Author Topic: Living above means need to get out  (Read 2641 times)

deific

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Living above means need to get out
« on: March 09, 2017, 06:47:32 AM »
I'm a father of 3 young kids living in Connecticut, I make a good income $150 - 200k depending on year end bonus (which is 50% of my pay). For whatever reason I've been living above our families means. Moved to a large house a year ago (I did put 20% down), have 2 newer cars, 2013, with monthly payments just over $1k/m.

My wife works a limited amount of hours a week but I believe this actually costs us money. She is considering leaving work, preferably before school is out, or else I'll be paying for daycare. If this is to happen I need to scrub off some monthly expense. The one expense I'm focused on is my car payment which is $600 a month. I have a few options but 2 of them I'd like to explore.

1. Pay off the remaining $8k, then refinance at current bank over 36 months. Which would reduce this down to ~$200/m and I could pay off the remaining at year end. I have the savings from my previous years bonus but I need this to cover my mortgage for the remainder of the year.
2. Use $8k of my Roth 401k to pay this off.
3. Stop contributing to 401k to pay it off faster (I currently have about 12 months left)
4. Sell vehicle, which is an option but I'm not sure if I want to explore this right now.

I'm really only considering option 1, 2, 3 right now but I do have my eye out for a lower priced used vehicle that is reliable. Everyone has their own balance of Mustachianism and I'm working my way to get there.

Some might suggest selling my house, but selling my house does not make financial sense to me right now because I would lose so much to realtor fees, but it will be in the works eventually. Also note that this isn't the only step I'm taking, as far as cleaning up wasted expenditures.

Your response is greatly appreciated. Thank you.

RWD

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Re: Living above means need to get out
« Reply #1 on: March 09, 2017, 07:04:47 AM »
You may want to write up a case study. Without specific numbers it can be hard to give specific advice. For example, we would really need to know your mortgage and car loan balances and interest rates to be able to tell you whether it's worth not contributing to a 401k to pay them down faster.

Some general thoughts though... At $150-200k of income you should still be saving a ton of money even with a largish house and a couple car payments. Just how big/expensive is this house? What are your other expenses? Tracking your expenses can be a good way to find out how you're leaking money. Also, in your tax bracket a Traditional 401k is almost certainly going to be more efficient than a Roth 401k, assuming you have access to both.

Unless you have a cash flow problem you should probably think less about what your "monthly payments" are and more about what your interest rate is and what the current value of your cars are. An interesting thought experiment is to imagine you didn't have one of the cars and then consider whether you would buy one just like it for how much you think you could sell it for used. If you wouldn't then you should sell it and possibly replace it with something different.

OthalaFehu

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Re: Living above means need to get out
« Reply #2 on: March 09, 2017, 07:14:07 AM »
I agree with the above post, do a case study, you will need to provide more specifics, but you will get plenty of feedback and good advice.

zinnie

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Re: Living above means need to get out
« Reply #3 on: March 09, 2017, 07:29:00 AM »
I agree that more details or a case study would help people give you specific advice on the cars, but to respond generally: the title of your thread is "living above means." Your #1 financial priority needs to be to get your expenses lower than your income. That isn't even Mustachianism, that's finance 101.

Where is ALL of your money going? The cars and house seem like potentially some of the bigger targets, but I would start where you can have some quick wins. Pay for cable? Gone. Subscribe to any monthly or "box" services? Axed. If you want to continue on this kind of path, owning two newish cars that you had to finance to afford is generally not going to be an option. You can deal with them now or later, but the mental attachment to them has to go ASAP.

deific

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Re: Living above means need to get out
« Reply #4 on: March 09, 2017, 08:14:21 AM »
You may want to write up a case study. Without specific numbers it can be hard to give specific advice. For example, we would really need to know your mortgage and car loan balances and interest rates to be able to tell you whether it's worth not contributing to a 401k to pay them down faster.

Some general thoughts though... At $150-200k of income you should still be saving a ton of money even with a largish house and a couple car payments. Just how big/expensive is this house? What are your other expenses? Tracking your expenses can be a good way to find out how you're leaking money. Also, in your tax bracket a Traditional 401k is almost certainly going to be more efficient than a Roth 401k, assuming you have access to both.

Unless you have a cash flow problem you should probably think less about what your "monthly payments" are and more about what your interest rate is and what the current value of your cars are. An interesting thought experiment is to imagine you didn't have one of the cars and then consider whether you would buy one just like it for how much you think you could sell it for used. If you wouldn't then you should sell it and possibly replace it with something different.
RWD,
Thanks for your reply, I didn't think a reply would be that easy... I'll consider a case study. But, my interest rates are fairly low car is 1.74%, wifes van is similar, mortgage is 4.25%. My house isn't that big, $410k $328k loan. I don't save anything..., I am just scraping by to get through the year. For example, I use Fidelity, if I look at my Expense Analysis, I've spent $45k in the last 3 months, granted the holidays are there... I have a lot of low hanging fruit. But at the end of last year was the first time I've ever not been able to pay credit card bills and had to roll them until bonus was paid, and I can't deal with that level of stress...

deific

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Re: Living above means need to get out
« Reply #5 on: March 09, 2017, 08:28:45 AM »
I agree that more details or a case study would help people give you specific advice on the cars, but to respond generally: the title of your thread is "living above means." Your #1 financial priority needs to be to get your expenses lower than your income. That isn't even Mustachianism, that's finance 101.

