using roth ira to pay car off smart way.

[investingnoob]

Warning big post! here ya go JIM!

Ok so in 2009 my gross was around 55,000. AGI was $42,707. My taxable was $33,357.
In 2008 it was really about the same..

My job requires me to drive my own car store to store. I get paid tax free mileage .50/mile.
I was driving a lot of miles because my route was so far away. Unfortunately I got changed to a route right next to my house which seems good but made me lose tons on mileage. I know it means less gas, but I was actually making money off them.

Also I haven't gotten any overtime, maybe 1-3 hrs a week. I was getting 10+ a week.
So with both those hits, my paychecks are probably $200 less a week at least.

Now the number crunch.

It's difficult to say because my job pay is so fluctuating, but lets assume a 40hr week.
take home is $650/week. after putting 4% into 401k, medical, dental, vision, union dues.

Pay: $650
I charge rent to my buddy $350/month + split utilities in half
My girlfriend pays me: $400/month.
My income a month= $3350 (w/o splitting utilities)

Bills=
Mortgage= $1,430.54/month
Power/gas= $65~/month
Home owners= $76/month
Garbage=$38.60/every other month
water=$62~/every other month
Comcast bill=$133.60/month (paid on my discover card)
Cell phone bill=$97/month (also paid on my discover card)
Gym membership=$21/month
Car insurance=$250.66/month
Car payment=$373.83/month with $$4,685.26 left as of right now.

Now my friend splits utilities(comcast,power/gas,water,garbage) in half, so my utilities are $375.20 on a month I pay garbage/water.
Since my comcast and cell are paid on my card I'll subtract that here.
Bills=$2220.43

I use discover card to pay for everything else.
Just got it to make some cashback, opened my account in the end of june.
My spend analyzer shows in the month of JULY...
I spent $1496.00 for that 1 month...

Merchandise=$695 (I had to buy clothes/shoes for my friends wedding as his bestman. The rest is from walmart for grocieries.)
Services=$250 (I pay my comcast bill through here and my phone bill)
Restaraunts=$193 (eating out)
Gas=$134
Travel/entertainment=$62 (includes my gym membership, buddies bachelor party)
Dept. store=$49 (clothes for wedding)
Supermarkets=$43 (minor grocieries)
home improvement=$32 (BBQ parts)
Medical services=$30 (allergy checkup)
Gov. services=$8 (stamps)

Total=$1496
------
Income= $3350/month
expenses=$3716.43 for month of July.

HOLY CRAP! I never actually totaled everything up like this...

Now that all thats done, I really can't sell my house, I got my $8k refund, and I'd have to pay that back if I sell it in 3 yrs. I've only been in it for 6 months.

And I freak out every month when bills are paid. I'm living paycheck to paycheck with anxiety like the many Americans out there...
I've lived with my parents making this kind of money for 3yrs, so as you know grossing 55k/yr with no bills, I just had no care for money, I spent when I wanted without thinking about it.
never lived on my own, so this was a huge step buying a house (not smart I know)
I can sit here and blame my brother n law for pushing me to buy a house since it was the time to buy but when really I wasn't prepared...

I really don't know what to do right now, I'm just trying to pay the bills and get through this. As you can tell I can't afford to put into my roth ira anymore...let alone savings...

401k as of right now=$10,500
Roth Ira=$6k
I have $10k in savings, ($8k from home buyer refund.)
$2800 in checking, which is about to be crushed from my discover card bill $1100 due on the 10th.
My car insurance will be due on the 18th. My car payment the 18th.
Then before you know it, my home mortgage will be due again...AHH I'm so stressed...

[investingnoob]

BumpIng

[jIM_Ohio]

Warning big post! here ya go JIM!

Ok so in 2009 my gross was around 55,000. AGI was $42,707. My taxable was $33,357.
In 2008 it was really about the same..

My job requires me to drive my own car store to store. I get paid tax free mileage .50/mile.
I was driving a lot of miles because my route was so far away. Unfortunately I got changed to a route right next to my house which seems good but made me lose tons on mileage. I know it means less gas, but I was actually making money off them.

Also I haven't gotten any overtime, maybe 1-3 hrs a week. I was getting 10+ a week.
So with both those hits, my paychecks are probably $200 less a week at least.

Now the number crunch.

It's difficult to say because my job pay is so fluctuating, but lets assume a 40hr week.
take home is $650/week. after putting 4% into 401k, medical, dental, vision, union dues.

