Author Topic: Reader Case Study - Student woes and etc....Should I buy a used car with a loan?  (Read 2938 times)

EuphratesCat

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Hello! Iím 23 and finishing up a degree in Entrepreneurial Management and MIS from a well respected state school.  I work as much as I can, 32-35 hrs/wk, and carry a half load at school.  I have three part time semesters left starting January 2014.  (Iím finishing up at 23 because I took a few years of to work for the Conservation Corps here and am now going part time while working.)  I am lucky to have parents who are willing to cover so many of my expenses, although I feel like a shitty person that Iím still asking them for support at 23.  I refuse to be one of those move back in with MomNDad types.  My dad through general good planning was able to retire at 53 in 2008, and my mother is lined up to do something similar when she reaches that age in several years. 

Income: I work about 30 hours a week at $12/hr for a small business.  Because they are so small, I get no benefits outside of the occasional bonus, which are highly variable and unexpected.  I expect a significant increase in income upon graduation.  I am pursuing alternate forms of income such as teaching lefse making lessons and trading my knitted goods for other things that I need, such as mittens for a dog kennel on craigslist.  I am also hoping to trade newsletter copywriting for a gym  membership to a local bikram yoga studio to fend off the winter blues.  For the purposes of this budget, I take home an average of $1,350 per month, or around $675 every two weeks. 

Current Expenses: I started using YNAB in August, that was actually how I found the MustaciansÖ

FIXED:
Rent $625 My apartment is wonderful, I share it with a roommate who pays the same amount as me.  We have a ton of space and high ceilings and an extra bedroom.  However, the building is income controlled, and between my roommate and myself, someone who lived with us would only be allowed to make ~$7,000 annually if we were to take on another roommate.  While I am not opposed to this, my roommate is very against another person living with us.  Additionally because of the income controls and a few other things in the lease, I, personally cannot move out until the terms of the lease are fulfilled i.e. July is over and I've paid my rent on time. 
Electric$23 This is mostly my roommate, split evenly, this is my share.  Heat is baseboard, stove is electric.  My roommate keeps a mini-fridge (I have no idea why) and a chest freezer and has an ultra powerful computer thatís rarely off...
Internet         $30Roommate is a grad student and TA and requires decent internet,  I could go without it entirely, this is my half
Total$678

VARIABLE:
Groceries$136Shopping at the coop is very important to me.  I do my best to plan my grocery list efficiently.  I also rarely buy any meat, as I supplement that part of my diet by hunting and butchering a deer each year.  Total cost for 1 deer is ~$35 for anywhere between #50-#75.  This bill could be smaller however because I prefer to host people at my place instead of going out.
Fuel$222Gas hog, visiting my family 2.5 hours away once a month, and maintenance costs. Come spring I will seriously consider biking the huge distance to school/work just to cut this down.  But for now I can't afford the winter gear I'd need to bike in below freezing condintions. 
Medical$27Monthly Prescriptions
Pet Food/Supplies$64I have one dog, a German Shepherd/Black Lab mix and a small cat.  It is very important to me that they also eat quality food.  I try to buy this in bulk to save some money. 
Bars/Alcohol$32This totals about 3 beers/month and a box of wine for home. 
Parking Fees$38Living in the city and away from campus, parking meters lots and ramps are a way of life.  I opted out of getting a campus parking pass because of the expense, but because of a single expired meter parking ticket ($42), that decision was the wrong one to make.
Household$15Paper towels, toilet paper, the occasional cleaning supply, shampoo or soap, cat litter, dog poop bags, etc.
Spending Money$15I run a blog that occasionally requires I buy things for a post, and sometimes I buy a dog or cat toy. 
Christmas/Gifts$80Most gifts this winter I plan on making although I expect to have to buy a few more things and materials for making some gifts as well.  This is only for December, next month (and each following month) I will put away $20 to start next yearís holiday fund.
Coffee/Tea Shops$10Occasionally at work or school we have to meet at a place like this.  This happens 2/month for each approximately. 
Restaurants$10This has been close to zero for quite some time, but I will occasionally eat out every other month.
Clothing$0Iím pretty set in this department, and havenít bought any clothes in the last several months
Miscellaneous $0Thereís probably things Iím forgetting, this is just a category on my YNAB budget that serves as my extraneous catch-all. This month I donít expect anything here. 
Total$649


