Author Topic: Major life change dilemma  (Read 3727 times)

alaskacobalt

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Major life change dilemma
« on: November 20, 2014, 09:34:06 PM »
I am a recent convert to the Mustachian movement and relatively new to the whole debt free/retire young concept as well.  I literally started working towards my goals at the beginning of the year after realizing that I make twice as much as most everyone I know, but don't feel like I am twice as successful or have twice as much to show for it.  However, in this short year, I have already improved my credit score 100 points and dropped my monthly bills considerably. 

My problem isn't in my newly developed success, it is in the unplanned consequences of decisions made just before I made this transition.  So just before the start of the year, my wife and I were forced to buy two new vehicles.  We had no plan, we just knew we needed them.  Unfortunately, that came as my credit was literally months away from improving... again... 100 points.  As you know, this is HUGE in terms of interest rates.  We grabbed two loans with 17.9% interest rates.  Put little money down and locked in a couple of 80 month loans.  Completely the opposite of Mustachian!  And we now know this and knowing how bad this move was absolutely kills me every day! 

Since we had other debts that were more critical in nature, I never paid much more than the minimum payments.  Now that those debts are gone, I can do considerably more, but... in comes a new unexpected plot twist... we have a FOURTH child due in December and both of our cars are too small to fit four booster/car seats without strapping a child to the hood.  So now, we have two brand new cars, with high interest loans, with full balances...  and we are upside down around $9k total. 

Fortunately, I no longer need my car for commuting as I work from home.  My wife is a stay at home mother.  So we can realize savings by going down to a single car and taking the savings on insurance/car payments.  And with the improved credit score, we are in a much better situation.... BUT... we have to get a full size SUV to meet our family needs. 

What would you guys do?  I have been battling in my head about this for months now and I would love some outside thoughts/ideas on possible options.  My biggest issue is that it would literally cost me $9k just to walk away from these cars to get into a bigger vehicle that my family needs... but that $9k is enough to almost pay my Corolla off in full.   

Dodge

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Re: Major life change dilemma
« Reply #1 on: November 20, 2014, 10:10:50 PM »
17.9% is definitely a hair-on-fire situation! Have you considered a used minivan? If neither of you commute, you won't be putting many miles on it.

Yea, I'd probably sell all remaining vehicles, pay the $9k, and get a used minivan. You'll make up for the $9k in lower costs for the next few years. If you can't float $9k easily right now, at least try to get that 17.9% down.

alaskacobalt

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Re: Major life change dilemma
« Reply #2 on: November 20, 2014, 11:33:23 PM »
The $9k, that's more than doable now.  I just wonder if there's a better means of spending this money and still resolving my issue.  Now that I think one dollar at a time, it is hard to justify a $9k hit that literally gives me no tangible return on investment.  Am I just looking at this the wrong way?  Or should I just accept that this is the "pain" portion of the "gain" and see it as a means of getting out of two bad high interest loans?   

Hard part about going debt free, being frugal, and living a more cost conscience existence is factoring in those costs that don't fit directly into a particular line on your budget.  For example, I have a housekeeper.  She is a real cost of $100/week.  However, if I took the same 5 hours cleaning instead of working, it would cost me $500 in lost income opportunity.  So by paying someone I have a net gain of $400/week.  Same is true with the car.  Travel by means other than a locally owned/parked vehicle takes more time.  That time has a cost, because it is time that I would normally spend working/earning.  Selling both vehicles would cost me more than I would save.  Benefits to being without a car are extremely income relative.  So are many household services.  That's why it is hard to do a one size fits all approach to cost management and budgeting. 

MDM

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Re: Major life change dilemma
« Reply #3 on: November 21, 2014, 12:12:44 AM »
alaskacobalt, welcome to the forums - and good luck with child #4 on the way!  You might enjoy this thread: http://forum.mrmoneymustache.com/mini-money-mustaches/larger-family-forum-how-are-you-doing-it-3-kids.

+1 to Dodge's suggestion of a used minivan instead of a full size SUV.  Also, how often (and for how long) will you need to transport all four kids in car seats?

Good point about considering trade-offs involved in paying others when you are self-employed.  You might also consider this article: http://www.psykol.org/nos/images/0/05/Elsbach_and_Hargadon_2006_creativity.pdf.  One quote applicable to cleaning: "In our framework of workday design, scheduled bouts of mindless work tasks are inserted between the more cognitively challenging, time-pressured, and interrupted work tasks that make up the bulk of the workers’ days."

Good luck!

alaskacobalt

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Re: Major life change dilemma
« Reply #4 on: November 21, 2014, 12:49:28 AM »
My oldest is out of a booster, but we have a very small 5 year old, a 3 year old (full car seat), and the baby.  The 5 year old needs a booster at least 2 more years, he is as big as the 3 year old.  The year old can't be trusted, so he needs a full car seat for a while longer, and the baby... well...  yeah.  So we are with at least 3 kids in boosters/full car seats for at least 2 years I'm guessing.  If the 5 year old would grow, maybe less. 

My major concern with the minivan or a used car in general is that the cost for used vehicles since cash for clunkers has gone up considerably.  So much so that I feel it is almost cost prohibitive to go used/unknown vs new/warrantied.  It is the whole "fear of the unknown".  I have always had new vehicles, so used is very much on the table, but absolutely terrifying at the same time.  Those that have had used cars longer term, do you feel the savings outweighs the risk/repairs?  Again, this is new territory, something I would have never considered even 12 months ago.  It is about changing your way of thinking, which is tough sometimes in the beginning. 

