Author Topic: Reader Case Study: Sell my 2014 Outback to jumpstart my Tiny House dream?  (Read 2273 times)

cartograph

  • 5 O'Clock Shadow
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Hi all, woke up around 6:30 this morning and did the normal scroll through alerts and Google cards (specifically the articles relevant to my interests). Found MMM through my recent reading in personal finance, specifically Budgets are Sexy. Did a huge double take when I saw their family spending breakdown. Punched myself in the face a few times and then spent the next few hours soaking in more MMM wisdom. I finally feel like I found the right $ advice for me and my values (even though I'm shamefully not living them...).

I could sit here and give you a bunch of very legitimate excuses for why I've made certain fiscal decisions up until this point or what has kept me from saving more but let's just skip that part and get to what's next!

But, before we get into the nitty gritty, here are my life/financial goals in a slightly larger than I mean it to be nut shell:

Iím currently a few months shy of my 26th birthday. I live in Cambridge, MA with my girlfriend of 3+ years. I have a fairly generic liberal arts B.A. from a good but not well-known college (basically Iím just trying to tell you I didnít go to Harvard). I work full time for a non-profit 4 days out of the week located 6 miles north of the city (general category: educational technology and research). One day a week I am a graphic designer for an arts organization and I also pick up other random design work here and there. My girlfriend is currently in a psychology masters program and is applying to PhD programs in cognitive neuroscience on the East Coast and in Chicago for Fall 2015.

Iíve lived in an around Boston since 2008 and while I love the convenience and the atmosphere of all the amenities like coffee shops, independent movie theaters etc I just really want to free myself of the ďwork to pay high rent, pay high rent to work at cool jobĒ cycle that renting in a city sticks you with. Iím not even making all that much money for someone who feels like they need to live in a city: around 40k/year take home. Unfortunately, my girlfriend is really unable to let go of the idea of living in the city. She grew up in Chicago and a big part of her identity is tied into being a city dweller and she eventually wants to end up in Chicago. Recently weíve had to move into a slightly shabbier two bedroom apartment to accommodate my mother temporarily living with us while she sells her house in PA and gets regular chemo treatments at a hospital in Boston. My mom has stage 4 cancer and being close to her is very important to me.

Ultimately, my big dream it to build my own tiny house and to gradually build more tiny houses in the same area to create a small renter community or bed and breakfast like space in a yet undetermined part of the U.S.. I feel totally priced out of real estate in New England and I really donít feel like I need some gargantuan building to fill up with material goods. Smaller is better in my opinion but maybe Iím biased since Iím only 5í5Ē. ☺ Ideally my income would come from investment, renters/guests, and freelance graphic design and I wouldnít be sitting in an office all the time. I can see what this looks like really clearly and Iím willing to do the work to get there but Iím struggling with the in-between steps and actually making the mini-goals to get there.

Any specific advice based on my situation would be enthusiastically welcomed! (or there are more specific questions below if you don't feel like tackling the whole thing)

Here are the requested detailsÖ.

Income:

1. Job #1 ďFull timeĒ 4 day a week job that nets me around 30k/year in take home pay after I put 12% of my salary towards my 403b (non-profit 401k)
2. Job #2 I have a solid 1 day a week gig as a graphic designer and a handful of freelance things and I bring home around 11k/year BEFORE taxes. (Budgeting $1,400 for taxes so letís call it 9,600.)
3. I have done a lot of miscellaneous things like renting out my car through relay rides, selling my dadís old comics on ebay, and selling other weird things like tripods and bongos that probably made me at least 1,000 last year and I could ramp up in the future.

So altogether my take home income is probably around $40,000/year. Normally (not counting the two months out of the year I get three paychecks from Job #1) I budget for a monthly income of $3,162. I live with my girlfriend of 3+ years but our finances are completely separate and we split everything 50/50 using the Splitwise ap.

Current expenses:

Monthly Fixed Expenses:
Rent: $725/month
Car Payment: $469 (see below)
Auto Insurance: $104
Student Loan Payment: $531 (see below for details)
Tiny House Fund/Forced Savings: $100 (auto-debit into a Betterment Account)
Therapist: $260 (Insurance ends up covering about half of this and every time I decide to go less often someone in my immediate family gets diagnosed with stage 4 cancer so while this might seem like an obvious place to cut out entirely I think that I can cut it down to $130 a month to be reasonable. Thoughts?)
Gym: $28.50

Monthly Variable Expenses:
Gas: $75 (Last year I spent 1,700 on gas but I also drove to Iowa and drove back and forth to Pennsylvania way too many times to count. Work commute is 36 miles/week but I am going to budget for a few more trips to PA to get my momís house in shape to sell.) 
Food: $300 (Last year I spent almost $6,000 on food (1,700 restaurants, 320 coffee shops, 575 bars ☹ ) which comes out to $500 a month but Iím limiting myself to $300 from now on. I also do most of the grocery shopping for myself and my girlfriend and we use Splitwise to keep our money even so it doesnít always come out as paying half of each individual item)
Entertainment: $25/month. Netflix and the occasional movie on the big screen (a big weakness of mine)
Utilities: ~$30

To be perfectly honest the budgets that I set up in Mint for 2015 are:
Rent: 725
Student Loan: 531
Auto Payment: 470
Food and Dining: 300
Therapist: $260
Tiny House/Betterment: $100
Gas and Fuel: $75
Everything Else: $500 (anything from the dentist, clothes, auto insurance, utilities, saving for taxes etc.)

Total Budget comes out to $2,960Ö..

Compared to my regular monthly paycheck income from both jobs that is normally $3,162 I feel like Iím really only making very slow progress.


Assets:

2014 Subaru Outback KBB value is at around $20,000ÖIíve put almost 20,000 miles on it in 1 year but itís in excellent condition and up to date with maintenance.

