Save my retirement!!!!

[trek240]

Hi, first post here. I'll admit the subject is pretty much click bait, things aren't that dire but they need solving. Here's my situation, I'm a 32 year old software developer with a bit of a spending habit. As a result I’m in a bit of a debt emergency. Currently my debt is sitting at $6k on a CC, $6.7k for a car loan, and $5.5k on a investment loan (in descending order of interest rates). I know, it’s crazy. But luckily at my current rate of paying them off I should be free and clear within a year.

So now I’m planning on how I’ll ever be able to retire, because at this rate that’ll never happen. Currently my income is $4680 a month, with my expenses being $2750 (mortgage, food, spending money, insurance, fuel, utilities, property taxes, internet, cell, gym). I want to save 50% of my income each month, with the majority going to max out my RRSPs, TFSA, and then use the rest either for paying my mortgage or investing in mutual funds. I’m not sure if paying the mortgage is a better deal for the next bit, I may wait to see how the interest rates change for the next 3 years until my mortgage comes up for renewal (currently pay 2.59%).

So clearly to do this I need to increase my income to $5500 a month, and on top of that I need to start saving for my next car (current one has an extended warranty for another 3 years). I’m a bit of a car enthusiast so I would like to budget a little more than some people, maybe $500 a month for the short term, plus another $500 a month for the long term. That brings my necessary total income up to $6500 a month (after taxes), at least to have the type of lifestyle I’d like. Which is $1820 above what I currently earn. Seems daunting to reach that level of income in a recession.

I’ve thought about having my girlfriend move in with me, but the problem is she and I aren’t on the same page as far as spending. Because she’s a civil servant she’s not worried about retirement, she’ll have the government paying her salary for the rest of her life. As a result, she’s fine with spending every cent she makes on luxuries (travel for instance). And to be honest she has a negative NW. I’m conflicted with breaking up with her to find a girl whose thinking is more in line with my new priorities.

Any help would be appreciated. Thanks and sorry for the wall of text.

[ShoulderThingThatGoesUp]

You have it all wrong. You need to reduce spending. Increasing income is helpful, but you make a fine salary. Your aspiration is to spend $1000 a month on cars? Come on.

[Giro]

Where do you live?  You mentioned that you live in an area that's in a recession, so I'm not sure which country you are in.

I like cars too but make sure you get out of debt before spending such a large chunk of your income on cars.  Also, if you are so flippant about dropping your girlfriend because of her spending habits (yet you want to spend 20% of your income on cars....) I would say do it.  Clearly you are not invested in her.  You both should be honest with each other and find a mate that is compatible in emotion and goals.

[trek240]

You have it all wrong. You need to reduce spending. Increasing income is helpful, but you make a fine salary. Your aspiration is to spend $1000 a month on cars? Come on.

I want to add a $500 a month budget for cars. Either for a car payment, repairs, or saving for the next (probably a little of all three). The other $500 goes into saving to cover car costs when I no longer have a income. Like I save, this is a little more than necessary. But even reducing that by half (or not budgeting for it at all) my expenses are still way more than I'm trying to budget, so I'm not sure how I'm supposed to reduce expenses further. Selling my house and renting would just increase my expenses per month (I've already considered it), and the rest of the budget is more or less at their minimum amounts).

[trek240]

Where do you live?  You mentioned that you live in an area that's in a recession, so I'm not sure which country you are in.

I like cars too but make sure you get out of debt before spending such a large chunk of your income on cars.  Also, if you are so flippant about dropping your girlfriend because of her spending habits (yet you want to spend 20% of your income on cars....) I would say do it.  Clearly you are not invested in her.  You both should be honest with each other and find a mate that is compatible in emotion and goals.

I live in Canada. Our currency is in the toilet, and in my area salaries are pretty much stagnant. The car budget isn't something I'm trying to account for in the short term, I'm keeping my current car for the next 3 years at least, I'll probably only get rid of it when repairs start costing me. But I'm trying to plan for an increase in my monthly expenses.

[charis]

Where do you live?  You mentioned that you live in an area that's in a recession, so I'm not sure which country you are in.

I like cars too but make sure you get out of debt before spending such a large chunk of your income on cars.  Also, if you are so flippant about dropping your girlfriend because of her spending habits (yet you want to spend 20% of your income on cars....) I would say do it.  Clearly you are not invested in her.  You both should be honest with each other and find a mate that is compatible in emotion and goals.

I live in Canada. Our currency is in the toilet, and in my area salaries are pretty much stagnant. The car budget isn't something I'm trying to account for in the short term, I'm keeping my current car for the next 3 years at least, I'll probably only get rid of it when repairs start costing me. But I'm trying to plan for an increase in my monthly expenses.

