Author Topic: Reader Case Study - Lower Class with Ambition  (Read 7158 times)

MrBone

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Reader Case Study - Lower Class with Ambition
« on: July 16, 2014, 04:20:39 PM »
Topic Title: Reader Case Study - Lower Class with Ambition

Income:
   $2000 - Warehouse (120 mi roundtrip commute, 3 days a week)
   $1000 - Tire-shop  (2 mi from home, 4 days a week)   
   $400   - Roommate  (good friend) also have a 3rd bedroom I may rent out.   
   -----
   $3400/month take home.


Current expenses:
   
   $755 - Mortgage (Including escrow for taxes and insurance.) (99k left at 4.5%)
   $200 - Electric (Figuring high, but summer in southern Oklahoma can get rough.)
   $75  - Water   
   $67  - Internet
   $587 - Personal Loan ($21K left @ 15%)
   $175 - Car ($7600 left @ 5%)
   $135 - Car and Truck Insurance (Truck is paid for.)
   $75  - Phone (Will be switching to Republic in October.)
   $350 - Food (A bit high, but both jobs are very physical and I have a high metabolism.)
   $300 - Gas (Ridiculous!)
   -----
   $2719


Assets:
   $800 - Savings
   $41K - 401k


First of all, I'm selling the truck and should get at least 10k, hoping more for 12k-14k.
That drops my insurance some and I plan on putting all of that toward my personal loan.
I've been working my second job (Tire-shop) for over a year and am currently looking for
a job in town that's comparable to my warehouse pay ($20/hr).
Basically, I plan on doing whatever it takes to get my loan and car paid off, then cut
back to one job. That is goal number 1.

I'm 28 and single with no kids. My goal is to retire sometime around 45. Stashing/Investing
the extra $400 to $700 a month I plan on having won't exactly cut it. I'm looking to be more
aggressive and have already begun studying up on investing, real-estate, and anything to
passively generate income. Any suggestions would be greatly appreciated.

EDIT: The car was a "gift" from my ex. I stupidly put it in my name and she quit making payments
so I had to repo it. It is barely worth the payoff amount.
« Last Edit: July 16, 2014, 06:03:26 PM by MrBone »

mxt0133

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Re: Reader Case Study - Lower Class with Ambition
« Reply #1 on: July 16, 2014, 05:28:09 PM »
My first suggestion is to remove the 'lower class' part of the title of your post.  You are here because you want to better yourself and seems like a dam hard worker.

If you get a match on your 401k I would contribute to get the maximum match and then build up your savings, emergency fund, first to about 3-4 months of your expenses.

Then divert all other cash to that 15% personal loan that is killing your right now.  Take the proceeds of the sale of the truck to build up your emergency fund and then kill that personal loan.  Some might say to take care of the personal loan since the interest rate is so high, but I would personally not dig a deeper hole if an unexpected expense came up.


MrBone

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Re: Reader Case Study - Lower Class with Ambition
« Reply #2 on: July 16, 2014, 05:54:16 PM »
The "lower class" was directed toward wages, since this site is predominately "middle class" income. But I see your point, and thank you for the kind words.

401k match is 6% and that's the minimum I've been contributing. (was 10% for awhile)

Proceeds from the truck is definitely something I've been going back and forth on.
Also been considering selling the house and renting with a couple roommates. I'm only 3 years into my 30 year mortgage.

But on the other hand, I've always been the slow and steady type, and see no way for early retirement.
I'm thinking something more drastic, like cashing out my 401k when I change jobs (about 25k after taxes and penalties) for
a down payment on a second house to rent out. Then as fast as I can get another 20-30k buy another rental.

okashira

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Re: Reader Case Study - Lower Class with Ambition
« Reply #3 on: July 16, 2014, 05:55:41 PM »
You're spending $800/mo in interest alone. This is good news and bad news for you.
Good news is that money will be savings once you get the debt gone.

