Am I a financial disaster?

[Anonymous]

Anonymous wrote:

MamaLlama wrote:Do you think you could find a nanny share? That might be a way to cut the expense but keeep your nanny. Although it won't be the same thing as having your person exclusively, it should still be much more convenient than the day care route. Full disclaimer: I've never done a share, although I fantasize all the time about a neighbor asking us to share our nanny with them.

I have the same wish, where do you all live? Would love to find a nanny share since both kids will be attending school 1/2 day (FT another PT).

MamaLlama here - dashing this off so no time to log in - we are in Chevy Chase, DC.

[Anonymous]

OP, you are so not a financial disaster. In fact, it's kind of ridiculous that you think you are when you're saving money for retirement, your kids college, and have an additional savings each month. When you consider that there are people all over the country who are losing their homes to foreclosure, you are living the high life.

That said, could you be doing better? Of course. Frankly, I think the car payment is insane and $800 a month in cash on "stuff" is unnecessary. But your problem is that you don't really HAVE to watch what you spend because you have a cushion.

If it were me, I'd pay off the school loans and start trying to pay off your mortgage. Check out Dave Ramsey if you've never heard of him.

[Anonymous]

Anonymous wrote:What is the big deal with the car loan? We had to buy a second car after having just one for many years (paid off). We bought a minivan for about 26k and our monthly payments are also around $700 (for 3 years). We had no choice but to buy a car because of work logistics and lack of public transportation near work. And we did not have that amount of money saved. We were able to get a no-interest loan. So...I guess I just don't see why this is the expense that is bothering people compared to some of the other expenses OP has.

I think it depends on your personal situation. We too have a car payment. We purchased a car for 19K and 0 interest and financed it for 5 years. However, we did have the cash on hand, but instead put the 20K in an ING CD that pays a 3% return. So our money is better off in the bank rather than in the car. If a disaster strikes, I can pull from my CD to make my car payment.

I would never take on a $700 payment if I did not have pleanty of cash in the bank to back it up. That would make me really nervous to have that kind of debt obligation.

Our monthly net income after deductions for retirement and benefits is $9,100 and we still manage to put away 2K/mo. As compared to the OP our mortgage is much lower and our childcare expenses are only $800/mo. We have enough in savings to last us 2 years (thanks to the 2K monthly and investments we cashed in at the end of 2007 when the market started to slide, but before the crash).

The way I look at it is this....for every 3 months I put away 2K, I buy myself 1 month of living expenses in the case of a disaster. So at the end of the year, I've bought myself 4 months.

[Anonymous]

Anonymous wrote: I was talking to a friend today who has his own (modest) contracting business about this thread and he said "Money should give you freedom, not put you in a prison" and I thought that was pretty interesting.

I bought a house I don't really like and live in a okay neighborhood (and regularly envy people living in Chevy Chase and NW) but I sleep soundly at night knowing we are able to have one parent stay home and save a good bit of money just in case life throws us a curve ball.

I should also add that I think we are able to keep our discretionary spending low-ish because we live in a true middle class neighborhood neighborhood. My neighbors drive Hondas, a night out is pizza at Mama Lucias, almost all the kids go to public school, parties are simple affairs, we mow our own lawns and plant our own begonias. We basically don't know any different! I think it would be tough to hang out with friends and neighbors who consider a normal night out dinner at the Palm and really save. I know "Waa waa" being rich is so hard", but for you $300k+ people out there feeling like saving is hard, I am empathetic

Sounds like my neighborhood. Are you in Reston/Herndon? We are very middle class in this neighborhood.

[Anonymous]

Anonymous wrote:OP, you are so not a financial disaster. In fact, it's kind of ridiculous that you think you are when you're saving money for retirement, your kids college, and have an additional savings each month. When you consider that there are people all over the country who are losing their homes to foreclosure, you are living the high life.

That said, could you be doing better? Of course. Frankly, I think the car payment is insane and $800 a month in cash on "stuff" is unnecessary. But your problem is that you don't really HAVE to watch what you spend because you have a cushion.

If it were me, I'd pay off the school loans and start trying to pay off your mortgage. Check out Dave Ramsey if you've never heard of him. [/quote

So you should only purchase cars outright? With all the no-interest car loans these days it seems better to take out a loan and keep the cash in the bank as a PP pointed out.

[Anonymous]

So you should only purchase cars outright? With all the no-interest car loans these days it seems better to take out a loan and keep the cash in the bank as a P pointed out.

I realize I am not the norm but yes, I believe you should only purchase cars outright. It is not question of whether it makes sense mathematically to take out a loan and put the cash you would have spent buying the car in the bank, it is a question of the risk of taking on an $800/month car payment. For my own personal sanity, I'd rather pay cash for a car I could afford and not have the risk of someone taking my car when I lost my job and couldn't make the payment. Plus, cars decrease in value so paying interest to own an asset that is going down in value makes no sense.

