Semi-new to finances, lots of questions

**photo** · 10-12-2011, 05:40 PM

Hi and welcome to the forum.

Originally posted by EchoFilterr View Post

-$3,000 out of a $3,000 credit limit on my credit card (only have one)

The number of cards doesn't matter. What percentage of credit you have available to you, does. You are maxed out big time, which is not a good start.

Now my Achilles heels:
-I do have a car, but it doesn't work. I have a fascination with classic cars, and so I bought a 1989 Pontiac Firebird as my first car for $600 cash. It is a restoration project. I know it's a money pit, I know that insurance is going to be high as hell, and I know I'm going to need a second car for the winter. (RWD and all the weight in your front end doesn't work too well..)

You said you want to break out of the welfare/poverty cycle. Yet, you're contributing to your own financial demise by giving into temptations that are destructive. Is the $40 storage fee for the car? Financial stability does not arrive by hope. You have to take action.

-I am also a collector.

And that's where most of your money will go until you switch hobbies to collecting cans for cash. You do have choices, and your choices are working very much against you.

What should I be doing that I'm not already doing? What should I stop doing?

A simple start is to quit spending. Your other choice is to dramatically increase your paycheck, which is unlikely at this time.

I also want to buy a house next year (hopefully I'll be at a higher paying job) because I've been getting told that buying a house right now is actually cheaper than renting.

No, no, no. The only way for you to even begin thinking about buying a house is to drastically change almost everything you're doing now, from the size of your paycheck to your spending habits. Forget about buying a house for a few years.

Getting a car loan would have a higher interest rate, which is why I would want to borrow against the house instead. What else am I overlooking?

Fortunately, it is unlikely that you'll receive a loan. Reverse your thinking and learn to reduce, not spend.

**disneysteve** · 10-12-2011, 05:42 PM

Originally posted by EchoFilterr View Post

I have a storage unit at $40 a month

What are you storing and is it really worth $480/year to store? Is there no room in your parent's home for your belongings?

I owe my college about $800 before I can actually receive my diploma
Due to some screw-up, my college actually owes me $7,000

Why can't they take the $800 you owe them out of the $7,000 they owe you, pay you $6,200 and be settled?

I do have a car, but it doesn't work.

Realistically, how much will it cost to get the car in usable condition?

I'll have a six month safety net (where I could pay my payments without any income) by September 2012, with $4,800 in it

Start paying down the credit card, big time. I am just now starting to pay something other than the minimum payment (now that I have a job), and I'm thinking of putting $225 into it every month. It would be completely paid off By Jan 2013

I would forget about building the emergency fund to 6 months worth. Get $1,000 in there and then turn your attention to that credit card. Get that paid off as fast as you can. You'll come out way ahead that way considering the 17.24% interest you are paying on the card. Use whatever is left from the $6,200 after the tires and mower blade to get rid of the CC debt. NEVER EVER again use a credit card to make a purchase that you can't afford to pay for in full when the bill comes.

**EchoFilterr** · 10-12-2011, 07:53 PM

Let me clear up a few things since I might have been a little misleading.

From my credit card being maxed it may seem like I spend a lot of what I don't have, I really don't. I feel I'm one of the more financially responsible people inside of my circle. After graduating college I took a trip to California (from Ohio) which pushed it over that 30% limit I usually kept it at. After that the family dog got sick and I was the only one who could cover any kind of the expenses. That was $1,000 in vet bills I was not expecting.

The car is actually a less of a liability than it sounds. Yes, it's not exactly safe in Ohio winter's (at all), but isn't $800 for a working car good in any situation? Other than a lot of time I've only put in around $200 (bought at $600). I got it low because the previous owner thought the transmission was bad. To get one rebuilt + labor it was estimated around $1300. I fixed it for $25 and an afternoon. He put oil in the transmission so I flushed the transmission, the transmission fluid cost $25. To get it completely fixed I'm looking at like $250, since my car needs new tires as well.

Yes I am a collector, but I was just making a point. It's very easy for me to stop this expense at any time and have done it several times already, like I said I am very content so I don't feel like I need anything (except maybe my own place).

As for increasing my paycheck, I see that as actually a very possible opportunity. Before I took this contract position, I was interviewing at places that started at $20-24. Unfortunately I couldn't exactly talk about my experiences with coworkers, and just school recollections wasn't enough. Once I have a professional reference under my belt, I should be getting similar efforts; unless this whole Greece thing puts us back in for a double dip recession. Of course, I know not to count on something I don't already have.

