol
« Reply #3 on: April 22, 2016, 06:06:20 PM »
First, a quick question about the plan to buy the house:  will you continue to get money from your tribe if you are paying a mortgage rather than renting?  If not, I would seriously question whether buying your own place is a good deal.  You pay virtually nothing for housing in a convenient location currently.  What advantages would buying get you.

Second, do you really need two cars? Sounds like most everything you need access is in close proximity.  Can you walk or bike to work and leave the car with your partner?  Might be worth experimenting with one car for awhile to see if you can make it work.

Fishinshawn

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: I'm new and learning, so many questions...lol
« Reply #4 on: April 22, 2016, 06:12:25 PM »
Thanks for the input so far, I appreciate it. We def. keeping the toyota, it has been drop dead reliable and only has like 90K miles on it. For reference the pontiac also has reasonably low miles at 122,000....Admittedly I know GM cars seem prone to tranny issues, but so far it just needed the brakes/tires done...Lucky I reckon. With the small amount of driving I do, I guess it isn't a huge issue. 

I wanted to add more of our budget, but everyone at home has the flu and I'm feeling really foggy and I don't want to make errors that throw answers to my questions.  We are a 1 income family, and I just got a raise at work, bumped me up to 61,000/yr.  I'm also in school part time some terms, full times on others, and end up with 1200-2000 extra in college grants every term.  That money to date has gone into our long term savings. Im working with the wife to really streamline our spending, she has always been the primary money manager because well she is better at it then me, because I don't want ot buy a house and end up becoming house "poor"....The end goal for down payment is 40K on a 200K house, but running them numbers on our salary it is looking less likely to happen. We will need closer to 80K down on a 200K house to insure our house payment isn't to high...

Fishinshawn

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: I'm new and learning, so many questions...lol
« Reply #5 on: April 22, 2016, 06:14:10 PM »
First, a quick question about the plan to buy the house:  will you continue to get money from your tribe if you are paying a mortgage rather than renting?  If not, I would seriously question whether buying your own place is a good deal.  You pay virtually nothing for housing in a convenient location currently.  What advantages would buying get you.

Second, do you really need two cars? Sounds like most everything you need access is in close proximity.  Can you walk or bike to work and leave the car with your partner?  Might be worth experimenting with one car for awhile to see if you can make it work.

No, we would get a lump sum down payment of 15-20K.

lhamo

  • Walrus Stache
  • *******
  • Posts: 9547
  • Location: Seattle
Re: I'm new and learning, so many questions...lol
« Reply #6 on: April 22, 2016, 06:42:20 PM »
First, a quick question about the plan to buy the house:  will you continue to get money from your tribe if you are paying a mortgage rather than renting?  If not, I would seriously question whether buying your own place is a good deal.  You pay virtually nothing for housing in a convenient location currently.  What advantages would buying get you.

Second, do you really need two cars? Sounds like most everything you need access is in close proximity.  Can you walk or bike to work and leave the car with your partner?  Might be worth experimenting with one car for awhile to see if you can make it work.

No, we would get a lump sum down payment of 15-20K.

You're currently getting $8700/year in rent reimbursement. Are those payments set to end in 2-3 years?  If so, then maybe buying makes sense.  If not, then it is hard to see how buying is going to be a better deal for you financially.

[Edited to fix funky quoting format....]
« Last Edit: April 23, 2016, 08:26:33 AM by lhamo »

Fishinshawn

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: I'm new and learning, so many questions...lol
« Reply #7 on: April 22, 2016, 09:50:14 PM »
  The tribe could always change its program, but thats unlikely.  It is designed to help mid income families, we won't have to leave the program until the children are moved out or I make an additional 17K per year.  We rae however gearing up, the tribe is developing another business enterprise which I will likely get a nice promotion, that will push me out of that program and into the buying a house one.  It will also necessitate a move to an urban center about 5 hours away.  That is when we plan on buying, going to look for something that is biking distance to work and grocery shopping.

  Our current situation is unique, the area we rent in exploded about a year after we moved in and comps to our house are renting at 1550-1700 month.  We have a good relationship with the landlord, and put a lot of sweat equity into the house, because we believe in making things nicer then when we got there, so I'm hoping it doesn't happen but if the landlord wanted to she could rent our house now for 1700 pretty easy, and again we rent at 1150.  If that happens, we will have to quickly assess our options because currently we are predicting a move/promotion on a 15mn timeline. 

I hope we are doing this smart, banking every windfall we get, our only real luxury is that we save for 2 week long vacations a year. Summer usually costs us about $1000 and winter is about $1500 or so. We do the winter vacation in lieu of christmas presents, we aren't christian, and the memories last longer.