It's been over a year...update and feedback time

[HappySaver]

I'm not going to go back to read your older posts so I'm looking at this only from the perspective of where you are right now.

First, congratulations on owning your first home! We also live in one of the highest cost of living areas in the country, so I know how tough it is. We also were gifted some of our downpayment money from my parents for our first home. We did pay them back in less than 2 years, but had anything happened where we could not gift them back they would have been fine with that too. I think that's the key to success with a family loan.

I would encourage you to try to reduce a few of your expenses. Here are some thoughts:

1. Why are you paying a smartphone bill for two? Who is the other person, and do they contribute financially at all? Not sure if you're locked into a plan or not, but we pay $133 for smartphones for two with AT&T, so maybe you can reduce that.
2. I would also strongly encourage you to cut out the restaurant expenses for now. Enjoy your new kitchen, at least until you have eliminated more loans.
3. Do NOT take out loans for furniture. Use your old furniture, shop at IKEA or second-hand, whatever floats your boat. But you have far too much debt to be accruing more for luxuries like new furniture. Enjoy your new walls and floors knowing that you are no longer renting and you will furnish them soon enough.
4. Agree that the video game collection is a hobby. ROFL, Eagle - so true. Put that to the side, enjoy it if you want to, and if one day you happen to make money on it, that's a great bonus, but don't count it as an asset.
5. You have an awful lot of money in checking. Can you transfer most of it to a higher yielding savings account?
6. The auto loan. Oh, that's bad. You didn't say what the interest rate is on it. I'd be socking everything extra (like the savings from no eating out, etc.) towards that loan to get rid of it. Even if the rate is low, that's a killer payment to be on the hook for.
7. You've got decent savings. Maybe budget a little less going forward and add it to the car pmt (see #6).
8. Shopping/Other/Personal Care/etc add up to $225. That's very high. Try to break that down and reduce it. And see #6.
9. Regarding the fact that you no longer have a roommate, obviously that's a huge factor. Does your new condo have at least 2 bedrooms? Would you consider another roommate, at least until the car and personal loans are paid off?

Congrats again on paying off student loans, buying the condo, and keeping such close track of your finances. I just think you need to adjust your mindset on a few spending habits (no more expensive cars!!!, going out to eat so much, or credit card debt) but if you can do it, it would be wonderful hear another report back in one more year.

[rennigade]

Why pay tax on money that has already been taxed? Thats basically what claiming "under the table" money is. Illegal as it may be...its a joke. More power to anyone who has a side business or whatever you want to call it and accept under the table money without claiming it.

Imagine buying a pie at the store then giving that pie to someone else...and them having to be forced to throw a quarter of it out. Pretty awesome huh. Makes a lot of sense.

[Vpxggmr17]

Btw, not to put too fine a point on it but that 12k video game collection is probably not a big attraction to a potential life partner. Particularly I’d say a majority of women anyway. Bit of a red flag.

And it’s not a side business. It’s a hobby and hobbies don’t typically make money.

Actually, I have the full support of my partner for the hobby.

While I do consider it a hobby, that's only because I keep a fair share of what I find/collect. However, if I transitioned into a sole seller, it would turn a small to medium profit each month.

[Vpxggmr17]

@ Vpxggmr17

First, good job in getting your finances in order and thinking through these issues.

Second the most obvious observation to me is that you are bringing home $3420 and plan on budgeting for $5317. Not sure how that works out?

Third, how much are you spending in rent/utilities now before buying the condo? Is now a good time to buy other than the tax advantages and the low interest rates? Can you truly afford this condo? Why not get another roomate and stick it out for another couple of years?

Fourth… $670 on your car payment? Wow. That’s a house payment. Are you paying the car off early?

1.) Thank you.

2.) No I actually bring home a 12 month avg. of $5500/mo. Sorry if what I wrote was confusing. I get paid in 26 paychecks annually from job #1. Job #2 is $550-725 per week or usually about $2500/mo. So usually it's about $5200-5300 and then the two months I get 3 paychecks it's over $7k.

