Author Topic: UPDATE - Car Dilemma - Buy out of our current lease?  (Read 3279 times)

pwegifts

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UPDATE - Car Dilemma - Buy out of our current lease?
« on: March 16, 2015, 07:26:38 PM »
Hello fellow Mustacians,

I was referred to this blog (lifestyle) by my sister-in-law and found it tremendously helpful reading it over the past few weeks.  My wife and I were already trying to be frugal, but it has helped us cut and/or minimize all “unnecessary” expenses and see the big picture. 

Up til now, we have been extremely cautious with our money keeping it only in regular savings accounts not wanting to “risk” losing it.  However, now we understand that we are actually losing money by doing it this way, and are ready to invest so we can reap the benefits later in life.

With that said, we do not know much on the financial end of things in terms of all our options, so we are coming to all of you for advice on what to do.

Here is our personal and financial background…

Both my wife and I are 29 years old with a 3 year old, 1 year old, and baby #3 set to arrive in July (surprise).  We don’t eat out much(maybe 1x every 2 months), however we do like to do the occasional travel because we just moved to Florida.  But when we do, we usually pack our own food, minimize expenses, etc.

We are both self-employed - our businesses have just surpassed the point of covering all of our expenses, and they are continuing to grow each month.  No debt/loans/etc on the businesses as we used savings to start them.  Prior to this, we left full time jobs to pursue our own ventures, so we feel as if we are “already retired" so to speak.  We get to do what we love, and stay at home to raise our kids (but they do go to daycare for a few half days a week so we can focus on growing the businesses).

Our Goals
Financial Freedom - We love what we do, don’t mind doing it for another 5-10-15 years and continue to live within our means to save for later.  However, we have many more hobbies and love to travel!

College/Funds for our kids
 - We’re interested in the 529 program, however was apprehensive if the kids decide not to go to college for whatever reason (we know the 529s can be transferred, so maybe opening 1-2 accounts?, in case one child doesn’t go to school?). We are both college graduates, and supporters of higher education, but it is hard to say what will be the case in 18 years, and when you are planning for 3 separate individuals. Maybe they will go the route of learning a trade instead, who really knows.

Monthly Expenses - Approx $4,600 Total
Mortgage - $2200 per month which includes property taxes, insurance, etc
Approx 310k left on mortgage, 4.375% interest rate
We do bi-weekly payments as well as about $200 extra per month which goes to principal (we are looking at paying more each month). The ISP to pay biweekly with our loan company was free to join; saves us 5 yrs or so of payments and ~56K in interest….plus then the little bit of savings from paying the additional $200 in principal a month.

1 Car (Prius V) - lease - $575 month
  • The payoff amount on the lease is approx $30k.  Blue book says the car is only worth about 21k now. (palm smacking my forehead)
  • We got taken to the cleaners on our previous vehicles (we didn’t really know what we were doing, we were naive early 20s, again smacking my forehead) so we are now picking up the pieces and paying for it now.  On the plus side, we write off a small portion vehicle expenses for the businesses as travel is involved.
  • With baby #3 coming, in the next few weeks, we are needing to trade it in and go to a minivan because our three literally carseats don’t fit in the Prius! ugh.
  • We average about 15-25 miles per day driven which includes taking the kids to daycare 3 days a week, as well as occasional day trips to beach/orlando, etc.  However, we occasionally have taken it on longer trips cross-country to visit family.
  • Car insurance in FL is a consideration. We thought about do we just go to 2 cars? But car insurance alone on the Prius is ~$116 a month…pretty much double what we paid in WI. Vehicle registrations are also more here.

Remaining Expenses
  • Insurances, Cell phones (just changed to Cricket saving $35 a month), Daycare/Preschool, Food, Internet, business expenses, electric, water
  • Baby #3 arrives in July - Not sure of what the medical expenses will look like as we just moved to Florida.  Researching that now, but obviously having experienced this twice, we know its not cheap.  We have used ‘goods’ for the baby, and wife plans on nursing.

