Author Topic: Okay, here's the situation- Advice requested  (Read 5730 times)

SoCalSaver

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Okay, here's the situation- Advice requested
« on: November 30, 2012, 11:00:04 AM »
I've been reading this website for about a year now and have made some great progress. Now we are at a standstill. I am hoping for some advice on how to move forward. Any comments/facepunches welcome!
Like many homeowners, we purchased a "starter home" condo in 2004. Since then the value has gone down by about half. Our goal was to purchase a bigger home since our family size has doubled since 2004. Walking away from the loan/condo would have been counterproductive to that goal. So, we lived the super frugal life, did a cash-in refinance at a lower rate with 20% equity. Then I thought, what the heck, we're on a roll and paid off the last $10K of my student loans. Here's the monthly budget breakdown

Take home: 4200

Mortgage: 800
HOA: 230
Electric: 50
Cell: 115 (two smartphones)
Gas: 200
Groceries: 500 (family of 5)
Internet: 30
Car insurance, registration, property taxes divide out to 250/mo
Total 2175

2025 left over

Assets: 40K home equity
30K emergency/house fund
8yr old Highlander
15yr old Corolla

Our goal is still to get out of this condo and we are thinking we would rent it. After costs, it would not really break even but we are in this thing for 200K already. Should we sell or rent? We are open to relocation if there is a job waiting. I worked part time since the kids came along and made more than my spouse but stopped working after the refinance because we were so stressed by working opposite days for 10 years so that one parent will always be with the kids. We agreed that we would not put the kids in daycare. I started my own service business but have had no luck finding clients. I miss working (and the income) and have been looking for a weekend job again but no luck as of yet.

We also have *nothing* saved for retirement (am ready for the face punch).

Where do we go from here?


iamlindoro

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Re: Okay, here's the situation- Advice requested
« Reply #1 on: November 30, 2012, 11:22:29 AM »
The "easy wins" that jump out to me are:

Cell phone is way too high.  Convert both to a prepaid or low cost plan from an MVNO.  Depends on who your provider is as you'll want to bring your existing devices if possible, but you should be able to more than cut this bill in half-- $30-40 a person MAX for a very good smartphone plan from a decent MVNO (Ting for Sprint device, Airvoice for GSM/AT&T/T-Mobile, etc.)

Even if we accept that two cars are necessary (you haven't told us much about the commute-- is your spouse biking to work yet?) gas is too high because you're using the Highlander.  Remember, it's never too late to dump the gas guzzler.  Sell the Highlander for ~8-9K on Craigslist, take a month's leftover pay if necessary, and get into a fuel efficient compact from MMM's list.  The Matrix looks like a great option if you like the storage of your SUV.  This will immediately bring the gas costs down, and you may be able to manage to get the amount from the Highlander that you spend on the replacement, costing you a net of 0, if you work hard enough at it.

Groceries could probably be a fair amount better too.  Are you buying pure raw materials (flour, butter, milk, eggs, cheese, meat, produce etc.) and no processed or prepared foods?  If not, there is still margin to improve here.

What is the status of your emergency fund?  If it's just in savings, you could probably be managing it better.  Why not put the emergency fund in a low to moderate risk investment vehicle, and get a home equity line of credit that you keep at 0 instead?  That way the emergency fund is making you money, is accessible, but you could also make the choice to capitalize on the equity rather than your investments in case of a minor to moderate emergency.  you need to get the money you have into some sort of investment vehicle, stat, or it's actually diminishing due to inflation.

Income is obviously another problem.  How old are the kids?  Could they go to a relative's house or daycare for just a *couple* days a week, allowing you to take on part time work (TH-F daycare, Saturday Sunday with the spouse, allowing you to work up to 4 days per week)?  When will the kids all be in school?  I would be working tirelessly to find some means of making income yourself, no matter how trivial at first.  This will improve your situation a lot.
« Last Edit: November 30, 2012, 11:25:10 AM by iamlindoro »

James

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Re: Okay, here's the situation- Advice requested
« Reply #2 on: November 30, 2012, 11:29:56 AM »
What is your reasoning for wanting to leave the condo?  Is it the number of bedrooms, location, etc?

I would suggest trying to sell it as the market starts to turn around.  Sounds like you are not interested in making life more complex and losing money, which renting it would do.  If you sell then you can rent while you determine your next move.