1. Sell Truck
2. Pay down P loan with 80% of truck proceeds
3. Hit up lending club for a 8% or so loan (I might be tempted to throw a few grand your way myself...)
4. Use cash to do combination of
---Pay down personal loan more
---Buy another, cheaper car, because the one you have does not get good enough gas mileage.
-----Obviously sell your current car immediately (well, commute in the "new" car for a couple weeks to make sure it's solid and do PM on it.)
5. Now that you have reduced your interest and gas expenses in such a short time, your pay off rate on the rest of the loan(s) will accelerate like fire.


« Last Edit: July 16, 2014, 05:57:57 PM by okashira »

okashira

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Re: Reader Case Study - Lower Class with Ambition
« Reply #4 on: July 16, 2014, 06:01:42 PM »
The "lower class" was directed toward wages, since this site is predominately "middle class" income. But I see your point, and thank you for the kind words.

401k match is 6% and that's the minimum I've been contributing. (was 10% for awhile)

Proceeds from the truck is definitely something I've been going back and forth on.
Also been considering selling the house and renting with a couple roommates. I'm only 3 years into my 30 year mortgage.

But on the other hand, I've always been the slow and steady type, and see no way for early retirement.
I'm thinking something more drastic, like cashing out my 401k when I change jobs (about 25k after taxes and penalties) for
a down payment on a second house to rent out. Then as fast as I can get another 20-30k buy another rental.

Yikes. If you are thinking of cashing out 401k to buy another house, I retract my offer to contribute to a lending club offer!

Jack

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Re: Reader Case Study - Lower Class with Ambition
« Reply #5 on: July 16, 2014, 06:08:24 PM »
The "lower class" was directed toward wages, since this site is predominately "middle class" income. But I see your point, and thank you for the kind words.

Median household income for Oklahoma is about $50k/year before taxes for a 2-person household, so at $40k after taxes as a single person you're solidly middle-class.

I think this site skews towards upper-middle class engineers and computer programmers -- so much so that we forget just how low the median income is sometimes.

But on the other hand, I've always been the slow and steady type, and see no way for early retirement.
I'm thinking something more drastic, like cashing out my 401k when I change jobs (about 25k after taxes and penalties) for
a down payment on a second house to rent out. Then as fast as I can get another 20-30k buy another rental.

You've got a very large implicit assumption going there, which is that real estate has so much better risk-adjusted returns than the stock market that it's worth 10%+taxes to raid your 401k. I'm not at all convinced that such an assumption is valid.

Malaysia41

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Re: Reader Case Study - Lower Class with Ambition
« Reply #6 on: July 16, 2014, 06:16:36 PM »
Rent extra room to another roomate for $400.  Put that @ toward the personal loan.

Refinance the 15% loan (lending club is great suggestion).

Sell car and put as much toward that 15% loan as possible.

Contribute only enough to get the 401k match and no more until that personal loan is paid off.   Don't even THINK about touching the 401k $.

my two cents. 

MrBone

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Re: Reader Case Study - Lower Class with Ambition
« Reply #7 on: July 16, 2014, 06:27:54 PM »
I'm definitely selling my truck and plan on getting a more fuel efficient car.

However, I hadn't considered getting the "new" car before I sold the other. It's barely worth payoff at the moment.

As for the 401k, not gonna happen. As much as the short term money would be nice, I couldn't be that irresponsible.
I'm just trying to gather ideas, really not looking forward to working so much for the next few years.

I'm not familiar with lending club, will have to check that out.

@Jack
       That's 40k working 2 jobs and 7 days a week. Not something I can keep doing forever, especially with the type of work it is.
As far as real estate, more an idea to be looked into, I know I'm ignorant on the subject, which is why I've been researching, I
don't do anything on a whim. And from everything I can tell, your most likely correct. Just throwing out ideas for others opinions.

okashira

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Re: Reader Case Study - Lower Class with Ambition
« Reply #8 on: July 16, 2014, 06:32:31 PM »
I'm definitely selling my truck and plan on getting a more fuel efficient car.