Where is ALL of your money going? The cars and house seem like potentially some of the bigger targets, but I would start where you can have some quick wins. Pay for cable? Gone. Subscribe to any monthly or "box" services? Axed. If you want to continue on this kind of path, owning two newish cars that you had to finance to afford is generally not going to be an option. You can deal with them now or later, but the mental attachment to them has to go ASAP.
Thanks for your reply. Prior to moving we never really had to worry about a "budget" and would just free spend almost anything we wanted. I understand the concept of "budgets", and I should as I'm in a bit of a "cobblers children have no shoes" situation...
I'm working on figuring out where all my money goes. My car is certainly a big target, my wifes isn't much of one because my limit is I believe I need the reliability and safety of a new car, I don't have cable but I do have an internet connection @ $90 a month which is high but its the only service in the area I'm seeing if I can bail and have my wife open up the service at a lower rate. I don't do box services. My wife has a cell phone @ $90 mine is covered by work. Preschool is $710/ month, kids also do a number of activities dance, gymnastics, sports (sports are the cheap ones), I have no gym membership.

CmFtns

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Re: Living above means need to get out
« Reply #6 on: March 09, 2017, 08:39:19 AM »
Like others have said give all the information in a case study

Your problem is not the few thousand per month that's going to mortgage and car payments... your problem is where the hell is the other $100k+ to $150k+ per year going. The car payment is just one of I assume a whole hell of a lot of waste and low hanging fruit. Can't really help with this info.

deific

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Re: Living above means need to get out
« Reply #7 on: March 09, 2017, 08:40:51 AM »
Like others have said give all the information in a case study

Your problem is not the few thousand per month that's going to mortgage and car payments... your problem is where the hell is the other $100k+ to $150k+ per year going. The car payment is just one of I assume a whole hell of a lot of waste and low hanging fruit. Can't really help with this info.
Ok, thank you. I need my tax info to post a case study, I will get that soon.

RWD

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Re: Living above means need to get out
« Reply #8 on: March 09, 2017, 09:32:25 AM »
You may want to write up a case study. Without specific numbers it can be hard to give specific advice. For example, we would really need to know your mortgage and car loan balances and interest rates to be able to tell you whether it's worth not contributing to a 401k to pay them down faster.

Some general thoughts though... At $150-200k of income you should still be saving a ton of money even with a largish house and a couple car payments. Just how big/expensive is this house? What are your other expenses? Tracking your expenses can be a good way to find out how you're leaking money. Also, in your tax bracket a Traditional 401k is almost certainly going to be more efficient than a Roth 401k, assuming you have access to both.

Unless you have a cash flow problem you should probably think less about what your "monthly payments" are and more about what your interest rate is and what the current value of your cars are. An interesting thought experiment is to imagine you didn't have one of the cars and then consider whether you would buy one just like it for how much you think you could sell it for used. If you wouldn't then you should sell it and possibly replace it with something different.
RWD,
Thanks for your reply, I didn't think a reply would be that easy... I'll consider a case study. But, my interest rates are fairly low car is 1.74%, wifes van is similar, mortgage is 4.25%. My house isn't that big, $410k $328k loan. I don't save anything..., I am just scraping by to get through the year. For example, I use Fidelity, if I look at my Expense Analysis, I've spent $45k in the last 3 months, granted the holidays are there... I have a lot of low hanging fruit. But at the end of last year was the first time I've ever not been able to pay credit card bills and had to roll them until bonus was paid, and I can't deal with that level of stress...
At 1.74% interest I wouldn't even consider trying to pay down the car loans. That's practically free money. Your cars are probably worth ~$15k each so at your income level there's not much to save by downsizing to older/cheaper cars either (unless one of them is a huge gas-guzzling SUV or something).

My rough calculations show you should have at least $100k/year after tax. $12k/year goes to car payments, maybe $26k/year in mortgage/property tax/insurance. So that leaves at least $62k/year which is disappearing somewhere. You absolutely need to figure this part out. If you don't know what's happening here then even getting rid of both your car payments isn't going to help because you're spending everything that's left over regardless of how much that is.

For comparison, my wife and I (no kids) also make about a combined $150k. We spent about $45k last year (of which ~$10k went towards debt principal reduction). We have one $500/month car payment and a ~$1650/month mortgage.

lisa_mustache

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Re: Living above means need to get out
« Reply #9 on: March 09, 2017, 09:52:21 AM »
Ok, thank you. I need my tax info to post a case study, I will get that soon.

It can even be easier than that.  I am only 2 months into Mustachianism, and setting up a (free) account on Mint was amazingly simple and eye-opening.  It imports your spending from all of your accounts, and takes a stab at categorizing it into budget categories.  It doesn't go back super far, so you may need to supplement categories for less-frequent expenditures, but it will help with filling out the case study worksheet.  And it really will make some mindless spending stick out, which then makes it easy to recognize and modify.  I always thought budgeting would be confining, but I'm finding it to be liberating!  I know that I have budget for what I'm spending and that will still allow me to save.  Plus it's been fun making a game out of beating the budget.

researcher1

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Re: Living above means need to get out
« Reply #10 on: March 09, 2017, 09:54:04 AM »
I don't save anything..., I am just scraping by to get through the year.  I look at my Expense Analysis, I've spent $45k in the last 3 months, granted the holidays are there... But at the end of last year was the first time I've ever not been able to pay credit card bills and had to roll them until bonus was paid, and I can't deal with that level of stress...

An $8K auto loan balance (with a 1.74% interest rate) is the least of your worries.

Your bigger problem is the fact that you've spent $45K in the last 3 months. 
If that continues, your spending will be $180K for the year, which is certainly higher than your net income.

As others have mentioned, you definitely need to post a case study.

deific

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