I would definitely start putting some money aside for retirement, maybe start with a Roth where you can pull the money back out if needed but otherwise it's set aside and can be invested.  You say "$2025 left over", but how much of that is actually being saved?  I assume part of that goes to incidentals, gifts, home maintenance, etc.

Seawolf

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Re: Okay, here's the situation- Advice requested
« Reply #3 on: November 30, 2012, 11:34:34 AM »
You're saving nearly half of your income already.  That's pretty damn good.  But, how are you spending $200 on gas a month (roughly 41 miles a day)?  That's crazy high and could probably be a lot lower if you biked more (also good exercise).  Maybe move closer to your current work?  You could rent the condo out, and as long as it breaks even you're basically saving money for later when you sell it, or when the mortgage gets paid off, that's nearly $800/mo in income!  Look up rental prices in your city (check craigslist for comparable places that are renting), if rents are high enough then rent it out.  That will let you can move closer to work thereby cutting the gas usage down significantly, putting more life into your cars, and more money into your pocket.  When the kids start going to school full time, you'll have a chance to pick up extra work and add on to what you're already saving.  Just be careful you aren't spending more than you make in whatever commute you get.  You are in a unique situation, where you can drastically increase your income easily by you going back to work.  I would fight to stay relevant in your field so that it will be easy to pick up work later.  Right now, you could retire just on your spouse's salary in 16.3 years, assuming costs stay the same.  If you make just an extra 10k take home per year, you both have to work for 13.1 years instead.  Think of it like this: for every day you work at close to his/her salary, they have to work a day less.  (if you make 30k and their salary stays the same, you both can retire in 8.9 years). 

http://www.networthify.com/fi

SoCalSaver

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Re: Okay, here's the situation- Advice requested
« Reply #4 on: November 30, 2012, 12:04:16 PM »
Thanks for the replies! I get really annoyed when people ask for advice on here, then complainypants with lots of excuses so I'll take into consideration any advice.
Cell Phones: Great advice, the early termination contract is around $400, contract for 1.5more years. My husband is also "in love with his iphone" although it seems they can be unlocked now.

Cars: The Corolla is the car that goes to work 35mpg and hubby drops the kids off at school. The work commute is about 20miles per day on the freeway. There are no surface streets available for 90% of the trip.
The Highlander (18-20mpg) picks up the kids from school 1.2miles, grocery shops 5-10miles, goes to the beach about 1xperweek and not much else. We had a Corolla with three carseats across until it was totaled when we were rear ended. My inlaws visit for 1-3months per year and we used to rent a van when they were here that cost thousands. This is the reason we bought the Highlander as a replacement so we can all go places together. The inlaws don't drive. Is there a better option for this?

Groceries: I am buying flour/yeast/beans/sugar/nuts/oats in bulk to make from scratch, we are vegetarian, pack lunches for everybody, processed foods include a six pack of beer per week, a bag of tortilla chips for nacho night, tortillas, yogurt, basic stuff. We home prepare all meals with pasta/rice/pizza crust and vegetables/fruits.

Kids: All will be school age in two more years. We have an agreement to not have our kids in daycare until then. After that I could work full time again. I have what I think is a great business idea but am having a hard time wrapping my head around the marketing aspect and how much to spend. Any advice there would be so appreciated!

Condo: We have 2 bedrooms and 5 people, lower middle class neighborhood, no outdoor space, its crowded and noisy, schools are not great but safe. Our goal would be 3 bedroom, middle class, safe, close to work (doesn't exist in current workplace but willing to change cities), good schools, backyard for a little soccer. Our dream would be not to share walls or look out of our window into someone else's. I know, I know princess problems... Our condos rent for 1400-1450/mo

Retirement: I am extremely risk averse and my eyes cross when I hear the word "investment". Maybe I need a facepunch because its getting us nowhere! Are there fees associated with the Roth? I do like the idea of rental properties as retirement income and taken a real estate class. Any other ideas to ease my way out of this pickle?


jrhampt

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Re: Okay, here's the situation- Advice requested
« Reply #5 on: November 30, 2012, 12:19:30 PM »
If you were able to make more income than your spouse by just working part time, why not have him stay home with the kids?

iamlindoro

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Re: Okay, here's the situation- Advice requested
« Reply #6 on: November 30, 2012, 12:41:39 PM »
Thanks for the replies! I get really annoyed when people ask for advice on here, then complainypants with lots of excuses so I'll take into consideration any advice.
Cell Phones: Great advice, the early termination contract is around $400, contract for 1.5more years. My husband is also "in love with his iphone" although it seems they can be unlocked now.