However, I hadn't considered getting the "new" car before I sold the other. It's barely worth payoff at the moment.

As for the 401k, not gonna happen. As much as the short term money would be nice, I couldn't be that irresponsible.
I'm just trying to gather ideas, really not looking forward to working so much for the next few years.

I'm not familiar with lending club, will have to check that out.

@Jack
       That's 40k working 2 jobs and 7 days a week. Not something I can keep doing forever, especially with the type of work it is.
As far as real estate, more an idea to be looked into, I know I'm ignorant on the subject, which is why I've been researching, I
don't do anything on a whim. And from everything I can tell, your most likely correct. Just throwing out ideas for others opinions.

I like to do this because it gives you a chance to do any PM needed and make sure the car is solid for a couple of weeks.

gimp

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Re: Reader Case Study - Lower Class with Ambition
« Reply #9 on: July 16, 2014, 07:34:48 PM »
I think you've gotten some pretty good advice. You're on a decent track.

- Sell truck, put some towards personal loan, some towards an emergency buffer
- Refinance 15% loan asap at, say 8%. If your credit is good, you might be able to do a balance transfer: something like 3% fee, 0% APR for 18 months, or some such crap. At $600/month, that's almost $11k in the example 18 month period, between that and the truck sale and savings on insurance, you should be able to knock it out. If you can't get such a deal, then a simple refinance is crucial.
- Get another roommate if you can.
- Any extra cash you earn, dump into your highest loan - currently 15%.
- Agreed that you might want to get a different car, sell the old one. On one hand, it's a waste of money because it's only worth about the amount of the loan, and you'll still have to pay for a different car. On the other hand, at 175/month, it will take you... uh, four years? to pay for the damn thing. That's four years of driving something that pisses you off. Unless you love the car and are very happy with it, I'd definitely replace it with something cheaper. Bonus: cheaper insurance, too.
- Obviously, if you can find a job to replace the warehouse job, that would be good. At 120 miles a day, that's (according to the government) about $60; even if it's only half that, it still knocks down your $20/hr ($160/day) job to $15/hr ($120/day). Some of that's gas money, some is car wear and tear, some is depreciation. So a job in town for $15/hr will probably give you just around the same amount of take-home money, except now you're paying less in tax and you just got back five or six hours a week of your life to rest or work or whatever. By the way, that doesn't even count your commute time as a monetary cost.

These changes will have some up-front cost, but after they're all said and done, you should find yourself debt-free in a couple years, with more saved every month, and more time, and either less taxes paid or more money taken home after expenses.

Out of curiosity, what do you usually eat?

MrBone

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Re: Reader Case Study - Lower Class with Ambition
« Reply #10 on: July 16, 2014, 08:19:51 PM »
I eat a lot!
Breakfast: 3 eggs, banana, and avocado
8am-9am: homemade fruit bowl, apple, orange, and pineapple chunks (all fresh)
Lunch: homemade salad spinach leaves, carrots, broccoli, tomatoes, and grilled or baked chicken breast. (all fresh)
Snack: whey protein shake and banana
Dinner: another salad and corn on the cob, baked potato, and another chicken breast.

And thank you all for the advice!

boarder42

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Re: Reader Case Study - Lower Class with Ambition
« Reply #11 on: July 16, 2014, 08:44:40 PM »
I understand you "eat " a lot bit cost per calorie / protein value can and should be evaluated.  My wife and I eat a high protein healthy diet for the equivalent of what you eat by yourself.  You asked for advice.  You NEED a phase punch on food especially with a 15% interest loan.  You have "hair on fore debt". To blow off your food as something you " need" is a complainy pants statement. Until that debt is gone or reduced to sub 5% I personally wouldn't drink alcohol or eat 400 in food a month.

boarder42

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Re: Reader Case Study - Lower Class with Ambition
« Reply #12 on: July 16, 2014, 08:49:43 PM »
Also no offense but you can't afford avocado currently. You're eating one daily at a min cost of 1.50 that's 45 a month on a high fat fruit. This all fresh thing is insane. You can eat just as healthy with frozen chix breast. You DONOT have the luxury of these things with a 21k loan @ 15%. Shit. Sorry you are doing well but your debt is dumb high to be spending 350 a month on food you should be around 100.

