Author Topic: Need advise from some BAMFs  (Read 4620 times)

janus.rising

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Need advise from some BAMFs
« on: July 24, 2013, 01:31:37 PM »
I have been blazing through the site, ramping myself up to become (once and for all) a financially independent bad ass.  After sitting down with my SO and crying in embarrassment over our discretionary spending (so not pretty and certainly not sharable due to the high level of embarrassment), we've both agreed to just do it.

I do have a question or at least need guidance on the following:

Current:
Biweekly Bring Home Pay :  1831 (prior to 401k, Stock, IRA taken out)
Biweekly 401(k):  165 (6% of pay, employer matches so free money)
Biweekly Company Stock Purchase:  50
Biweekly IRA Contribution:  50

Fixed Expenses:

Rent:  1375
Car (financed and underwater @ 7.5399% with $15,600 remaining):  328
Student Loans (6.12% with $23,300 remaining):  264

Savings: $5k in our “House down payment/Emergency Fund)

I’m thinking of suspending the IRA and Stock purchase while keeping the 6% 401k for the match and then throwing everything at the car (a 2010 Suzuki Sx4 with 27k miles) and the student loans.  However, we also want to buy a house ASAP, so there is pressure to save for our down payment.  Rent (in a safe, non-crappy neighborhood) and Mortgage (with same) are about equal in my city due to high property taxes (NY).  Also want to start investing, so where/when does that fit in?

Any thoughts?  Prioritization ideas?  Am I on the right track?

Rebecca Stapler

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Re: Need advise from some BAMFs
« Reply #1 on: July 24, 2013, 01:40:06 PM »
You are right: The car loan has to go. Then the student loan. Those are really high interest rates. I agree that you should suspend your IRA contributions and stock purchases so you can pay those fuckers off, and don't touch your 401k.

Your budget leaves you $1365/mo (approx.) for other expenses. How much of that do you spend, and how much do you save? Can you save more of it? (I bet you can!)

As for the house, I understand that some people think paying rent is throwing away your money, but there are other things to consider when you own a home. Is rent comparable to the cost of mortgage + interest + taxes + insurance + (optional) HOA dues? Even then, you will have to pay for maintenance and repair. I suggest getting the spending and debt under control, and then saving for buying a home.

Cecil

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Re: Need advise from some BAMFs
« Reply #2 on: July 24, 2013, 01:48:34 PM »
Stop your company stock and IRA contributions until you are out of debt. Put the extra $200/month against your loans.

You can't invest yet, because you don't have money to invest with. You have negative $39,000. In order to invest you need at least $1.

Do you know where your money goes? Do you have a budget?

Why do you need a 2010 Suzuki Sx4? Google says it's probably worth at least $10k. Can you sell it? Buy a mid-90s Honda ($3k) if you really need to have a car.

piffle

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Re: Need advise from some BAMFs
« Reply #3 on: July 24, 2013, 01:49:12 PM »
I think you have the right idea.  Kill that car loan ASAP. 

If you want to and can go full-badass, sell it and take the hit and switch to a cheap beater, bus, or bike.  If you must keep the car, throw all your extra income to kill that loan.  Think about a refi too because that rate is way too high.

Focus 100% energy on that car loan, while still maxing out your employer match on your 401k.  It isn't time to start thinking about buying a house yet, from what I can see of your finances.  While you are paying off the car loan, invest time reading this site front to back and get involved in the forums.  It will change your mindset about your life, and when the car is paid off, you will be ready for the next step.

Rebecca Stapler

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Re: Need advise from some BAMFs
« Reply #4 on: July 24, 2013, 01:52:02 PM »

If you want to and can go full-badass, sell it and take the hit and switch to a cheap beater, bus, or bike.  If you must keep the car, throw all your extra income to kill that loan.  Think about a refi too because that rate is way too high.


+1 How could I forget the nuclear option? ;)   Sell it and buy a beater for $2k until those SLs are gone, save for a $10k car and buy it with cash (or a loan up to 2%), and then think about home ownership.

Eric

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Re: Need advise from some BAMFs
« Reply #5 on: July 24, 2013, 02:58:21 PM »
Rent:  1375
............
Rent (in a safe, non-crappy neighborhood) and Mortgage (with same) are about equal in my city due to high property taxes (NY).  Also want to start investing, so where/when does that fit in?

Any thoughts?