The storage unit isn't being used for the car, but it is being utilized. Instead of moving to a place without anything, and having all of those financial burdens related to a first time move hit me at once, I figured it would be better if I slowly acquired those things over time. For example I was at the thrift store looking for a few more work shirts. A table set in pretty good condition was there so I got a dish/cup set for under 7 bucks since everything was 1/2 in the store that day. I put those in the storage unit. The insurance is actually 9$, so it's $29.99 without it, and I've considered dropping the insurance since the stuff in there isn't really worth that much or only has sentimental value that couldn't be monetarily replaced.

I also forgot to mention I already have $450 in the savings account.

Now for some more of my questions:

After I get the Credit Card paid down, what's the next step to increasing my credit score? Opening another credit card right? I don't plan on taking any trips in the next few years and as part of the agreement to paying the $1,000 vet bill my Mother got pet insurance for the dog, so there shouldn't be any big expenses that surprise me anytime soon. Even if something did happen, I now have that savings account instead of just taking the hit on my CC.

Also, the college is not allowed to handle money that is 'mine'. Before it would have been payment for my tuition, but since they already charged me for it they can't legally decide what to do with the 7k. Thus refunding it back to me.

**EchoFilterr** · 10-12-2011, 07:54 PM

Originally posted by EchoFilterr View Post

Let me clear up a few things since I might have been a little misleading.

From my credit card being maxed it may seem like I spend a lot of what I don't have, I really don't. I feel I'm one of the more financially responsible people inside of my circle. After graduating college I took a trip to California (from Ohio) which pushed it over that 30% limit I usually kept it at. After that the family dog got sick and I was the only one who could cover any kind of the expenses. That was $1,000 in vet bills I was not expecting.

The car is actually a less of a liability than it sounds. Yes, it's not exactly safe in Ohio winter's (at all), but isn't $800 for a working car good in any situation? Other than a lot of time I've only put in around $200 (bought at $600). I got it low because the previous owner thought the transmission was bad. To get one rebuilt + labor it was estimated around $1300. I fixed it for $25 and an afternoon. He put oil in the transmission so I flushed the transmission, the transmission fluid cost $25. To get it completely fixed I'm looking at like $250, since my car needs new tires as well.

Yes I am a collector, but I was just making a point. It's very easy for me to stop this expense at any time and have done it several times already, like I said I am very content so I don't feel like I need anything (except maybe my own place).

As for increasing my paycheck, I see that as actually a very possible opportunity. Before I took this contract position, I was interviewing at places that started at $20-24. Unfortunately I couldn't exactly talk about my experiences with coworkers, and just school recollections wasn't enough. Once I have a professional reference under my belt, I should be getting similar efforts; unless this whole Greece thing puts us back in for a double dip recession. Of course, I know not to count on something I don't already have.

The storage unit isn't being used for the car, but it is being utilized. Instead of moving to a place without anything, and having all of those financial burdens related to a first time move hit me at once, I figured it would be better if I slowly acquired those things over time. For example I was at the thrift store looking for a few more work shirts. A table set in pretty good condition was there so I got a dish/cup set for under 7 bucks since everything was 1/2 in the store that day. I put those in the storage unit. The insurance is actually 9$, so it's $29.99 without it, and I've considered dropping the insurance since the stuff in there isn't really worth that much or only has sentimental value that couldn't be monetarily replaced.

I also forgot to mention I already have $450 in the savings account.

Now for some more of my questions:

After I get the Credit Card paid down, what's the next step to increasing my credit score? Opening another credit card right? I don't plan on taking any trips in the next few years and as part of the agreement to paying the $1,000 vet bill my Mother got pet insurance for the dog, so there shouldn't be any big expenses that surprise me anytime soon. Even if something did happen, I now have that savings account instead of just taking the hit on my CC.

Also, the college is not allowed to handle money that is 'mine'. Before it would have been payment for my tuition, but since they already charged me for it they can't legally decide what to do with the 7k. Thus refunding it back to me.

EDIT: Forgot to mention that once I have my own place, I will no longer need the storage unit and could cancel it. Doesn't change anything current though

...Looks like I hit the quote button instead of the edit button, my bad. Doesn't seem like we can delete our own posts on here either :\

**photo** · 10-13-2011, 07:33 AM

Originally posted by EchoFilterr View Post

I feel I'm one of the more financially responsible people inside of my circle.

Consider expanding your circle. I'm not trying to be mean, but you're making decisions without taking into account other considerations. It sounds like your friends are not good examples, which does make it more difficult for you.