Let's assume you are on AT&T and would move to the $40/month Airvoice plan x 2 people, a savings of $35/month over your current plan.  You would have offset your termination charge in 11.5 months, giving you 4.5 months of $35 savings, $157.50.  If you could use the $30/month plan x 2 people, that's a $55 savings per month, offsets the termination charge in 7 months, saves you 11 x $55, or ~$605.

Cars: The Corolla is the car that goes to work 35mpg and hubby drops the kids off at school. The work commute is about 20miles per day on the freeway. There are no surface streets available for 90% of the trip.
The Highlander (18-20mpg) picks up the kids from school 1.2miles, grocery shops 5-10miles, goes to the beach about 1xperweek and not much else. We had a Corolla with three carseats across until it was totaled when we were rear ended. My inlaws visit for 1-3months per year and we used to rent a van when they were here that cost thousands. This is the reason we bought the Highlander as a replacement so we can all go places together. The inlaws don't drive. Is there a better option for this?

I know this might sound harsh, but if the inlaws are going to live in your home for up to 25% of the time, they should expect to cover their share of the costs, including transport.  You are not running a charity and you have your family's future to consider (and is a higher priority than the shuttling of your inlaws!).  If your inlaws would like to join in activities, then it is reasonable to ask that they find a way to pay for their transport.  Look at it another way.  You sell the Highlander (or never had it) and explain that you simply could not afford a larger vehicle, and that you aren't able to afford a van rental this year.  And you leave it at that.  If they want to continue the status quo, it should be a no brainer for them to offer a solution.

Groceries: I am buying flour/yeast/beans/sugar/nuts/oats in bulk to make from scratch, we are vegetarian, pack lunches for everybody, processed foods include a six pack of beer per week, a bag of tortilla chips for nacho night, tortillas, yogurt, basic stuff. We home prepare all meals with pasta/rice/pizza crust and vegetables/fruits.

This is fantastic.  Cheers to you, you are doing it right. ;)  Any chance of a windowbox garden to net you a little produce during the year (tomatoes, peas, maybe some root veggies?)

Kids: All will be school age in two more years. We have an agreement to not have our kids in daycare until then. After that I could work full time again. I have what I think is a great business idea but am having a hard time wrapping my head around the marketing aspect and how much to spend. Any advice there would be so appreciated!

My experience has been that persistence and doggedness has gotten me more work than anything else.  If you beleive in the idea, then aggressively promote yourself until it starts to pay off.  This may take *many* months.  During that time, though, there's no excuse for making nothing at all-- even if you're working retail, some income is better than none.

Retirement: I am extremely risk averse and my eyes cross when I hear the word "investment". Maybe I need a facepunch because its getting us nowhere! Are there fees associated with the Roth? I do like the idea of rental properties as retirement income and taken a real estate class. Any other ideas to ease my way out of this pickle?

This is generally caused by lack of comfort/experience than true risk averseness.  Consider something like an index fund-- These are shares in the *entire market* that cannot, without the entire country itself collapsing, disappear.  Can you lose value through fluctuations on the market?  Yes, absolutely.  But in the end, you will still have the same number (or more, given reinvested dividends) of shares, and the value *will rise again*.  Whatever you do, educate yourself until the concept of investing doesn't terrify you any more.  Then start with something you consider a safe, inflation-beating investment.  If your money is sitting in a savings account, it is actually actively slowing down your ability to ever retire.
« Last Edit: November 30, 2012, 12:43:30 PM by iamlindoro »

iamlindoro

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Re: Okay, here's the situation- Advice requested
« Reply #7 on: November 30, 2012, 12:49:45 PM »
Another thing that occurs to me-- If the in-laws are in town up to three months a year, how about asking them to join you for more of the year, keep the Highlander, and make them your childcare for up to half a year in which you work your tail off?  That would improve your outlook, and quick-- especially if you did it year after year.