You are planning to get a new car just because you have to make repairs that cost money?  You might want to review the math on that. 

[trek240]

You are planning to get a new car just because you have to make repairs that cost money?  You might want to review the math on that.

Cars don't last forever, eventually the repair costs won't be worth keeping it around. I'm waiting to see how electric car tech development progresses, the latest report on the Bolt looks promising. But realistically my car would be good for another 5 years, unless something drastic happens like the engine or transmission dies.

[FIPurpose]

Have you read this MMM post yet?

http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/

I personally drive a 2005 Pontiac Grand Prix and here are my costs:

Depreciation: ~$200/yr
Gas & Oil: ~$1500/yr
Insurance: $400/yr
Repairs: $700/yr

Total Driving Costs: $2800/yr

Yeah there was a year where there was a $1300 repair bill, but over the past 4 years I've owned this car, it has averaged out.

Because you're only thinking of car repair bills, but those are nothing compared to what you are losing in depreciation and increased insurance.

Typical New Car Expenses:
Depreciation: $2-4k
Gas&Oil: $1500
Insurance: $900-1500
Repairs: $200 (warranty doesn't cover tires and such)

Costs per year: $4600-$7200

That doesn't even include the fact that you have a loan made on the car, taxes on trading out cars, or that you've parked 20-40k of your cash that could be invested in a depreciating vehicle, and you want willingly save an additional $6-12k/yr just to cover buying more cars? It doesn't make sense anyway you look at it.

[trek240]

Have you read this MMM post yet?

http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/

I personally drive a 2005 Pontiac Grand Prix and here are my costs:

Depreciation: ~$200/yr
Gas & Oil: ~$1500/yr
Insurance: $400/yr
Repairs: $700/yr

Total Driving Costs: $2800/yr

Yeah there was a year where there was a $1300 repair bill, but over the past 4 years I've owned this car, it has averaged out.

Because you're only thinking of car repair bills, but those are nothing compared to what you are losing in depreciation and increased insurance.

Typical New Car Expenses:
Depreciation: $2-4k
Gas&Oil: $1500
Insurance: $900-1500
Repairs: $200 (warranty doesn't cover tires and such)

Costs per year: $4600-$7200

That doesn't even include the fact that you have a loan made on the car, taxes on trading out cars, or that you've parked 20-40k of your cash that could be invested in a depreciating vehicle, and you want willingly save an additional $6-12k/yr just to cover buying more cars? It doesn't make sense anyway you look at it.

Even if I don't budget for a car beyond the cost of fuel and insurance I'm still over budget by $1000. So yeah, cars are a luxury, but it's not like eliminating that solves all my problems.

[badbear]

Increasing your income is great, if you can manage it, but let's work with what you're taking in right now.

You have $1930 a month to put toward debt or saving. I would put that all toward the CC debt, and once that is paid off, the other loans. Do you have an emergency fund? If not, you may want to use some of your monthly savings to sock some liquid cash away for unexpected expenses or possible job loss. The emergency fund is also useful for unexpected car repairs.

Consider what you can do to reduce expenses, and save/pay down debt with the difference. I seriously question whether it's necessary to spend as much as you want to on cars, but I wouldn't even consider it while carrying all the debt you have. The cost of maintaining a reliable 5-10 year old car is not too much, and you avoid throwing a bunch of money at depreciation.

[former player]

Don't Panic.

You have a monthly income of $4680 and monthly expenses of $2750, which is a potential savings rate of $1930 plus whatever part of your mortgage payment goes to principal.

You have debts of $18.2k to pay off.  At your current earning and spending rates you will have them paid off in 10 months.  Here's the good bit: paying off debt is saving.  Within the year you will be debt free, other than your mortgage, and will be putting that substantial sum towards equity in your home, towards retirement and towards a potential new car fund.  That savings rate looks pretty mustachian to me.  No worries.

Now, your girlfriend.  She's got a plan for her long-term financial future, which puts her firmly in the responsible 50% of the population.  There are a couple of problems with that plan that a far-sighted mustachian can see (no early retirement, no FU money, and no plan B if the job and/or pension fail to live up to expectations).  But apart from that, she's doing OK.  You are a recent convert to the way of the mustache, so beware the fanaticism of the recent convert.  It's really not fair to dump the woman just because of your change of heart without putting a little work into the relationship first.  Try opening up a discussion with her about what you want to do about your finances, without saying anything about what she should do with hers - a stealth program over a period of time is far more likely to succeed than an immediate frontal assault.  Don't consider her spending patterns in deciding whether or not to ask her to share a home with you: as long as you have a fair agreement over expenses and she keeps up her end of the bargain, that is all you need to consider.  If it comes to potential marriage (which is not at all the same thing as living together, provided there are no children involved) then give her the opportunity to understand your attitude to finances, give yourself the opportunity to understand hers, and see whether the two of you can come to an understanding which opens up the possibility of a fiscally happy marriage. 