3.) I'm currently spending $1600 on rent and around $200/mo on utilities + an increase gas cost due to distance. Total cost per month of the condo is $1760 and a decrease in around $50-80 in fuel cost.

4.) No, that was just bad history with car buying where I kept rolling car into car into car....working on it...

[JoeP]

4.) No, that was just bad history with car buying where I kept rolling car into car into car....working on it...

The easiest way to break that cycle is to keep making imaginary car payments into a dedicated account after the car is paid off. Maybe something more sane, like $500/mo, so you'll end up with $24k after 4 years. Direct deposit works well for this so you don't have to remember and you don't feel it.

[Vpxggmr17]

The easiest way to break that cycle is to keep making imaginary car payments into a dedicated account after the car is paid off. Maybe something more sane, like $500/mo, so you'll end up with $24k after 4 years. Direct deposit works well for this so you don't have to remember and you don't feel it.

Well I actually sort of do that now, I double up the payment (notice the two $335s to Savings/IRA) for two accounts. That said, once the car is paid off, yes, that money will continue to get "paid" but it will go to doubling my IRA/savings rates.

[scfr]

Quote: Potential CC #3: $75 (0% 36 months for furniture; debating on timing of this)

Just say no to that 3rd CC!
Don't fall in to the same cycle with CCs that you did with cars.

Get all of your current debt paid off, make sure your retirement savings are on track and you have a modest emergency fund, THEN save up to pay cash for furniture. When the time comes to buy shop on-line local swap groups (Facebook, etc), moving/garage/estate sales or Craigslist for bargains on used furniture.

You can't eat a couch when the you-know-what hits the fan and you experience a life crisis (job loss, serious illness, etc.).
A designer dining table will do you no good in retirement if you can't afford food to put on it.

[scfr]

I do in fact track that as well. I used to use Mint but I didn't feel it did a good enough job tracking all of my accounts, so I do everything in Excel, daily on a monthly summary basis for expenses/budget and bi-weekly for net worth. Obviously I'm complicating that with a mortgage, but it will continue to be something I track dearly.

Good decision. Net worth is the best "big picture" snapshot you can get of your financial situation. I use an Excel spreadsheet too, because then I can customize it the way I want. Comparing where you are now to where you were a year ago can be especially enlightening. Calculating your NW monthly or even quarterly is probably sufficient, but if you are combining it with your budget then I can see why you would do it more frequently.

You will want to include your condo on your NW statement once you have closed on it. Feel free to ask the folks here at SA how we calculate the value of our residences, if you are looking for ideas.

[Vpxggmr17]

Good decision. Net worth is the best "big picture" snapshot you can get of your financial situation. I use an Excel spreadsheet too, because then I can customize it the way I want. Comparing where you are now to where you were a year ago can be especially enlightening. Calculating your NW monthly or even quarterly is probably sufficient, but if you are combining it with your budget then I can see why you would do it more frequently.

You will want to include your condo on your NW statement once you have closed on it. Feel free to ask the folks here at SA how we calculate the value of our residences, if you are looking for ideas.

Yes I will absolutely be incorporating it into my NW value once I close/move in. I would be extremely interested in the approach others take in valuations of their homes for the purpose of NW calculations!

[bigdaddybus]

The explanation of your second job makes much more sense than how it was originally described. With that stated, I would suggest you put a line item in your budget for taxes on your secondary income. Also, I wouldn't count on too much of a tax break from your mortgage. As a previous poster stated, thats something most first time homeowners overestimate.

I could make several suggestions about reducing spending, paying down debt before you buy (your DTI is still way higher than I'd be comfortable carrying), etc but the biggest flag I see at the onset is that housing shouldn't account for more than 25-30% of your total budget. With this proposed budget and including your second income, housing is 47% of your take home -- not even accounting for your homeowners fees (and yes your "gifted" loan counts in this expense category)! Coupling that with your over sized car payment, I think you're setting yourself up for a hard time.