Pay: $650
I charge rent to my buddy $350/month + split utilities in half
My girlfriend pays me: $400/month.
My income a month= $3350 (w/o splitting utilities)

Bills=
Mortgage= $1,430.54/month
Power/gas= $65~/month
Home owners= $76/month
Garbage=$38.60/every other month
water=$62~/every other month
Comcast bill=$133.60/month (paid on my discover card)
Cell phone bill=$97/month (also paid on my discover card)
Gym membership=$21/month
Car insurance=$250.66/month
Car payment=$373.83/month with $$4,685.26 left as of right now.

Now my friend splits utilities(comcast,power/gas,water,garbage) in half, so my utilities are $375.20 on a month I pay garbage/water.
Since my comcast and cell are paid on my card I'll subtract that here.
Bills=$2220.43

I use discover card to pay for everything else.
Just got it to make some cashback, opened my account in the end of june.
My spend analyzer shows in the month of JULY...
I spent $1496.00 for that 1 month...

Merchandise=$695 (I had to buy clothes/shoes for my friends wedding as his bestman. The rest is from walmart for grocieries.)
Services=$250 (I pay my comcast bill through here and my phone bill)
Restaraunts=$193 (eating out)
Gas=$134
Travel/entertainment=$62 (includes my gym membership, buddies bachelor party)
Dept. store=$49 (clothes for wedding)
Supermarkets=$43 (minor grocieries)
home improvement=$32 (BBQ parts)
Medical services=$30 (allergy checkup)
Gov. services=$8 (stamps)

Total=$1496
------
Income= $3350/month
expenses=$3716.43 for month of July.

HOLY CRAP! I never actually totaled everything up like this...

Now that all thats done, I really can't sell my house, I got my $8k refund, and I'd have to pay that back if I sell it in 3 yrs. I've only been in it for 6 months.

And I freak out every month when bills are paid. I'm living paycheck to paycheck with anxiety like the many Americans out there...
I've lived with my parents making this kind of money for 3yrs, so as you know grossing 55k/yr with no bills, I just had no care for money, I spent when I wanted without thinking about it.
never lived on my own, so this was a huge step buying a house (not smart I know)
I can sit here and blame my brother n law for pushing me to buy a house since it was the time to buy but when really I wasn't prepared...

I really don't know what to do right now, I'm just trying to pay the bills and get through this. As you can tell I can't afford to put into my roth ira anymore...let alone savings...

401k as of right now=$10,500
Roth Ira=$6k
I have $10k in savings, ($8k from home buyer refund.)
$2800 in checking, which is about to be crushed from my discover card bill $1100 due on the 10th.
My car insurance will be due on the 18th. My car payment the 18th.
Then before you know it, my home mortgage will be due again...AHH I'm so stressed...

I was away for a long weekend, sorry for delay

Outside of the $700 you spent on wedding, would you be spending less than you earn each month? If you look at June or May bill, would it be $800/mo on discover, or closer to $1400?

On the tax returns- did you itemize or claim the standard deduction?
Have you received the $8000 tax credit yet for the home purchase?

[investingnoob]

Yes my cc bill will be less w/o wedding.
I have my $8k from refund in my savings. Which I could use to pay car off, but would mean id have little savings.

I just spent $160 at Costco on grocieries which should last a good while, ill stop going to stores to buy groceries every night I think that was a big spender.

[jIM_Ohio]

Yes my cc bill will be less w/o wedding.
I have my $8k from refund in my savings. Which I could use to pay car off, but would mean id have little savings.

I just spent $160 at Costco on grocieries which should last a good while, ill stop going to stores to buy groceries every night I think that was a big spender.

Quick math suggests if you pay off car, you would have 1 months expenses in savings (correct?).

That is an option to consider

Can you remind me of these line items

1) Monthly income
a) with just your job
b) with rental income
c) (do you claim the rental income on tax return)?

2) Expenses
a) I have $2220+$800, but some of that overlaps
its best to lump all expenses in one list, then break it down later, than to have two lists with some expenses which overlap.
b) focus on 4 types or breakdowns of expenses
b1) total expenses (all expenses from all categories)
b2) required expenses- these expenses exist even if you lose your job
b3) tax deductible expenses- if you claim the rent, you MIGHT be able claim other expenses as deductions For example if you claim the rent, a portion of heating bill is deductible as a business expense.
b4) business related expenses (these might also be deductible)

b3 and b4 are best to think about now, and as you learn more about taxes, you might find some better cash flow because of higher tax return.