Expected ER expenses: (Money for these expenses usually come from windfalls like Christmas, my Birthday, Bonuses and odd writing jobs that Iíll do on the side.)
  • I buy a yearly renterís insurance policy for $100.
  • My out of pocket school expenses are around $300 per semester.  I often buy books from Amazon because the university bookstore is a goddamn racket. 
  • I signed up for, and committed to a retreat in February.  On Feb 1st I will have the pay the remaining balance of $427.97.

Assets: Ha! 
  • Iím 23 and healthy if that counts. 
  • I have about $100 in a betterment account and Iím expecting around 2K from my tax return.  (I will be changing my withholdings on January 1)
  • My folks currently cover my medical and dental insurance and will continue to do so until graduation. 
  • They also pay for my fancy smart phone.  I am on their contract until February of 2015 when I plan to use a service like Ting or Republic. 
  • Until I graduate they also pay for my student loan interest. 

Liabilities: 
  • Current Student loan debt of 31,620.00 most of which is at 6.8% there is a small portion of that ~3,550.00 at 11.6% (Because fuck the federal government)  This will probably climb to anywhere between 40-50K depending on school expenses as I finish up my degree.  This is non-negotiable.  I must finish my degree.  However I would like to pay off the $3,550 loan before I graduate because it is accruing interest as we speak. 
  • I also have $532.76 in credit card debt at 22.5% (OUCH!!!)  This had been paid off this summer but my boyfriendís father died late August and travel expenses for dealing with the estate and funeral had to be covered. 

Specific Questions:
  • I am stuck in my lease until the end of July, so I canít move before then.  I live 17 miles from work and 7 from school.  After my lease is up I hope to move someplace between work and school to cut this down to 5 miles either way and bike.  Living in Minnesota, a car is unfortunately a necessity (today itís 5F!). I had an Ď88 Saab 900 Turbo (with broken turbo) with 230,000 miles on it that got 30 mpgs on average, and it was discovered that the frame was too rusty to drive safely, so it was sold for its scrap value, about $500.  My parents graciously lent me my motherís old car, an Ď01 Audi 6 cylinder turbo with 190,000 miles.  It gets 18 mpg's on a good day and leaks oil like a nightmare.  (Fixing this catastrophic oil leak would cost $1,500, currently I just check it regularly and add when needed.) An oil change for the stupid thing costs $80 at the dealership.  Itís huge and unnecessary compared to my old car.  Itís also really difficult to travel with my dog because sheís big and messy and stands on all the fancy buttons and other unnecessary shit in the back seat.  (Because the car is not mine, my father insists the oil gets changed by a professional, and that it receive synthetic.  This is not debatable.) However, they pay the insurance.  My dad has also agreed to let me use it until I have enough money to buy a car with cash outright but with the operation expenses, Iím not certain thatís worth it. 
    If I were to buy another car, they would not pay insurance, but they would co-sign on a loan.  I need something small with good gas mileage that will last me until Iím able to pay off my student debt and beyond.  As far as wants around my car I wanted a manual, hatchback, 2-door, heated driverís seat, that runs on diesel, which led me to the VW Golf TDI.  I realize how dumb it is to finance a car when I have one that already works, but the gas mileage and maintenance costs are so huge compared to my last car that itís been a huge adjustment dealing with these costs.  I planned to have greater expenses when I moved farther away from campus, but I didnít plan on my efficient car disappearing. 
  • After typing all that out, I feel stupid saying I hope to travel to Costa Rica in March.  I imagine there is no way to have $1300 for this trip.  Iím going to let this go for now...
  • With my student loan interest rates so high, again thanks to our wonderful government, is it even worth it for me to start investing in retirement before theyíre paid off?  I guess it would make sense if I got a job at a company that did retirement matching, but right now thatís up in the air, so advice on this would be appreciated. 
  • Lastly, what else can I do to make this situation better?  Using YNAB Iíve pulled myself out of overdrafting my accounts regularly, but itís been super stressful and I donít expect it to get any less stressful in the meantime.  How do I feel like Iím making any progress?
Sorry this is so long.  I want to take advantage of my youth while I can so I can knit and camp and travel and whatever for as long as possible.  I really appreciate your help!
« Last Edit: December 05, 2013, 03:09:29 PM by EuphratesCat »