Since you say that rent payments and mortgage payments are similar, I'll assume that you're not in the NYC area.  If that's the case, that's a really really high amount you're paying for rent.  Can you cut that rent expense down?  Move to a 1BR, move to a cheaper neighborhood, or ideally both.

That will simultaneously free up more income for your debt payoff and allow you to save more for the future house once that is done.

janus.rising

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Re: Need advise from some BAMFs
« Reply #6 on: July 24, 2013, 03:24:55 PM »
No, not in NYC... actually Western NY.  The rent is high, but is normal for the suburb we live in, albeit I could get something cheaper in the city proper but that would not be a good match.  Also that would put me further away from work, so it would negate any savings unfortunately.  I am up for a transfer 3 hours away in the next few weeks (hopefully) and when we move it will be to a much lower rent home (this was already discussed with the family and all are on board).  Have to have at least a 2 BR since I have a child. 

janus.rising

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Re: Need advise from some BAMFs
« Reply #7 on: July 24, 2013, 03:33:51 PM »
The high interest rates are due to some stupid credit stuff earlier.  I was actually fortunate to get them that low.  The car comes from a trade in of my 2000 Dodge Durango V8.  I wanted a smaller car to "save money".  I made a bad choice (hey, I'm learning here!) and have thought about taking the hit, just don't know how that works since this is basically my first ever car financing.  Luckily, the car and the student loans are my families ONLY debt, so we can really make an impact with our discretionary spending and blow through them.  I ran the numbers from mint on our spending from the first of this year today and had a nice long talk with my wife this afternoon, which is prompting this post!    We've had around $15k in discretionary spending since the first of the year without truly realizing it...that would have PAID OFF my car!  In 7 months!  That was the straw that broke the camel's back.  When we move, I fully plan to be within walking distance to work (I'm not a strong bike rider) and take full advantage of that. 

snshijuptr

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Re: Need advise from some BAMFs
« Reply #8 on: July 24, 2013, 04:23:23 PM »
Jut a note on being "not a strong bike rider": my husband was one of the worst riders EVER. He hadn't ridden since childhood and when he first borrowed my mother's bike, he crashed, hard. When we moved <7 miles from his work, I encouraged (bullied) him into getting a bike and commuting to work. We went to a real bike shop, bought a great new bike for around $600 and got it fitted to him. After a week of commuting he was no longer sore. After a month he was totally comfortable. After 2 months, he is outriding my Dad who has cycled his whole life.

There are no weak bicyclists, only those out of practice on ill-fitting bikes.

piffle

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Re: Need advise from some BAMFs
« Reply #9 on: July 24, 2013, 04:53:46 PM »
No need to feel bad about a bad choice in the past.  Just focus on how you can minimize the damage and make better decisions in the future.

I have lived walking distance to work in the past and it is awesome.  Huge, huge benefit.  Don't let people bully you into biking if you don't want to do it, but do consider it.  I think walking + bus is better personally (I walk 2-3 miles per day usually), but others really love their biking.

It sounds like you are realizing how much money you actually have and are blowing every month, so I'm sure everything else will fall into place for you.  Get that money working in line with your values and you will be amazed at the high you will get.

naners

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Re: Need advise from some BAMFs
« Reply #10 on: July 24, 2013, 04:56:00 PM »
Re: renting vs. owning. You're either renting space, or you're renting money (paying interest). And don't think that just because your mortgage will be the same as rent that your costs won't go up. Taxes, maintenance, furnishings, higher utilities, less flexibility to pursue opportunities elsewhere and you'll have to spend your weekends doing repairs instead of playing with your child. Is that worth it to you? Yes is a perfectly fine answer, but many people don't think it through.

Gizbar

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Re: Need advise from some BAMFs
« Reply #11 on: July 24, 2013, 05:04:18 PM »
Wait now, how does the 401k work?  Did you say the employer pays in?  Because you DO NOT want to lose out on ANY employer contributions when they're paying HALF!  That's an immediate 50% ROI!!!  7% is nothing compared to that gain.  If you can delay your contributions without losing any employer contributions, then yeah, wait until the debt is gone.  However, my guess is the employers says you can put in a certain amount per year or per paycheque and if you don't match them then you lose that period's potential bonus from the employer.

Having said that, those are merciless rates, and slaying them would be my #2 priority in your shoes, and a major emergency. 