3) Debts list amount, interest rate and projected payoff date
3a) house
3b) car

4) Tax return
a) did you itemize in 2010 (on 2009 return)?
b) have you projected mortgage interest onto 2010 taxes? It should increase refund. If you used turbo tax online, go there and use projected 2010 income with 2010 taxes withheld with 2010 property taxes and mortgage interest paid and see what your refund might be.
c) with 2008 and 2009 tax returns being similar, you have a trend so you know if you take standard deduction, you expect the 2010 return to be about the same (try this), then change to itemized deductions and quantify the difference.


Here is what I am thinking:

1) Pay off the car with some of savings (leave 1 mo expenses in savings), this adds $350.mo to cash flow.
Decide how long your car will last (for example 6 more years) then decide the value of the car you will buy in 6 years (for example 20k) then divide 20k/72 (72 is 6 years and 12 months per year) and this is $277. So put $277/mo into savings (in 16 months savings will have same amount in it that it does now).
The use $80/mo to save for future (I suggest adding it to 401k or possibly Roth).

2) You need budget to balance before rent is paid (from girlfriend or from roomate) if at all possible. At minimum try banking about 10% of rent payments to you.

3) You will probably gain some cash flow once you see the higher tax return- I would put a short term focus on this- if old tax return was $1000 and new tax return is $6000, then you want to get $400/mo more take home ($5000 difference/12 months) and then apply that $400/mo to either 401k or Roth.

4) Set goals
a) Set a goal to get 401k+Roth deposits to 15% of gross income
b) set a goal to add 5% of gross to savings (the $277/mo I outlined from paying off car counts towards this goal)
c) set a goal to never finance a car purchase again
d) set other goals as you see fit

5) See money differently.
How you viewed the $.50/ mile is a good example.

You said you were reimbursed less for less driving (makes sense) and it HURT cash flow. I say it helped, because now the car replacement timeframe might have gone from 4 years to 6 years. For example had you had more miles, that car math where I came up with $277/mo to replace car might actually be $416/mo (20k car divided by 48 months to save for replacement). The lesser milage is SAVING you money, not giving you more money.

Any milage reimbursement should be seen as gas+car depreciation. If it costs $40 to fill up tank, move $40 into checking, and bank the rest to help pay for the next car (trust me on this, the depreciation aspect of $.50/mil is more than the gas costs- run the numbers to decide how much a car is worth after you drive it for work).

[investingnoob]

dont know much about taxes. I've never had a house to write off. Before I lived with parents so I couldn't write anything so i usually got maybe $200 back...supposedly I made too much with nothing to write off which makes me get nothing back.

[jIM_Ohio]

dont know much about taxes. I've never had a house to write off. Before I lived with parents so I couldn't write anything so i usually got maybe $200 back...supposedly I made too much with nothing to write off which makes me get nothing back.

IIRC your original problem was cash flow- you wanted to take money out of a Roth to pay down the car...
but you would not withdraw from cash to pay down the same debt- and you do have the cash to pay off the car.

In the same discussions, it might appear you have too much house- but if you get rid of the house, you don't have the cash to pay off the car...

so I believe the best thing for you is to find the most financial efficient solution (even if its not the best solution).

Tough to find that solution without knowing how much house is going to change taxes though- this might give you a 5k per year annual raise (it might only be $1000, but it might be $5000 or $10,000).

Nothing is set in stone if you "project" the tax return for 2011, but it should give you an idea if a large windfall is coming your way and I believe it would fix some of the cash flow issues which started this thread.

1) Focus on income
as I posted before, list income sources (rent vs W-2 vs mialge reimbursements) as separate line items. Each of these items has a cost and risk associated with it, so count them separately so you know the magnitude of each risk.

2) Focus on expenses- total expenses is the key, not which account they are paid from, or why the expenses is incurred. Create sub categories for expenses if you need to keep track of details...

at minimum you need to compare total income to total expenses and get that to balance month over month. Paying off the car should help this as well.

3) Focus on debt- in general when cash flow is tight, keep debt to a minimum and if you do incur debt, keep it short (meaning finance it for 12-24 months) to make sure you can truly afford what you finance.

4) Focus on taxes- there are tax implications for owning a home, there are more tax implications for renting- you might want to take a tax course in the fall to learn the details. While you may not have planned to claim the rental income, its very possible claiming it gains you more in refunds than it does cost you in taxes owed. You need to know how to do the math to check.

[investingnoob]

Ok well seeing as I did get to much house but I'm not selling it for 3yrs so I don't pay $8k back to government.
I can do this, things will be tight, ill just have to budget and track income and expenses.

I'm 99% sure I'm going to just pay my car off with my savings. My saving will take a hit but ill save in interest and get the monkey off my back. I could just get liability on the car now that its paid off, but it is blue booked at $15k so I probably should keep full coverage.
Thanks for your time and advice jim.