Revenue/Assets
Monthly Total Income Average after business expenses the last few months - $5,900
  • About $90,000 in checking/savings accounts (palm smacking my forehead again)
  • Opened savings accounts for both kids and have about 1k each in them.
  • Wife has approx 13500k in a 401(k) from previous job
  • Wife has approx $10400 in a Roth IRA
  • We need to keep about 10-15k available within 1 month as we pay commissions, buy inventory, etc for the businesses.  Pretty much all expenses are put on a credit card for cash back bonus, so this is why we say available within a month as we pay it off in full.
  • I guess as another side note, the above expenses are it, as far as debt to our name. Again no loans or anything of the sort on the businesses, no student loans, personal loans, unpaid CC balances, etc.

Our Main Questions…

  • Recommendations for investing?  We know we need to diversify and are okay with spreading out between “low and medium” risk investments, and maybe even some high risk.  Again, we don’t have really any experience and are not very familiar with the financial sector.
  • Are there any sticky posts or threads that explain the basics and more?
  • We were just made aware that there are One Participant 401(k) plans since we are both self-employed.  Anyone have experience with this?  Good idea?  Or just invest our money elsewhere?
  • What should we do about the vehicle situation?  We know we need to get rid of the Prius for a minivan, and I am fine with going the used route, however I don’t want to get a complete beater that keeps us worried it won’t make a few hour trip, or will need repairs soon after we get it, or will break down with 3 screaming kids in the car, or will over heat in the Fl sun! Additionally, we do make occasional cross country trips from Florida back to Wisconsin too to visit/stay with family, as it is much more economical than flying the 4 soon-to-be 5 of us back there.

Thank you for your help in advance!
« Last Edit: September 10, 2015, 09:25:12 PM by pwegifts »

MDM

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Re: Financial/Investing Advice + Car Dilemma
« Reply #1 on: March 16, 2015, 10:17:32 PM »
Recommendations for investing?  We know we need to diversify and are okay with spreading out between “low and medium” risk investments, and maybe even some high risk.  Again, we don’t have really any experience and are not very familiar with the financial sector.
Are there any sticky posts or threads that explain the basics and more?
You could do worse than starting with http://www.bogleheads.org/forum/viewtopic.php?f=1&t=6211.
If you just want to pick a single fund, https://personal.vanguard.com/us/funds/snapshot?FundId=1691&FundIntExt=INT or https://personal.vanguard.com/us/funds/snapshot?FundId=0122&FundIntExt=INT are defensible choices.

Quote
We were just made aware that there are One Participant 401(k) plans since we are both self-employed.  Anyone have experience with this?  Good idea?  Or just invest our money elsewhere?
Tax-advantaged pretty much always beats taxable.  No direct experience with Solo-401k but by analogy with employer's 401k - why not?  E.g. see https://investor.vanguard.com/what-we-offer/small-business/individual-401k.

Quote
What should we do about the vehicle situation?  We know we need to get rid of the Prius for a minivan, and I am fine with going the used route, however I don’t want to get a complete beater that keeps us worried it won’t make a few hour trip, or will need repairs soon after we get it, or will break down with 3 screaming kids in the car, or will over heat in the Fl sun! Additionally, we do make occasional cross country trips from Florida back to Wisconsin too to visit/stay with family, as it is much more economical than flying the 4 soon-to-be 5 of us back there.
We've had good luck with a "certified pre-owned" (aka "used") Honda Odyssey.  YMMV.

pwegifts

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Re: Financial/Investing Advice + Car Dilemma
« Reply #2 on: March 17, 2015, 06:51:27 AM »
Hello MDM,

Thank you for your reply and link to the article.

Quote
You could do worse than starting with http://www.bogleheads.org/forum/viewtopic.php?f=1&t=6211.
Ill be reading this over to educate myself.

Quote
We've had good luck with a "certified pre-owned" (aka "used") Honda Odyssey.  YMMV.
Yes, we were actually going to go with the Odyssey, just a matter of the year and mileage.  Several family members and friends have them and have good things to say about it, and we liked test driving it.

The thing that we were weighing the most was what we should actually do. We owe about 9k more than its worth.  Do we just take the hit, buy out our lease and get a good used Odyssey for 15-20k that will last for many more years?  Last time we took the Prius in to the dealer for an oil change, they said they would take care of all the negative equity if we would buy a base Sienna for about 36k.  We ran out the door lol.