Finally, if mortgages, after considering all other housing costs, are the same as rent, then rent must be crazy high where you live or housing super cheap, and that would definitely beat all non-employer-based-401k investments handily in importance.

Priorities:

1. Do not stop capitalizing on employer contributions if at all possible, because 50% ROI is unbeatable.

2. Get into turbo savings mode if you can:
a) sell car, get cheap but working vehicle (unless this is already the case), or much better yet, try to get by on just biking for awhile.  If your family could manage this for even a couple years, it would get you out of the rental situation much faster.
b) glad to hear about lower upcoming rent!
c) Take a close look at that grocery bill: consider cutting out meat, cheese, dairy, all food 'products' (stick to whole foods), and buy more grains, beans, inexpensive veggies.  You could put the kid on a separate, more expensive diet if you're concerned for him/her, depending on the age (if breastfeeding, same would apply to your wife / you (if you're the lovely lady - sorry, don't know which!), and you can use a quality multivitamin to supplement your diets if you're concerned about cutting some things out (Progressive is high quality, and 33 cents per vitamin, which could be per day).  Groceries are a major saving point!  Look into Costco too (I just started, and it's awesome).
d) Look at any phone and cable bills if you have them, and wipe them out as far as you can.  No landline, just a couple cells with minimal plans.  Same for internet: nothing you don't need or can't use.
e) check out this link for more ideas (it's on the first tip, which may not apply, but they're in order of importance, so keep going): http://earlyretirementextreme.com/day-1-finding-a-place-to-live.html

3. Hopefully, with the increased power from point 2, you can focus serious firepower on the evil debt motherships.  BURN EM.  I would focus these over the downpayment for the sake of stability, but if you do the math and the savings from switching to home ownership is ludicrous, switch to point 4.  Otherwise, kill the debts fast and furious.  No mercy.

4. Now downpayment like crazy if the savings are that awesome. 

5. Once you have a house, with the lower associated costs for your area, you can pick the greater of the two benefits: if your interest on the house is high, pay that off first, but if the gains from ivestments are higher, pay into those a fair bit.  You can pay into both to diversify, etc.  This is an area I know less about, having no investments yet, nor a mortgage (between work and school, so I'm more focused on how not to spend).

Points 1-3 I think are super important.  If you can do all three, you'll be dealing with the biggest emergencies (I think).

Maybe someone can call me on this if I'm wrong about the employer contributions?  I'm always up for criticism.  :)

janus.rising

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Re: Need advise from some BAMFs
« Reply #12 on: July 24, 2013, 06:44:33 PM »
I may not have explained the 401(k) correctly... my employer matches contributions up to 6% of my pay...anything above that isn't matched.  So it makes sense for me to put in at least 6% while stopping everything else because why not take the freebie, right?

Rebecca Stapler

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Re: Need advise from some BAMFs
« Reply #13 on: July 24, 2013, 07:33:41 PM »
No, not in NYC... actually Western NY.  The rent is high, but is normal for the suburb we live in, albeit I could get something cheaper in the city proper but that would not be a good match.  Also that would put me further away from work, so it would negate any savings unfortunately.  I am up for a transfer 3 hours away in the next few weeks (hopefully) and when we move it will be to a much lower rent home (this was already discussed with the family and all are on board).  Have to have at least a 2 BR since I have a child.

This is another reason why renting is the better option for you now. If you're moving soon, buying now is not a good idea. And if you're not going to stay in your next town, then there's no reason to buy there unless you think you could turn it into an income property.

I may not have explained the 401(k) correctly... my employer matches contributions up to 6% of my pay...anything above that isn't matched.  So it makes sense for me to put in at least 6% while stopping everything else because why not take the freebie, right?

Right. Free money. It's actually a 100% ROI.

Kipp

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Re: Need advise from some BAMFs
« Reply #14 on: July 24, 2013, 07:50:12 PM »
Looking at your situation, yours is fairly similar to mine.  I also have a car loan (~14,500 3.75% interest), student loans (21,000 3.91% interest) and wish to buy a house due to a recent change in position to an hour - hour 15 commute away.  I enjoy reading these comments here, because a lot of that advice can work for me.  Will renting really save money over buying a home?  I mean, not all of your payment is going to interest, some is to principal.  Now I want to run some calculations to see the difference in paying off debt from renting for a couple years while paying off said balances, and buying a home now and paying on all debts at once.  Gives some good insight.