Thegoblinchief

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Re: Reader Case Study - Lower Class with Ambition
« Reply #13 on: July 16, 2014, 08:50:17 PM »
Gimp makes a really good point about how much your commute eats into the effective wage, not to mention the psychological cost of such a long time stuck in the car.

Keep in mind salads, even with lots of extras, aren't exactly energy dense. Any health reasons for very little carbs? Good homemade bread or oats can really help supplement calories for quite cheaply.

Why switch to Republic? Use your existing phone, unlocked, with a compatible MVNO. It saves the hardware cost of a new phone and is often cheaper to boot. I switched to AirVoice (GSM, based on ATT network) and my usage pattern will cost $10 or so on pay as you go.

Middlesbrough

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Re: Reader Case Study - Lower Class with Ambition
« Reply #14 on: July 16, 2014, 08:51:24 PM »
Everybody else has listed good advice above. All excess money you do not directly have budgeted should be thrown at your 15% loan until it dies. Kill that bastard and fast!

MrBone

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Re: Reader Case Study - Lower Class with Ambition
« Reply #15 on: July 16, 2014, 09:05:03 PM »
First of all, I have no idea what your talking about on the phone, but will definitely look into that.

And I take no offense, the best advice I get from friends and family is don't sell the truck... lmao
So any suggestions on what to eat then? I burn 3000 to 4000 calories a day.

Thegoblinchief

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Re: Reader Case Study - Lower Class with Ambition
« Reply #16 on: July 16, 2014, 09:13:14 PM »
I burn similar calories when my bike is operating, especially when biking in the winter.

Breakfast: 4 eggs in generous amount of oil, over two pieces toast.
Lunch: two sandwiches, usually tuna, sometimes almond butter and jelly. Whatever fruit I can fit into my bag. Sometimes it's a banana, sometimes it's cut fruit.
Snack: when home, there's usually fruit or veggies to munch on. Doubly so when the garden is growing.
Dinner: varies, and cooking for a single person is different. What I'd do is get your produce fix now. Stir fries, salad, etc.

Basically, I put the heaviest calories at the front of the day. When shopping for produce, look around the whole section before buying. Buy based on sales, and work around that.

Hope that helps.

For the phone, read: http://forum.mrmoneymustache.com/share-your-badassity/communications-tech-son-of-the-superguide!/

Alternately, what carrier are you with right now?

SDREMNGR

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Re: Reader Case Study - Lower Class with Ambition
« Reply #17 on: July 16, 2014, 09:46:30 PM »
1. Sell truck for as much as you can.  Don't sell too cheap.  Put ALL of it towards debt.
2. Rent out 2nd room.  No need to have empty room in your financial state.
3. Cut down food budget. Not as big a deal as other two above.
4. Look for job closer to home.
5. Refinance with a credit card transfer deal (for 0% balance transfer with 4% fee for 18 months sort of mailer). With the 2nd room rented out, you should be able to repay personal loan within 18 months.
6. Forget about building a emergency fund. You have enough slack in budget and your debt is bigger issue. Put all savings toward your debt.  Pay every penny you find under the couch toward your personal loan.

Only after your personal loan is paid off, look to save money to buy a cheaper car if you can and sell off the other.  Or if you like it and want to keep it, pay off the loan ASAP like the personal loan.  Of course in mean time keep your 401k investing at 6% minimum.

THEN start saving that stash for imvestments.  And yes, you can do much better than stocks in real estate if you know what you are doing.