[zolotiyeruki]

You are planning to get a new car just because you have to make repairs that cost money?  You might want to review the math on that.

Cars don't last forever, eventually the repair costs won't be worth keeping it around. I'm waiting to see how electric car tech development progresses, the latest report on the Bolt looks promising. But realistically my car would be good for another 5 years, unless something drastic happens like the engine or transmission dies.

Kudos for wanting to increase your savings rate, and for the progress you've already made.

Here's the mustachian view of your car money thinking:
You would like to spend $1000/mo on your car hobby.  It sounds like $500 of that is "to save up for the car(s) I will buy/work on/etc when I'm retired" and $500 is "to cover my current car expenses."  I take no issue with saving money for spending on cars in retirement, although it doesn't really seem like you've actually analyzed what you expect to do in retirement.
You mentioned the phrase "car payment.  Such heresy has no place in the MMM world, unless you're paying 0% interest and are investing that money instead.  The $500/mo you plan to spend *now* is silly for a mustachian, because:

• you should be doing your own maintenance/repair
• you should be driving something reliable
• the car will last more than 5 years if you maintain it (and don't get in a wreck)
• you shouldn't be spending that much on a car anyway.
• you shouldn't be driving so far that your car requires that much maintenance or repair

It sounds like you've already identified what it is you want (increase car spending AND increase savings rate to 50%), and the way to get that (increase income by 20%).  If you can't get the 20% raise, then something has to give:  either the car habit, the savings rate, or your other spending.  The choice is up to you :)

[trek240]

For those that asked, here's the details for my current expenses (rounded up to the nearest $5):

Mortgage - 1150
Property Taxes - 250
Car insurance - 90
Home insurance - 60
Life insurance - 20
Food - 300
Spending money - 300
Gas - 170 (usually less)
Utilities - 170 (usually a little less)
Internet - 70
Cell - 60
Gym - 60

In my first post I over estimated my budgeted expenses, but there you go. As far as paying off the debt I'm paying 650 towards the car loan, 1200 towards the CC debt (which is actually at a low interest rate, not > 10%), and 130 towards the other loan. I can't really change the car loan and the other loan payments, so I pay the minimum while focusing on the CC debt first.

[FIPurpose]

Have you read this MMM post yet?

http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/

I personally drive a 2005 Pontiac Grand Prix and here are my costs:

Depreciation: ~$200/yr
Gas & Oil: ~$1500/yr
Insurance: $400/yr
Repairs: $700/yr

Total Driving Costs: $2800/yr

Yeah there was a year where there was a $1300 repair bill, but over the past 4 years I've owned this car, it has averaged out.

Because you're only thinking of car repair bills, but those are nothing compared to what you are losing in depreciation and increased insurance.

Typical New Car Expenses:
Depreciation: $2-4k
Gas&Oil: $1500
Insurance: $900-1500
Repairs: $200 (warranty doesn't cover tires and such)

Costs per year: $4600-$7200

That doesn't even include the fact that you have a loan made on the car, taxes on trading out cars, or that you've parked 20-40k of your cash that could be invested in a depreciating vehicle, and you want willingly save an additional $6-12k/yr just to cover buying more cars? It doesn't make sense anyway you look at it.

Even if I don't budget for a car beyond the cost of fuel and insurance I'm still over budget by $1000. So yeah, cars are a luxury, but it's not like eliminating that solves all my problems.

Err no. Actually it would solve all your woes if you were willing to give it up. You think that owning a brand new car is so important that you went into debt for it?! you have about an $1800 monthly deficit. If you gave up the $1000 a month for constant new cars, and moved down to a more inexpensive vehicle your monthly bill would be reduced by 2800-5400 per month. Your car budget is equal to 100-200% of the rest of your budget. You want to spend equal amounts on living as on cars.

I suggest graphing out how much your investments will go if you don't buy new cars every 3-5 years, and see how many years faster you can hit FI. Let that tell you if those cars are worth it. I drew up the quick example of saving $2800-5400 per month in excel. That amount is equivalent to about 4-7 million invested over 30 years. Think about that one.

[PharmaStache]

At least your gf is contributing 9% of her salary towards her government pension (ie retirement) which is better than what you're doing (0%).