Financial Crossroads

[REZ10191]

Hello,

I'd like to complement everyone on what a great community you have here. I have been reading this forum on and off for a couple of years now and have found many of the discussions interesting and enlightening.

I've finally got to a bit of a crossroad in my own financial life and would appreciate the input of the community.

First let me run down my current situation:

I am 26 and work full time, salaried at $72K/year. My wife is a stay at home mom with our 18 month old daughter. Our next child is due in August. We will probably have one more in the future. I am also working on a Master's degree (fully supported by my company) that will be done by this time next year. We live in an area with relatively low cost of living in the north east.

Assets:
Savings#1: $12K ("EF" / Car Fund)
Savings#2: $1.1K (my own "escrow" account for taxes and insurance)
Checking: ~$3K (3K is when all the bills are paid, I consider it part of EF)
403B: ~$56K (automatic 5% employee / 10% employer)
529: $2.5K (for daughters college fund)

Debts:
School Loans: $9.2K @4.5%
Mortgage: $104K @4.5%, 14 years remaining. House was bought for $142K.
Auto: None
Credit Card: None (pay off at the end of every month)

Monthly Budget: ($4300 Net)
$850 - Mortgage (P+I)
$460 - Taxes + Insurance (Home and Auto, goes into "escrow" mentioned above)
$51 - Internet (FIOS)
$90 - Student Loan
~$200 - Electric/Gas (Average)
$68 - YMCA Membership
$123 - Cell Phones (4 phones, plan split with in-laws, however due to my father-in-law's extended unemployment, we have been paying the whole bill).
~$1400 - Credit Card (Average, includes all other expenses such as gas (~200) / groceries (~500) / meals out (~125) / house&auto maintenance (~140) / etc (~400))
$1000 - To Savings #1

My wife and I would like to buy a minivan in the near future. My current vehicle is a 1984 Nissan Maxima that, despite it being in going mechanical condition, I don't think is responsible to drive safety wise (no airbags, etc). I can probably get a used Grand Caravan with ~50K for around $12-13K. I could either pay this from my cash reserves, or finance. Another option I've been considering is buying a new van and financing about $15K @ 2.9% (10K down out of savings). A 4 year loan would be about $350 a month. The payment would come out of the 1K to savings. One advantage to that plan is it gives me a new car with a warranty, that I will drive for at least 10 years, and it leaves some of my cash reserves for other possibly higher yield activities, such as opening a Roth IRA (I know, I should have this done already).

Finally, when the new baby comes, we will start being cramped for space. Our current home is a Cape Cod that is not well suited for more than two children (probably a poor decision on our part when we bought it). Our next home will probably be in the $200K range. One thought I have is that while we are OK in our current home for now, with interest rates being so low, it might be time to move soon (we have only lived in our current home for 3 years). I don't think we'll want to be in our current home for more than a year or two after the new baby comes. I am thinking buying this summer might be a good idea due to the low interest rates, which might not be so low if we want upgrade two years from now.

So the question is this: With the major financial decisions I have to make in the near future, what would you do?

Looking forward to your thoughts and inputs.

[ktmarvels]

Some quick thoughts are that I would not buy a new car, they immediately lose value as soon as you drive them off the lot. You are much better off buying a used van. I also wouldn't spend your whole EF on a vehicle. The moment you do, you are bound to have some catastrophe and need that money. Maybe try and cut back and save some extra to buy for the van and start saving for buying a new house. You'll need cash on hand for closing, especially if you haven't sold your other house. How is the market in your area? Would you be able to readily sell your house? Would you be able to get your money back?

[Hector]

Apart from EF, you dont have cash available. I wont pay 10k down-payment from EF to buy a new car. Ideally I would like to buy a used car in cash, but you do not have cash available for it. If you feel like you need to buy 12k van now, you will need to take car loan.

Would you able to sell your house for more than 104k? If so, would that money be enough for down-payment and closing cost for new house?

[Little House]

I'd look into a used vehicle with a warranty (like a certified pre-owned.) I also wouldn't empty the EF fund for the car; perhaps 1/3 of that fund could be used for the "new" used vehicle. That leaves you with a little savings cushion in case of an actual emergency. Of course, this means you'd have to finance the rest adding a monthly car payment to your monthly bills.

As for selling your house and buying a new one, can you get a decent price for it? Are you able to pay more each month towards a higher mortgage payment? Is there any way you could stay in your current house with a few modifications like an add-on? Just a thought, but there are a few companies that can turn a portion of the attic into a separate bedroom for much less than buying a new house.

[Frugal]

I would also save money by staying put and not buying a new car, but rather a reasonably used one (I guess that means one that would not require a ton of money for repairs).

[maat55]

Honestly, I think you have a case of "I want more lifestyle" at the expense of establishing a sound financial plan. You do not have enough money to buy a new car and house. Sure, you can do what normal people do, but you would likely regret it later.

I personally, would settle for a 8k car with cash, rebuild the EF, then establish a car/house fund.

[REZ10191]

Thanks, everyone, for the advice; I appreciate it.

The housing market in my area has stayed fairly stable. Though you can never be sure, I'm almost certain I could get most of my money out of the house. The only reason we were considering buying the house this summer is that the interest rates are so low, and we are likely to stay in the next house through when the children graduate. We could certainly stay here for the time being, but am I missing out on an opportunity? I guess no one can say for certain.

I don't think I've fallen for "I want more lifestyle". I don't think my post was clear; I never thought we could afford to do both the house and the van. I've been mulling over this car situation for probably close to a year. My current commuting vehicle is pushing 30 years old...

I think you guys are right about waiting. I should mention is that I live in a particularly bad area as far as snow. Due to the amount of salt spread on the roads through the winter months, the used market has very few "clean" vehicles rust-wise. I've also found the used market is fairly pricey. Most of the vans in the 8K range would probably require 2-3K in repairs and still be pretty rusty. Another option I've considered is trucking something up from down south, but that can also get expensive.

I guess the overall advice everyone has is to hold on to what I have in the EF (or appreciable fractions thereof) and continue to save.

Thanks for everyone's comments.