Also this: "So yes, is my picture pretty at the moment, not really. But it's a consistent work in progress with short and long term end goals in sight. Idk, I'm not trying come off defensive but it just seems that all of the points I made may have been overlooked. I could stand corrected."

Your points are simply justifications for why overspending is ok. Just as you noted in your original post, things come up. You wrote the numbers yourself -- you were excited to retire $10k in student loan debt but at the same time, you had $31k in debt last year and you have $26k now ...you've only actually paid off $5k and yet you're telling yourself you're paying off $1k+/month. You have built savings and thats great but you're still carrying a big burden. You're still justifying spending more than you can afford on a house with the idea that it will "save" you rent and taxes, and yet you want to open a card to furnish it. I think you need to ditch the idea that buying things will save you money and move forward with a plan that makes real progress toward your financial goals -- if that's owning a house, that's great but you should still follow the guidelines for getting there such as having a 20% down payment (that isn't financed), having 6 months of income in reserves, not over buying for your income, etc.

^^^^ This is dead on!!

How old is the OP?

[Vpxggmr17]

^^^^ This is dead on!!

How old is the OP?

I'm 26.

[scfr]

Yes I will absolutely be incorporating it into my NW value once I close/move in. I would be extremely interested in the approach others take in valuations of their homes for the purpose of NW calculations!

This is how I value my home as an asset for net worth purposes:

1. Purchase price - 8% shaved off the top (to cover eventual sales costs: real estate agent commission, pre-sale sprucing up, etc.) = Net value at time of purchase. I think it's critical to take some "off the top" to avoid artificially inflating my net worth. This amount could be more or less depending on your circumstances. If you have to pay sales tax when you sale your residence, you'd need to account for that. If you are a real estate agent yourself and therefore won't have to pay a commission, that obviously changes this calculation in your favor.
2. Net value at time of purchase adjusted by CPI-U (because my expectation is that the value of my home will keep pace with inflation) = Current net value (always a month behind waiting for CPI-U figures to be released)

A couple things to note:
- If you have a mortgage (I don't) you need to include that on the liability side of your net worth statement.
- This system works for us because we didn't buy our house during a real estate bubble and we live in a RE market that is fairly sane. It may or may not work depending on where you live.
- Some people live in areas where their property tax value changes by the rate of inflation. If you live in one of those areas, your property tax valuation (minus eventual sales related costs) could be a reasonable number to use.

[scfr]

I'm 26.

I think it's great that you are thinking about these things at your age. I was right around your age when I started getting really serious about my finances.

I'm now about twice your age ... sigh ... but I'm also in a pretty stable financial position that seemed like an almost impossible dream when I was your age.

Keep learning from your mistakes and doing better!
P.S. - I still hope you'll say no to that 3rd CC!

[JoeP]

I think it's great that you are thinking about these things at your age. I was right around your age when I started getting really serious about my finances.

I'm now about twice your age ... sigh ... but I'm also in a pretty stable financial position that seemed like an almost impossible dream when I was your age.

Keep learning from your mistakes and doing better!
P.S. - I still hope you'll say no to that 3rd CC!

I agree, but will add that if you can sometimes get the same benefit by learning from the mistakes of others. This can save you a lot of frustration and money. With the internet, it is very easy to decide if, for example, it is a good idea to get a timeshare or loan money to a friend with a gambling problem.

[bigdaddybus]

I'm 26.

Others beat me to it, but at 26 your not doing so bad and its good that you are focusing on your finances now. If you were my age (just turned 40) I would say you have ALOT of work to do!

I look at everything from a retirement perspective as I pay for my retirement first out of my pay. Right now you have 1/3 of your annual income saved for retirement.

For example, by age 35, Fidelity suggests that you should have saved 1X your current salary, then 3X by 45, and 5X by 55. “Setting up clear goals linked to your salary can help simplify your planning, and help you determine if you are on track throughout your working life,”


I personally find Fidelity's recommendation too conservative, but its a decent baseline.