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Oh man weren't those the days? When every dollar you made went to you instead of a bank/creditor?
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Originally Posted by sonarrat
Then I needed a piano for my business
Could the profits from your business not afford the cost of a piano? (Not throwing stones...just trying to get an idea of the sorts of expenses your business is inccuring)
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Originally Posted by sonarrat
then my $3500 car started costing me thousands of dollars at a time to keep it on the road.
Cars cost money to drive. (big surprise there right? but how about this one?)
Your $3500 car was actually worth more to you than you could have sold it for.
The above statement probably completely threw you but let me try to explain.
Lets say you had to spend $1500 in maintenance costs per year on your old pos car. To you it sucks to be dumping that sort of coin into a car that is only worth $3500 if you liquidated it. And it's easy to understand where you're coming from. I myself had a similar ride a few years back. It blew an intake gasket and I instantly wanted to swap it for something because how could I stand to spend $1000 on it when I could have a new car that wouldn't have nearly as many maintenance issues? Sound familiar?
OK that was a completely bone head way to look at the situation. My truck was completely paid for. The only thing I had to cover on it was my insurance of about $800/yr, regular maintenance, and a freak break down that occured once in the 6 years that I owned it.
OK How much is your car payment if you don't mind my asking? You said you have about $17k to pay on it and you've got 3 1/2 years to go. I'm just going to assume you paid $20k for it over 5 years. So you're paying out what? $400/mo? $4800/yr?
Here's the question: Could you ever...ever...pay out $4800/yr in maintenance costs on your old pos car? Or how about $24000 in 5 yrs? NO....you wouldn't.
OK so now you are financing a depreciating asset. Cars will lose ~15% of their value per year. So you're paying out interest....and your car is also losing value. Lose/Lose. So you're going to pay (with interest) $24k for your car and then turn around and trade it in after it's paid off for what? $8k? Congratulations you lost $16k over 5 years....when repairing your old car would have only set you back $7500 over the same period (assuming the failure rate I stated above)....that's a difference of $8500. Advantage: POS.
So you bought a new car why? It didn't have anything to do with it being a smart financial decision. And it had everything to do with you wanting something shiny to drive around instead of your $3500 junker. That's not wrong, mind you. Everybody likes shiny new cars. I like shiny new cars. You want what you want. But don't try to pass it off as being a good financial decision because when it comes to cars it's almost never a good financial decision....and more of a personal happiness decision.
Quote:
Originally Posted by sonarrat
If I was paying 10%, 12% on the debt, it would be my first priority. At the interest rates I'm paying, I'm willing to let it ride and pay it off gradually over 4 years or so. There's not going to be much benefit to killing myself in order to pay it faster, I'll just get into a corner where I have to add to the debt I already have, which is bad news.
You should not kill yourself to pay off your debt and put yourself into a corner where you create more debt. You are certainly right about that...
...Just the same as you shouldn't kill yourself dumping money into an investment that may only earn 5-10%/yr...if all the while you are assuming new debt to make it happen.
Oh man weren't those the days? When every dollar you made went to you instead of a bank/creditor?
Could the profits from your business not afford the cost of a piano? (Not throwing stones...just trying to get an idea of the sorts of expenses your business is inccuring)
I needed the piano just to start the business. If I don't have an instrument to teach on or practice on, then I'm just incurring more costs to rent a studio.
Quote:
Cars cost money to drive. (big surprise there right? but how about this one?)
Your $3500 car was actually worth more to you than you could have sold it for.
The above statement probably completely threw you but let me try to explain.
Lets say you had to spend $1500 in maintenance costs per year on your old pos car. To you it sucks to be dumping that sort of coin into a car that is only worth $3500 if you liquidated it. And it's easy to understand where you're coming from. I myself had a similar ride a few years back. It blew an intake gasket and I instantly wanted to swap it for something because how could I stand to spend $1000 on it when I could have a new car that wouldn't have nearly as many maintenance issues? Sound familiar?
I spent $1500 on that thing in a month, and it still needed lots more expensive repairs.. suspension, transmission, alternator, differential, and extensive body work.
Quote:
OK that was a completely bone head way to look at the situation. My truck was completely paid for. The only thing I had to cover on it was my insurance of about $800/yr, regular maintenance, and a freak break down that occured once in the 6 years that I owned it.
OK How much is your car payment if you don't mind my asking? You said you have about $17k to pay on it and you've got 3 1/2 years to go. I'm just going to assume you paid $20k for it over 5 years. So you're paying out what? $400/mo? $4800/yr?
That's about right, $440 a month.
Quote:
Here's the question: Could you ever...ever...pay out $4800/yr in maintenance costs on your old pos car? Or how about $24000 in 5 yrs? NO....you wouldn't.
I very well could have, if I had kept it!
Quote:
OK so now you are financing a depreciating asset. Cars will lose ~15% of their value per year. So you're paying out interest....and your car is also losing value. Lose/Lose. So you're going to pay (with interest) $24k for your car and then turn around and trade it in after it's paid off for what? $8k? Congratulations you lost $16k over 5 years....when repairing your old car would have only set you back $7500 over the same period (assuming the failure rate I stated above)....that's a difference of $8500. Advantage: POS.
I won't trade it in after it's paid off. That was the mistake that got me into my current situation, I had a paid off car and got rid of it to drive a junker, paid for with cash, which proceeded to bleed me dry.