I would love to not have a car payment, or a very small one.    I am placing a phone call with the "no hassle" Honda dealer today to explain the situation and see what our possible options are.

PharmaStache

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Re: Financial/Investing Advice + Car Dilemma
« Reply #3 on: March 17, 2015, 07:03:47 AM »
Are you 100% sure you cannot fit 3 carseats in the backseat of your prius?  Have you spoken to a registered car seat technician or asked on a car seat forum?  Buying 3 new carseats that fit (the slimmest models, etc) would be cheaper than changing vehicles.

pwegifts

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Re: Financial/Investing Advice + Car Dilemma
« Reply #4 on: March 17, 2015, 07:25:27 AM »
Quote
Are you 100% sure you cannot fit 3 carseats in the backseat of your prius?  Have you spoken to a registered car seat technician or asked on a car seat forum?  Buying 3 new carseats that fit (the slimmest models, etc) would be cheaper than changing vehicles.

With our current car seats, three do not fit.  However, when my wife was looking at carseats, there is the Diono Radian, and then I just came across this blog which gives a listing of ones that fit three across - http://www.thecarcrashdetective.com/2014/08/3-across-installations-prius-v.html/

I guess we forgot about the option of looking back into new carseats, as again we just moved to Florida, so we have been having visitors basically once a month so space in the vehicle has been an issue.  If someone comes to visit, they would just have to rent their own car if all of us are going together somewhere, which is fine since they are getting free lodging.

And keeping the car would definitely save us on gas with the trips as I get about 38mpg city, 49mpg highway.  Just sucks we have such a high payment.

laka

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Re: Financial/Investing Advice + Car Dilemma
« Reply #5 on: March 17, 2015, 07:38:15 AM »
I have an older version of the Radian, and it is amazing how slim they are. I would recommend going with new car seats. It seems like a long time, but before you know it the 3 year old will be in a booster.

pwegifts

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Re: Financial/Investing Advice + Car Dilemma
« Reply #6 on: March 17, 2015, 07:42:50 AM »
laka,

Quote
I have an older version of the Radian, and it is amazing how slim they are. I would recommend going with new car seats. It seems like a long time, but before you know it the 3 year old will be in a booster.

Since you have the Radian, did you have any fit issues when it was rear-facing?  We know its a taller car seat.  And both my wife and I are tall.  I am 6'5 and she is 5'10, so right now if I drive, the rear facing seat is behind me, and I have to move my seat up where my legs are scrunched.  If we move the rear-facing to the other side, there is even less room as you cant extend your feet as much.

laka

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Re: Financial/Investing Advice + Car Dilemma
« Reply #7 on: March 17, 2015, 07:47:58 AM »
We didn't have trouble (and I'm 5'10" and my husband is 6'0").  It is a tall seat, but it is also thinner back to front.  It's been a number of years now (my kids are 9 and 5), but as I recall we couldn't put the front seats quite all the way back (our preferred spot) but it was pretty close and we could manage. 

pwegifts

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Re: Financial/Investing Advice + Car Dilemma
« Reply #8 on: March 17, 2015, 07:49:45 AM »
Thanks for the info.  I think we are going to get out the tape measure and compare.  The ones we have now seem pretty big to me.

laka

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Re: Financial/Investing Advice + Car Dilemma
« Reply #9 on: March 17, 2015, 07:51:42 AM »
See if you can find one to check out in person. Some places will let you bring their demo out to your car to see how it will fit (I had the most luck with smaller, fancier baby gear stores for this).

Rein1987

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Re: Financial/Investing Advice + Car Dilemma
« Reply #10 on: March 17, 2015, 10:42:13 AM »
College/Funds for our kids
 - We’re interested in the 529 program, however was apprehensive if the kids decide not to go to college for whatever reason (we know the 529s can be transferred, so maybe opening 1-2 accounts?, in case one child doesn’t go to school?). We are both college graduates, and supporters of higher education, but it is hard to say what will be the case in 18 years, and when you are planning for 3 separate individuals. Maybe they will go the route of learning a trade instead, who really knows.