Captain and Mrs Slow

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Re: Okay, here's the situation- Advice requested
« Reply #8 on: November 30, 2012, 02:23:24 PM »
Someone tell me if I'm missing something here but you are currently living on less than MMM spends with no mortgage payment I can't find the other post but he says he lives like a king on 27 grand a year which is a bit over 2000 a month, you at the same standard are living on a 1000 vs his 2000  a month, a very impressive feat.

It's very unfortunate that you got caught in the housing downturn. One question how long will it take to pay the mortgage off?

Edit: just compared my budget to yours and we're about the same both income and expenses yet we're not saving half our income, going to have to do some more digging here to figure out why???????
« Last Edit: November 30, 2012, 02:36:34 PM by Captain and Mrs Slow »

SoCalSaver

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Re: Okay, here's the situation- Advice requested
« Reply #9 on: November 30, 2012, 03:24:12 PM »
We are doing pretty well in percentage of savings but the amount is so low.

I like the point about the in-laws pulling their weight and they do pay for all the groceries when they are here (have fancier tastes) and they provide childcare when here so I didn't have to work opposite days. The drawbacks are 7 people in a two bedroom for weeks although if sharing space with anyone, its a pleasure to share space with them. They are so easy to have around. We end up spending most of the day out somewhere. They can only stay 3months at a time.

I laughed about the comment from Captain and Mrs Slow because MMM lives like a king on 27K because he already has the things he needs to have fun. He leads a luxury lifestyle on this amount because of purchases made in the past i.e. house paid off, "toys". Our possessions are pretty spartan. Someday I hope to be at MMM level and that's the goal. Just need to find our way there. This site is a great resource.

If you will, keep the suggestions coming and I will update on the changes I have made from your advice.

secondcor521

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Re: Okay, here's the situation- Advice requested
« Reply #10 on: November 30, 2012, 09:48:20 PM »
On the car thing, you could trade in the Highlander for a more fuel-efficient model, and when the inlaws come to visit and you want to go somewhere, take your two cars to wherever you want to go.  For example, hubby plus his mom and two kids in one, you and FIL and the other kid in the other.  Take your cheap cell phones along, one in each car, and call each other on speakerphone, and you can even talk to each other enroute.

Seems like a workable option that is cheaper than the status quo or the rental van options.

2Cor521

galaxie

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Re: Okay, here's the situation- Advice requested
« Reply #11 on: December 01, 2012, 06:23:37 AM »
You don't need the Highlander.  Your kids' school is only 1.2 miles?  Walk or bike with them!  I'd kill for that short a distance. 

Get a trailer/panniers for your bike, and you can easily bike for groceries too (or the corrolla can pick them up on the way home from work). 

When your in-laws are in town, do you actually end up using the van every day?  Consider ZipCar or RelayRides, or just walking places with them, instead.  (God knows my in-laws could use some exercise!  We're worried about their health at this point.)

SoCalSaver

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Re: Okay, here's the situation- Advice requested
« Reply #12 on: January 07, 2013, 01:13:18 PM »
Thanks everybody who offered insight! Here's an update:

I am reemployed 8 days per month for $4000 gross. This should help us move forward. Also I have gotten more calls for my side hustle and just contracted with an insurance company as a preferred provider which should bring more business. I know I can't really count on the side hustle income in planning.

Now the questions remain:
1. Save aggressively for a down payment on a house?
2. Pay down/off condo then rent it?
3. Buy an investment property?

I figure we need a house for 15 years more then rent it out and go traveling (work traveling-expenses paid). Just can't stomach the idea of staying in the condo 15 years more. What would you mustachians do if you were me?

SunshineGirl

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Re: Okay, here's the situation- Advice requested
« Reply #13 on: January 07, 2013, 04:51:39 PM »
Congratulations on the new job!

How much do you owe on the condo?

What exactly is wrong with it?

How old are your kids?

James

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Re: Okay, here's the situation- Advice requested
« Reply #14 on: January 08, 2013, 09:14:10 AM »
I figure we need a house for 15 years more then rent it out and go traveling (work traveling-expenses paid). Just can't stomach the idea of staying in the condo 15 years more. What would you mustachians do if you were me?

I'd keep focusing on spending less and let the savings build up.  Eventually you can sell the condo and either buy a house or rent someplace that meets your desires.  The more you save the faster you can sell the condo and move, but I wouldn't move and rent it if that means losing money each month.