I've been there, with no debt. Then I needed a piano for my business, then my $3500 car started costing me thousands of dollars at a time to keep it on the road. If I was paying 10%, 12% on the debt, it would be my first priority. At the interest rates I'm paying, I'm willing to let it ride and pay it off gradually over 4 years or so. There's not going to be much benefit to killing myself in order to pay it faster, I'll just get into a corner where I have to add to the debt I already have, which is bad news.
Been there done that. I stopped paying out of my pocket for mechanics. I bought a $15 book, a $170 set of tools, a $40 set of ramps, and a $30 jack and jackstand combo. I've saved thousands in the last two years. Example. My wife's oil cooler o-rings were leaking. Cost of o-rings: $4.57. Cost of labor for a mechanic: $95.
I did it myself, took an hour and saved a bundle. I've saved thousands more doing brakes, tune ups, oil changes, fluid flushes, axle swaps, etc. plus I've extended the life of my car by doing it the right way. Most mechanics end up hurting more than helping, I can't tell you how many times I've had to re-do something after having a mechanic do it.
But I will say one thing: if you know your car is busted sometimes it is better to get rid of it. Example: my wife's Jetta. I am fixing it up just enough to sell it. The engine is worn and the rest of the car is pretty much falling apart. Instead of buying a new car we are buying a 10 year old Volvo. I expect to pay around $5k-$6k for a car with around 100k miles on it. I expect to get another 5 years of completely trouble free mx out of it and another 5 years of nickle and diming on it. Much cheaper than buying a new car. That's why even though my income is lower I can save so much. Just something to consider.
That said if your car is new, keep it till it dies. If it's a Honda or Toyota or something you can expect to have that another 15 years provided you do the routine mx on it and stick to it! Use the recommended synthetic oil, change it every 5k or so, use quality fluids, flush the coolant every 2 years, change the transmission fluid every 30k, and bleed the brakes every 2 years. That'll set you up nicely. Oh and don't bang on it!
I've put less than $2k into both of my 10 and 14 year old cars over the last 5 years. That's total, for both cars. You lose that in depreciation alone every year!
I won't trade it in after it's paid off. That was the mistake that got me into my current situation, I had a paid off car and got rid of it to drive a junker, paid for with cash, which proceeded to bleed me dry.
OK after much thought, this is what I'm coming up with.
I think it's cool that you want to invest in something. Saving/investing is good (baring it's not investing in something that is sure to tank).
But just my general thought is that you should be investing in something that is going to outpace the interest you're paying out on your debt. Otherwise what's the point? If your income is $40k we can't be talking about a huge amount to put toward an investment. What? $500/mo max?
You have to live somewhere. I'm assuming you're living in an apt right now and paying out a healthy sum for rent. Real Estate may be the key for you. If you can afford to buy some foreclosed property that has the potential to double itself over the next 5 years that's cool. And with the $8000 tax credit for first time buyers in 2009 being announced that could become a serious possibility for you. That's something to think about. It may mean you have to buy something that needs some work though.
I have been doing the junker car deal forever. I have saved huge amounts of interest. Plan to keep doing that. Unfortunately you bought a real POS. I did that once myself.
I agree with the suggestion about getting a duplex or other rentable property in a decent neighborhood. I do NOT think you should under any conditions rent to a relative. Relatives will stiff you faster than any stranger because you have a family obligation. Try and evaluate if the renter is going to keep their income. I suggest an retired woman with a decent pension.
If you have any money left over I would put it into your music business and/or yourself. That way you will always have the investment in a place where it cannot be stolen with inflation or a market crash.
I plan on taking my retirement savings and going back to college after I retire. Then I’ll start a new career working for myself with my pension for backup.
OK after much thought, this is what I'm coming up with.
I think it's cool that you want to invest in something. Saving/investing is good (baring it's not investing in something that is sure to tank).
But just my general thought is that you should be investing in something that is going to outpace the interest you're paying out on your debt. Otherwise what's the point? If your income is $40k we can't be talking about a huge amount to put toward an investment. What? $500/mo max?
You have to live somewhere. I'm assuming you're living in an apt right now and paying out a healthy sum for rent. Real Estate may be the key for you. If you can afford to buy some foreclosed property that has the potential to double itself over the next 5 years that's cool. And with the $8000 tax credit for first time buyers in 2009 being announced that could become a serious possibility for you. That's something to think about. It may mean you have to buy something that needs some work though.
Right now, I am renting a house. Way below market, and it works great for us because it's in a better area than I can afford to buy in. But there are fixer houses within 3 miles of where I work that I could buy on my current income, and (if I understand my city's program correctly) with no money down. But I've tried this before in a different city, and the bank refused to finance a house that needed only about $5,000 of work done to it. Nonetheless, this is the way I'm leaning.
Right now, I am renting a house. Way below market, and it works great for us because it's in a better area than I can afford to buy in. But there are fixer houses within 3 miles of where I work that I could buy on my current income, and (if I understand my city's program correctly) with no money down. But I've tried this before in a different city, and the bank refused to finance a house that needed only about $5,000 of work done to it. Nonetheless, this is the way I'm leaning.
No money down....hmmm
Even if no money down is required I'd still want to put something down on it.
The 'work until you die' plan is what most Americans have right now. 6 figure salaries and 401k's worth millions is unthinkable. Being able to put enough back so as to only have to work as a Walmart greeter is about as good as it gets.
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