After graduating college I took a trip to California (from Ohio) which pushed it over that 30% limit I usually kept it at. After that the family dog got sick and I was the only one who could cover any kind of the expenses. That was $1,000 in vet bills I was not expecting.

So, the problem is that you took a trip you couldn't afford and in addition had unexpected expenses. Think about how you'll handle this situation in the future, because unexpected expenses are a part of everyone's lives. The interest that you're paying on the card is money being thrown away.

Yes, it's not exactly safe in Ohio winter's (at all), but isn't $800 for a working car good in any situation?

Not if it's just sitting in a garage all winter.

Unfortunately I couldn't exactly talk about my experiences with coworkers, and just school recollections wasn't enough.

Professional starting positions right after graduation don't expect experience. A friend of ours just graduated with nothing more than an undergrad degree (albeit in engineering) and a starting salary of $72,000.

Of course, I know not to count on something I don't already have.

You are not demonstrating that with your actions.

Instead of moving to a place without anything, and having all of those financial burdens related to a first time move hit me at once, I figured it would be better if I slowly acquired those things over time.

At nearly $500 a year for storage costs? That could pay for quite a bit of furnishings itself. You are not entitled to an apartment full of furniture when you first get a place. Many people do something rather unique these days and actually wait until they can afford to buy something before they do.

You seem to justify all your extravagances then want to know what you can do to improve your credit score. The fact is you have to change the way you think. Don't buy something just because it's on sale or is a good deal. Buy only essentials (food and a few clothes for work plus basic hygiene products) until you get your credit card paid off, then build your cash reserves and then begin to think about buying non-essentials. If you don't change the way you spend and think about money, then you won't change your situation.

**naomibatac** · 11-16-2011, 11:09 PM

Semi-new to finances, lot of questions

You really have lots of questions. However, the bottom line is lack of focus. It seems you are trying to carry so many things that you can't carry! Try to unload and check which luggage you should be carrying that is not burdensome. Start with your debts and get rid of white elephants. Sell some things in order to get cash to pay off your debts. As much as possible don't use up whatever cash you have. Focus and make a plan of action, something concrete and workable.

**YLTL_Dan** · 11-18-2011, 07:00 AM

Echo -

I have no doubt you will be able to break the cycle. It might seem like people are being hard on you in this forum, but they're just giving you tough love to try and help you.

The most important thing for you is to break the mentality and thinking that has kept your family in the cycle of poverty. I don't say this as an insult; I grew up poor and had to unlearn some of my previous habits from my family.

In Living Within Limits, Garrett Hardin said "Poor people, as a group, seem to be deficient in the ability to defer the gratification of their desires to a distant future."

Pretty harsh stuff, but it's something that kept my family in the cycle. When we finally had some money, my parents would run out and spend it. This guaranteed the moments we finally had money were few and far between! You need to break the mental cycle and continue listening to people in forums such as this one. You're taking the first step by being here - that's why I know you'll do it.

Just to reiterate what was said earlier, on average, your salary tends to be very closely associated with the people you hang around with. You don't have to dump your friends, but try to find positive influences you can learn money from. Check out my website and my "OWN IT" plan which will take you through the steps of controlling your money and give you tools to do it. Let me know if you have any questions - I'd love to help.

**jteezie** · 11-18-2011, 11:39 PM

I don't understand why everyone's being so harsh on Echo. I think he's doing fairly well because he is being very methodical, asks the right questions, has done thorough research and is overall quite aware of his overall situation (personal and financial, present and future).

I have a few questions for you. How much extra does it cost your family because you are living there? What is the extra cost to you + your family if you move in with a roommate by renting a room? Please consider the money your parents will gain back through welfare, the savings in storage cost, your rent, utilities and any gas/transportation costs that may be saved/incurred from your new location.

The storage unit idea isn't bad in itself. It displays that you have a long term mindset and you are thinking about it in the same way as your thinking about savings - a little at a time to manage the costs by accruing it over time. You may want to consider getting renters insurance. It will cover a lot more than just the stuff in your storage unit. Renters insurance is one of the best deals around for young people because it covers all your personal property (it may include your car in this situation too if it gets stolen), plus you also get medical and liability insurance if people hurt themselves in your apartment. It's cheap too. I pay $54 a year which covers about $2500 in personal property (essentially only have it in case my car gets broken into or some accident destroys something expensive around the apartment). It will cover your stuff in storage so save yourself the $10. Additionally depending on your state, getting renters insurance may qualify you for a 10% car insurance discount... so it's a good deal.