Goldielocks

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Re: Reader Case Study - Lower Class with Ambition
« Reply #18 on: July 16, 2014, 10:20:22 PM »
Lower class- not!  I am an engineer with 20 yrs experience in a high cost city and I am surprised ( discouraged?) With the salaries posted by some of the others.  Read ERE. Being well off is a state of mind.

Warehouse job - I assume with your low mortgage that there is not a lot of work nearby.An alternative to the other posters....   Get full time at warehouse, and tire shop goes to part time casual, your warehose wages should increase each year.  It is a solid work choice for long or short term.  Many people I know have success with this path.

Then, Get third roommate_-- someone who works with you.  Have them pay for gas money and carpool.  Stop off and do something fun on your way home like shoot some hoops or meet interesting people.

When you are single the commute time may be worth a place of your own in a house in nicer area than near the warehouse.

Other ideas are to rent near warehouse, or to find warehouse work near your home.  As others said.

okashira

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Re: Reader Case Study - Lower Class with Ambition
« Reply #19 on: July 16, 2014, 11:50:27 PM »
First of all, I have no idea what your talking about on the phone, but will definitely look into that.

And I take no offense, the best advice I get from friends and family is don't sell the truck... lmao
So any suggestions on what to eat then? I burn 3000 to 4000 calories a day.

Crab mentality. Make your own decisions.

gimp

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Re: Reader Case Study - Lower Class with Ambition
« Reply #20 on: July 17, 2014, 11:50:00 AM »
Here's how I would change your diet. Let's start with lunch.

Lunch: Throw in some pasta (about 1/6 pound uncooked) into your salad, and some beans (a couple spoonfuls, maybe chick peas or black beans or lentils).

Now maybe for dinner, you might want to make something different - let's say split pea soup, or lentil soup, or chili. Throw in some meat into those, of course. Tastes pretty damn good, very filling, healthy when done right, but... much cheaper.

Now your meal is a bit more calorie dense. Do you like it? Think -- where can I add a bit of rice to my meals? Maybe oatmeal to breakfast? How about some more beans, some more potatoes? Small steps. You like eating fresh, so I'm not saying switch to eating carbs - just add a little bit here and there to supplement it.

I knew when you said how much you spend on food that you start with greens and meat and finish, occasionally, with carbs. I do the opposite. I make my base carbs, and fill it with greens and meat. The result is that I spend $30/month on groceries. Let's say you burn twice as much energy as I do, and let's say you also want to spend twice as much per calorie as I do on better food: $120. Now let's double that, because you're still working on improving: $240. That's still less than what you spend. So start there, drop the $300 to $250 next month by just adding a small amount of pasta and rice and beans and maybe oatmeal to your meals. See if you like the changes. Next month you can hit $225, and the month after, probably $200. That's 1/3 saved in three months and I'm fairly sure you won't feel like you're eating worse, and you won't be loading up on carbs american style - exclusively and unhealthily - but just as an addition to your food.

Malaysia41

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Re: Reader Case Study - Lower Class with Ambition
« Reply #21 on: July 17, 2014, 05:10:07 PM »
What about moving close to work and renting your house to 3 people - each paying $400 that gives you $1200 to cover a $755 house payment.  Now you have $445 in income from the house.  Find the cheapest possible place to rent that is safe, clean and near work and put all of the extra income toward the loan.

JGB

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Re: Reader Case Study - Lower Class with Ambition
« Reply #22 on: July 18, 2014, 07:52:48 PM »
I'm not 100% familiar with how different the climate can get between Tulsa and Southern Oklahoma but I suspect you can save at least $100 per month by upping your thermostat and learning to live with it. Our 3000 sq ft house had an electric bill that is routinely in the $100 range, and I work from home with multiple computers on for much of the day.

If your roommates are the reason for setting the thermostat to a low temperature, have a frank discussion with them about this cost. When I was young and single, I happily paid 2/3 of the electric bill to keep it cool (back before I came around to the current ways).
« Last Edit: July 18, 2014, 08:11:41 PM by JGB »