_JT

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Move closer now, sublet your old place if necessary. MONTHLY SAVINGS: $200
Stop driving a car with giant maintenance and gas expenses you can't afford. MONTHLY SAVINGS: $100 (I'm allowing you to still go home for Christmas -- I'm not THAT heartless)

For now, with your income as it is, I don't really see any other great places to cut. I'd like to talk you out of only shopping at your co-op and feeding your pets premium foods (as someone who shops at a co-op and feeds his dog grain free food), but that's a philosophical talk. If you want to make your life measurably worse in exchange for spending your money on things you support, I think that's somewhat admirable.

Your plan of attack should be this: take your savings and kill that CC debt, pronto! Ask for money and/or Visa giftcards for Christmas, sock it away for moving expenses. Start of the new semester is a great time to sublet your place as well as find a cheaper place for you. Take your tax return and pay cash for a used hatchback that's at least 15 years old (personally, I'd find an early 90s Honda Civic). DO NOT finance anything. Don't worry about your student loans until you graduate or you can generate a lot more income than you are currently. You're in a tough spot because you have a horrid debt to income, and you make a modest amount. That said, if you would downsize your lifestyle (primarily rent and transportation) you could be in much better shape, IMO.

EuphratesCat

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I would love to move closer now, but because of the income controls on the building, my lease expressly stipulates, that I, personally, cannot move out of the building until the lease is over in July. 

clarkm04

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Is there mass transit available from your apartment to school?

I would also apply more pressure on your roommate to get another roommate.  That would be a huge saving on multiple fronts. Worst case, you tread water until July and then be careful about your next spot.

I would drive your mom's old car as long as possible.  Maybe get a second job this summer to purchase a replacement in August.  I typically worked two jobs during the summer.

Glad you cut the vacation!  I never went on vacation while in college and now I'm more stable and go on much better trips.

Best of luck!

EuphratesCat

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There is Mass transit available, but it would cost me as much, if not more, as parking usually does (I pay for a meter at $2 and bus fare costs $2.25 one direction when I have to get to school during bus 'rush hour pricing.')
Additionally, it turns a 20 minute drive in average conditions into an hour and 20 minute ride.  I considered it, but it's worth it to stay at work the extra hour or to run home and eat dinner or whatever. 

Daleth

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I would love to move closer now, but because of the income controls on the building, my lease expressly stipulates, that I, personally, cannot move out of the building until the lease is over in July.

Where do you live--the Soviet Union? It would surprise me if the law actually let a landlord require a tenant to continue living in a property until X date. Is there a local tenants' rights organization you could contact? Many/most cities have such organizations that provide free advice to tenants in difficult situations like that. They could advise you on how to get out of it.

Beckyemerson

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In July, or sooner if possible, move closer to school and work. After that ditch the car altogether. If it is to cold to bike take the bus. To visit your parents take the bus. DO NOT get a loan for a car. Start paying off the cc debt and then the high interest gov. loan.

moneysense

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Most mass transits offer a student discount for bus passes. Is this a possibility for where you live? The hour+ ride is definitely a drag, but you can study, read, or knit on your commute!