As for the college situation. Pay off the $800 owed so you can officially get your degree. This will help for background checks if you really want to start a professional career. Consolidation is probably a good idea as you can likely reduce the rates by .25-.50% and it will also be easier to negotiate some sort of payment schedule that adjusts based on your income. So you pay less now and more when you earn more. This is a personal preference, and many people will disagree with me, but I like to stretch out my student loan debt as long as possible because I have low rates and I like that it is classified by the credit agencies as installment credit (same as a loan or mortgage), so I feel like I don't need to ever get a mortgage or car loan in order to diversify and improve my credit. Someone please correct me if I'm wrong about this factor in the FICO score calculations.

With the remainder of your refund, you should pay off your credit card methodically. I'd say to plan to pay it off in 6 months (opposed to a lump sum). Sure you might save like $250 on interest, but by spreading out the payments, you insure that you have more cash at hand just in case some unexpected expense pops up. Hopefully over 6 moths, you will build up other savings that offset the cash flows out to pay off your card. Does that make sense?

Your expenses do seem to be lower than your income, and I think it's good that you are planing an aggressive savings strategy, but I highly encourage you to take some of that and put it into a Roth IRA (perhaps 50% of what you had originally planned to put into savings). I suggest this because you seem to have a relatively healthy savings rate, meaning you'll be able to save enough albeit somewhat slowly at your current income level, so you have some freedom to really plan for the long run to break this cycle of poverty. Being 20, you're in a fantastic situation if you invest early.

Here is a general rule I share. Lets say you invest $100 a year from age 18-25. In order to have the same return from age 26 to the REST OF YOUR LIFE, you need to invest 100 dollars a year. That's 7 years of your youth vs 40-50 years of adulthood. The difference is so amazing, so start young.

Oh a few more things. Stop the collections. That's how people waste money. The car, given it's cheap cost, might be a money saving hobby but only if you would have spent more money with your free time had you not spent that time working on the car.

**jpg7n16** · 11-19-2011, 05:05 AM

$7,000 school refund
+ 450 already in cash
- 800 owed to school for diploma
- 3,000 paying off CC
$3,650 in your EF

And you stated in post 1 that your car doesn't run. In post 2, that it's in working condition. Which is it?

A running car is a necessity. A collectible restoration is a want. Use some of the $3,650 to purchase a running vehicle/get yours running.

From there --

1 - if your employer offers any match for your 401k, start taking it, contribute the match, no more, no less
2 - then build up EF to 3 months expenses
3 - then build up retirement savings rate to 15%
4 - then build up a 20% downpayment on top of your 3 month EF

If you do those steps in that order, by the time you have enough to put 20% down, you'll be in a much better position to buy a home.

Things that are always good to do
- reduce your expenses, starting with your largest expenses
- pay off your CC every month
- look for a higher paying job doing something you love to do
- have patience with your developing financial picture

**snafu** · 11-22-2011, 05:37 PM

EchoFilterr: Wish I could roll back the clock on the decisions that tripped you up. Trip to California you couldn't afford, purchase of car that doesn't serve you and is inappropriate for your climate, storage rental unit for furniture for an apartment you don't yet have.

Good on you to start an emergency saving a/c, and skills to fix beater cars. I don't know if your rent contribution affects your mom's benefits but doubt you could find a roomie share apartment/utilities/food as cheaply. You need to be super smart about how you use the $ 7,000.

Basic rule of thumb breaks down income as 20% savings [$ 350.] 50% needs [$ 880.] 30% wants ($ 530]. Your credit card balance represents not-yet-paid wants so you need to play catch-up. If you can get on your employer's retirement plan and take advantage of any [free money] match, you will have taken a giant step forward towards your future, adulthood and becoming 'The Millionaire Next Door'.

Can you recoup your initial investment from that car that doesn't run, needs tires etc. and buy smarter? Seek a FWD beater for your climate which gives potential for a better, higher paying job further than your bike takes you. Sell the furniture, there will be more available when you need it, cancel the storage unit.

Did you know...In order to rent an apartment you will need first & last month's rent + damage deposit. Utilities will all demand an upfront deposit over and above their monthly charge. Big savings needed!

The research suggests regional housing problems will likely not completely play out for 5 years. What will you give up or sacrifice to save the 20% needed for down payment?

I'm asking you to be very mature for 20, no impulse purchases over $25. You've had terrific advice from all these folks who don't know you and merely want you to be successful

Semi-new to finances, lots of questions