Just one thing to mention about the 529s. Since you are self-employed, you might be able to contribute 53k * 2 maximal to your 401k (some might be after tax dollars). Then, you can do backdoor roth to rollover your after tax 401k to your roth ira. You can withdraw roth ira without penalty for education purpose. You do not need to worry about whether kids go to school or not if you fund them using your roth ira, because you can still use them for your retirement. Unless you can maximize this 106k retirement savings, I do not see the need to save for 529.

KCM5

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Re: Financial/Investing Advice + Car Dilemma
« Reply #11 on: March 17, 2015, 01:04:02 PM »
laka,

Quote
I have an older version of the Radian, and it is amazing how slim they are. I would recommend going with new car seats. It seems like a long time, but before you know it the 3 year old will be in a booster.

Since you have the Radian, did you have any fit issues when it was rear-facing?  We know its a taller car seat.  And both my wife and I are tall.  I am 6'5 and she is 5'10, so right now if I drive, the rear facing seat is behind me, and I have to move my seat up where my legs are scrunched.  If we move the rear-facing to the other side, there is even less room as you cant extend your feet as much.

Also, the Radians have an angle adjuster that you can use to make the carseat more upright. So if you bought 3 Radians, had the 3 year old forward facing on one side, the baby rear facing in the middle, and the one year old rear facing with the angle adjuster on the other side, it could work. You might not even need to buy a Radian for the 3 year old, depending on what you have now and how they all fit together. So 2 Radians = $400 rather than buying a new car.

That said, it's your only car and I don't think buying a mini van in this situation is a terrible idea or anything. I'd go for a Toyota Sienna or a Honda Odyssey, myself. Or have you considered a Mazda 5? You'd pretty much have the same car seat issues, but you'd have space for guests.

pwegifts

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Re: Financial/Investing Advice + Car Dilemma
« Reply #12 on: July 04, 2015, 12:08:56 PM »
Hello all,

I know this is an older thread but just thought I would post an update.  My wife delivered our third child yesterday, a baby boy, so now we have 3 kids under 3.5 years old! 

Thanks to the MMM website/forum and all of you kind folks giving advice, my wife is on board, especially after I had her read lots of the articles/threads on early retirement.  It's motivated us to get a plan for moving forward!

1 - We are sticking with our Prius V and instead of buying a minivan, we bought two Radian carsets, then have the Chicco Keyfit to fit in the middle for the newborn.  Its a bit tight, but the Prius is great on gas, and we've found that we only bring the necessities if we are going to do a day trip.

2 - We actually have a budget now!  Being self-employed, our income/expenses vary from month to month, however, we have cut out or minimized our non-business expenses.  We created a Mint account so its super easy to manage everything from one dashboard.   

3 - Next weekend, my brother-in-law (supports the MMM lifestyle himself) and I are setting up our Vanguard account and investment strategy.  We are doing a mix of solo401k, one 529, funds, etc.  He has way more knowledge of that than I right now, but I am slowly educating myself reading lots of threads!  We had a great last few months for our work and are taking much of that extra income to pay some principal on our mortgage and invest.

4 - Biggest challenge has been our food budget and meals, because of the two toddlers (now three) plus the business.  We found ourselves scrambling to put together a meal late in the day.  This then caused us to either order out, or buy more at the grocery store than we really needed.  Now instead, we signed up for a local produce/vegetable delivery service where every week they deliver us a box of fruits/veggies.  The bonus to it is that before the items are delivered, we get a suggested recipe for each fruit/veggie that is included in that weeks bag, so we make our grocery list right off those recipes.  Then usually on Sundays, we make several freezer meals for the upcoming week.  We eat those on the days we dont use the suggested recipe.  Eventhough the delivery service is an added monthly expense, its actually cheaper than if we bought the fruit/veggies individually at the grocery store, plus we arent buying more than we need.

We've also cut out a vast majority of eating out.  Though I will admit that we did order $45 worth of sushi last night to celebrate the birth lol.

Thank you to everyone again, and we are grateful that we found many resources here with MMM!

pwegifts

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UPDATE Re: Car Dilemma - Do we break our lease?
« Reply #13 on: September 10, 2015, 09:24:17 PM »
Hello All,

The car dilemma has been rearing its ugly head again.  The three carseats and lack of room in the Prius is starting to be a bit more than inconvenient.  Our baby is now about 15 lbs so getting the carseat into the middle stall over the other two carseats is a task (wife hates it).  Then while driving, its a crying mess since they start touching/hitting each other, etc.