I appreciate the links.  Solid reading.  I am absolutely obsessed with my finances now more than ever so everything I read just brings home new points I never considered. 

MDM

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Re: Major life change dilemma
« Reply #5 on: November 21, 2014, 01:06:25 AM »
...I feel it is almost cost prohibitive to go used/unknown vs new/warrantied.  It is the whole "fear of the unknown".  I have always had new vehicles, so used is very much on the table, but absolutely terrifying at the same time.  Those that have had used cars longer term, do you feel the savings outweighs the risk/repairs?
Between the extremes of a brand new car from a dealership vs. buying used from some random Craigslist ad, there is the step of "certified pre-owned" (aka "used") from a dealership.  That's what we did with our most recent: a 2004 Honda minivan we bought in 2006.  We also have the 1996 Chrysler sedan bought from the neighbor across the street in 1999.  It's doable.

mwulff

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Re: Major life change dilemma
« Reply #6 on: November 21, 2014, 01:50:36 AM »
As someone who lives in a country where almost noone can afford a new car (we import used from Germany) I have never owned a new car.

But my 14 year old BMW is purring along happily and will continue to do so for many many years.

First advice when buying a used car, from a hobby-mechanic:

1. Check the entire vehicle for rust. Nothing kills cars as fast as rust. This will depend on your climate. But check wheel-arches, supports, bottom of the doors and so on. Literally lie down on the ground with a torch and look at the bottom.

2. Check the engine for oil-leaks. Look for leaks around the upper parts of the engine, look for spots on the ground. If the engine is covered in plastic ask the dealer/seller to take it off.

3. If the engine is turbo charged check for blue or white smoke on a cold start. Also listen and note if the turbo makes a whining (wheeeeee) noise when cold. If it does walk away.

4. On the test drive check the brakes, if the wheel wobbles or the seat/carframe shakes it could mean trouble for either brakes or bushings.

5. Check all lights and indicators, are they free of moisture and do they all work.

6. Press EACH and every button on the car. Make sure that they work.

7. In the engine bay remove the oil-lid and check for "mayonaisse", brown spots of oil and water condensing. Also pull the dipstick and check for the same. If the oil looks clear/black and non-contaminated  you're good.

8. Check whether mileage and wear/tear match. A car with worn out seats and 10.000 miles on it is probably not on the level.

9. Check the gearbox, if it's a manual shift into all gears and listen for knocking/grinding sounds. On an automatic notice how smooth the gear-change is, a jerky shifting indicates that something could be wrong, or that its an american gearbox.

Also follow the rule of: "If it drives well and the engine sounds good then all is probably well". You get a long way with that.

But I wouldn't worry about buying a used car, but consider buying a popular car. Doing this makes second hand parts easier to come by and chances are that the local shops know that type of car.

Honda is one of my personal favorites when it comes to used-cars. The parts are pretty expensive but they almost never go wrong and the cars are fairly bulletproof.

But do as I say, not as I do. Stay away from an exotic semi-sports german car unless you are prepared to do all the work yourself (and there is a lot).

Any questions just ask. :)

ubermom4

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Re: Major life change dilemma
« Reply #7 on: November 21, 2014, 05:34:27 AM »
I am new to posting but have 4 kids and have owned an SUV and 2 vans. Buying cars is a real pain the south end and should be avoided as much as possible. You are correct to contemplate a larger car now or in the very near future. Your kids will need to carpool with friends and have gear that needs hauling. The extra room comes in very handy. With small children, the SUV was a pain because the kids had to climb over the middle seat to get to the 3rd row. It was a pain because it was too high and all car seats/kids etc. had to be raised extra high to get in. It was terrible with gas and all maintenance work cost 3x as much. It was also a very clumsy car to drive (IMO), hard to fit in to parking spaces and narrow roads. I have  had 2 vans now that are excellent. Odyssey and Sienna. Both are easy to drive, easy to get in and out of and 'better' with gas mileage (still not good though). I live in New England and really like having AWD so the Sienna is preferred. I am not great at buying cars but bought this one, 'certified pre-owned'. It has 50k miles on it and is a 2010 --and was 1/2 the cost of a brand new van. This car is in good condition and should last at least 10 years more. I would strongly encourage you to consider 'cert. pre-owned' at least. Look at a couple of web sites with tips on what to look for. All cars need repairs, you cannot avoid that. Keeping your car in very good condition helps it to last longer and cost you less money overall.  I would suggest buying a car with excellent reviews that is made to last a long time.  About the $9k 'loss' on the other 2 cars, you have already lost the money you just don't want to have to admit it to yourself. If you don't like losing $9k, you won't like the losses associated with buying a new car. Best of luck!

Dodge

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Re: Major life change dilemma
« Reply #8 on: November 21, 2014, 07:36:34 AM »

The $9k, that's more than doable now.  I just wonder if there's a better means of spending this money and still resolving my issue.  Now that I think one dollar at a time, it is hard to justify a $9k hit that literally gives me no tangible return on investment.  Am I just looking at this the wrong way?  Or should I just accept that this is the "pain" portion of the "gain" and see it as a means of getting out of two bad high interest loans?

Getting rid of the loans is a guaranteed 17.9% return in your investment. That is literally the investment with the most guaranteed tangible return available to you right now :)