Around 7,000 in my 403b...started it way too late because of procrastination

Around 1,400 in my Tiny House Betterment fund.

(I'm not going to include cash because I use my betterment fund as an emergency fund too (:/) and I generally put any extra money towards ed loans)

Total Assets around: $28,400

Liabilities:

Car Loan: $469/month ($22,150 balance at 4.79%. Making the required payment and not more). Long story short: dream car + bad advice from fiscally challenged family = thinking itís normal to have a car payment and a big loan.
Minimum Payment: $469

Ed loans: I pay $531/month towards my student loans that total $13,221. They are made up of 5 different Nelnet loans ranging from $743 to $4,062 with interest rates ranging from 4.25% to 6.3%. Iím currently paying the minimum ďkwikpayĒ montly debit of  $207 to secure a .5% decrease in my interest rates and then putting the extra allotted money towards the loan with the 6.3% interest rate.
Minimum Payment: $207

(Forgot to mention I have one credit card, Chase Sapphire Preferred for the airline miles, and I use it for 99% of my purchases and pay it off 100% multiple times a month).
 
Total Liabilities: $35,371



Specific Question(s):

Car:
What should I do about my car situation?
Should I sell it or can I keep renting it out on Relay Rides and make between 200-300+ a month while letting people put miles on it? (I only drive Monday-Wednesday)
My struggle is that itís a great car and I really find it is much less stressful than the 2000 Subaru Outback I had before that I feel like I got suckered into having major $$$$$ repairs done to all the time. If I sell it and get a used car can someone explain to me how a used car is less expensive even if itís not as unreliable as my current car?

Budget:
Be real with meÖwhat am I doing wrong?

Tiny House Dream:
What are the financial and logistical steps I should be taking now to reach this goal in the next 10 years?


Many Thanks!

cartographh
« Last Edit: January 17, 2015, 10:14:20 AM by cartographh »

SaintM

  • Guest
Regarding the car, don't view it as a $20,000 asset. An "asset" should not cost you money and go down in value. If you were to trade it in, the dealer would start you at $15,000 or lower.  He would hope to get $20,000. In the meantime, you must pay for full coverage insurance--which will be inadequate because you are underwater.

Where you lose with new cars is the depreciation. 15% is gone when you drive off the lot, 50% is gone within 5 years.

My next car, after my oldest starts driving my current one, will be some fully depreciated beater from the 90s. Maybe even the 80s. I'm done with new and late-model used cars.

mozar

  • Magnum Stache
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Other people can explain car costs better than I, but another option is to make sure you drive it into the ground.

Sounds like you are in a wait and see time. Will you go wherever your girlfriend gets in to school? If you do what will happen with your mother?

I would get rid of the high interest student loans first (over 5%) as well as cut back on restaurants.

Mostly though you have an income problem. How you going to buy investments and build an entire tiny house community on your income?

Your rent isn't really that high. Since you like community you could consider living in a co-op in Chicago.

Future Lazy

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RE Car: Yes, you should sell your Outback. Push a couple thousand toward it's loan to get it out from underwater, and then sell that mofo. Pay cash for a 'better' car, if you need a car.... Maybe a Honda Fit?
http://boston.craigslist.org/search/cto?sort=rel&query=honda+fit

That's if you really, really need a car. Good questions to ask:
Can I get to work without a car? (Bike, Bus)
Does anyone else rely on me having a car? (Mom? GF?)
Can we use GF's car only instead/for all car dependent errands? (If she's cool with it...)
Etc..

Possible savings for completely ditching a car: $649/mo, or $7788 a year.
If invested yearly instead, this becomes...
$122,386 after 10 years.
$482,567 after 25 years.
$968,640 after 35 years.
http://www.bankrate.com/calculators/retirement/roi-calculator.aspx


RE: Food and Dining Imo, I would separate these budget items. My grocery spending is usually extremely predictable, but my dining spending is what I struggle to control. Not sure how it is in your situation, but I found that looking at them separately gives me a much better idea of where "food" money is going.

RE: Everything Else  I have the same opinion here. Break this down into individual spending bits to see exactly how much you're spending on clothing, car repairs, travel, auto insurance etc... You won't be able to trim fat in categories you don't know you've got fat in.


RE: Tiny House Dream

Imo this is totally possible, as long as you have a plan of action. For example, we see above that, by itself, not driving can get you 122k over ten years, which should be plenty of money to buy land in a nice inexpensive part of the USA and begin a building project. You just need to pin down a better idea of where you want to build it, what exactly you want to build (how big, made of what?), and who is going to build it (DIY, or pay a builder?). How are you going to make the BNB part of it sustainable, if not profitable?

Once you have that plan, you'll know how much you actually need.

Keep putting money away for this goal and hash out the details in the meantime. Currently your details are controlling your budget, maybe earning more income, dealing with Mom (best to you both), and figuring out if GF is going to be on board (Is she ok with a tiny house? Does she want kids, will they fit in a tiny house? Does she want to be frugal?).


So far, you're on the right track. Good luck!

Ps. If you do become a tiny house builder, I would love to visit your Tiny House B&B. :0 +1 for tiny homes.

M from Loveland

  • 5 O'Clock Shadow
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  • Location: Loveland, CO
Agreed with KeylaEM suggestions.

Regarding the money you spend on the therapist, I wouldn't change anything. I struggle with a chronic condition, so having my therapy sessions help me to put my head in the important things that I need to do, and be able to overcome difficult situations that affect my health.
I think it's important for you to continue with your therapy, so you can help your mom better and be able to achieve all the important goals that you set for your future. There's too much stress going on right now in your life, so that extra help it's gonna be very good for you.

Good luck!!!, wish you the best for you and your mom.

M.