Coincidentally enough, a couple that lives a few blocks away (and we go to church with) is going to be selling their 2013 Toyota Sienna LE as they needed a Suburban because she is almost due with baby #7 (so they needed a 9 passenger vehicle).  Approx 55k miles, no accidents, clean interior, however there are some exterior scratches (no dents or dings).  New tires last month.

They said they would sell it to us at the dealer trade-in price instead of private party, which is approx 17k (we can probably get them a bit lower since there are some cosmetic scratches).  We are interested in this since they are the original owners, and we actually know them so have a history on the vehicle.

The bad part is that we are upside down on our current lease due to a horrible car buying decision before MMM.  Our payments are $623 per month, with about 2 years left on the lease.  Our buyout is $27,821.  Our current Prius is worth $18000/$19500 depending on what site you look on.

So, do we buy ourselves out of the lease and fork over the approx 26k for a clean slate and no more payments? 

We have about 65k worth of tangible money (non-retirement accounts), so we do have the cash to do this outright. No monthly payments would be nice as we could take that existing car payment and put it directly to investments.  However at the same time, we are taking a chunk of change out of our current tangible stach.  On top of that, our business has been growing, so our income is also increasing which makes me less worried about taking that amount out now.

Also, I will add that both my wife and I do not want to purchase a vehicle that we will have to worry about repairs for a bit of time.  I know that is against MMM, however with the kids and the business, vehicle repairs are the last thing we want to deal with right now.  So we thought a few years old vehicle would be a good compromise.

Suggestions?  TIA

MDM

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Re: UPDATE - Car Dilemma - Buy out of our current lease?
« Reply #14 on: September 10, 2015, 09:39:13 PM »
Money can't buy happiness - but it could buy you more room to transport the little ones.  A one time (or ~15+ years until you replace the Sienna) exchange of money for comfort could be justified.

pwegifts

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Re: UPDATE - Car Dilemma - Buy out of our current lease?
« Reply #15 on: September 10, 2015, 09:55:56 PM »
Quote
Money can't buy happiness - but it could buy you more room to transport the little ones.

Yes true.  My wife is on board with MMM, however the compromise is that we dont live being scared to spend money if it will improve our/someone elses life.  However, obviously this is a big decision.

Eurotexan

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Re: UPDATE - Car Dilemma - Buy out of our current lease?
« Reply #16 on: September 11, 2015, 11:17:21 AM »
To me part of being Mustachian is to focus on what is important, rather than just throwing money away on crap and leading a pointless consumer oriented lifestyle.

Buying the Sienna seems, to me, a smart move. Three young kids is a lot and safety is very important (not that they're not safe in the Prius, but I hear you about the close proximity and the fighting, not fun for the driver!). You have put a lot of thought into this decision, you have tried other options and you are not going into debt, I believe it's the right call.

Lesson learnt on the Prius. We all made dumb decisions before we found MMM, put it behind you and move on.

Good luck!

KCM5

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Re: UPDATE - Car Dilemma - Buy out of our current lease?
« Reply #17 on: September 11, 2015, 11:46:33 AM »
The Sienna seems like a good decision. You can't change the way you financed the Prius and are going to pay for it anyway, so might as well do it now.

Have you tried to put the baby in one of the outboard seats rather than the middle?

Axecleaver

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Re: UPDATE - Car Dilemma - Buy out of our current lease?
« Reply #18 on: September 11, 2015, 11:52:33 AM »
Have you looked at LeaseTrader.com? I have never used them, but your dilemma suggested to me that maybe there's a market for this kind of problem, and two minutes of googling later, I found this website. Worth checking out. Not sure how big of a market there is for buyers - seems like you could theoretically unload it if you subsidized the lease significantly.

Otherwise, you have to choose between buying out the lease (pay the remaining payments) which, if there's 24 payments of $623, is about 15k. Or, buying the car (27,821 + tax) and reselling it (~18k), which will cost you at least 9k, maybe more, with added risk. You may want to consider trying to sell it now, to see what you can really unload it for. Leases put you in a really bad place with a lot less flexibility than you would have if you buy, but what's done is done, and at least you learned your lesson.