I think the fact that OP posted her question shows that she's not happy with making a HUGE income and still feeling like she's just barely getting by. The way you change that feeling that you're just barely getting by is to stop taking on big payments for things and to get out of debt.

[Anonymous]

Well, you can buy a reasonable car for WAY less than 26K or $700/month. It's not like you have to choose between a car at $750 a month or no car at all. There's a huge range of options out there.

OP, you are staring right at your own choices. Obviously it is simply not a priority for you to be saving more (and that's okay - I'm not judging!). If it truly were, you'd trade down on the car, drop the nanny, and drop any number of your other non-essential expenses. But the truth is that it is not a priority. You are far from a financial disaster...you are actively saving large amounts of money each month, and with $50K in savings it's not like you would starve if you suddenly lost your income. Instead, if you lost your income (and is this a possibility?) then you would probably do what most people do - rapidly get rid of all the non-essential expenses in order to be able to keep a roof over your head and keep eating. So what you really have to figure out for yourself if it is worth the risk. Live a little tighter now so that if you were to lose your job, then you could maintain your lifestyle. Or, don't change anything now but be prepared to scramble if there is income loss. Clearly there is lots of wiggle room no matter what, because your income is so high. Crap, if I had $50K in savings I'd be doing cartwheels I'd be so excited.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP, you are so not a financial disaster. In fact, it's kind of ridiculous that you think you are when you're saving money for retirement, your kids college, and have an additional savings each month. When you consider that there are people all over the country who are losing their homes to foreclosure, you are living the high life.

That said, could you be doing better? Of course. Frankly, I think the car payment is insane and $800 a month in cash on "stuff" is unnecessary. But your problem is that you don't really HAVE to watch what you spend because you have a cushion.

If it were me, I'd pay off the school loans and start trying to pay off your mortgage. Check out Dave Ramsey if you've never heard of him. [/quote

So you should only purchase cars outright? With all the no-interest car loans these days it seems better to take out a loan and keep the cash in the bank as a PP pointed out.

IMO I think it INSANE to take out a loan for 700-800K/mo IF you don't have the cash on hand, like the PP. It is much smarter, I think, to get a 0% loan than fork over your cash that can at least net you something. For instance ING is paying a paltry 1.75 APY for anything over 4years. So that 20K is going to approximately make you approx $1400 (a little more than that b/c interest is compounded daily).

I do not see any purpose in purchasing a car outright if you can get more return on investing that money than you would pay in interest (and in this climate, interest is 0%).

I think it financially unwise to take out a car loan of that size if you actually need the loan to purchase the vehicle.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:
IMO I think it INSANE to take out a loan for 700-800K/mo IF you don't have the cash on hand, like the PP. It is much smarter, I think, to get a 0% loan than fork over your cash that can at least net you something. For instance ING is paying a paltry 1.75 APY for anything over 4years. So that 20K is going to approximately make you approx $1400 (a little more than that b/c interest is compounded daily).

I do not see any purpose in purchasing a car outright if you can get more return on investing that money than you would pay in interest (and in this climate, interest is 0%).

I think it financially unwise to take out a car loan of that size if you actually need the loan to purchase the vehicle.

I disagree with this - you're making a paltry $1400 per year in interest in exchange for the risk of taking out a loan. For me, the risk is not worth that small amount of interest I'd make. I will sleep better at night knowing that I don't have a car payment. When you talk about taking out loans with low interest rate and saving your cash at a slightly higher interest rate, you are not factoring in risk. It's the same argument people make to NOT pay off their low interest rate student loans. Yes, I could invest the money I'd otherwise pay on my student loans and I might make slightly more than the interest on the loans. But oh man, it felt so damned good to pay off my student loans. And it feels so good to know that I could quit my big firm lawyer job if I wanted to and never have to worry about whether I could continue to make my loan payment. [PS, none of this is my own theory - it's all Dave Ramsey if anyone is interested.]

So, I think it is financially unwise to take out a car loan even if you have the cash on hand to pay for it. Again, am not normal but also sleep well at night. And drive an old, old Honda

[Anonymous]

"I disagree with this - you're making a paltry $1400 per year in interest in exchange for the risk of taking out a loan. For me, the risk is not worth that small amount of interest I'd make. I will sleep better at night knowing that I don't have a car payment. When you talk about taking out loans with low interest rate and saving your cash at a slightly higher interest rate, you are not factoring in risk. It's the same argument people make to NOT pay off their low interest rate student loans. Yes, I could invest the money I'd otherwise pay on my student loans and I might make slightly more than the interest on the loans. But oh man, it felt so damned good to pay off my student loans. And it feels so good to know that I could quit my big firm lawyer job if I wanted to and never have to worry about whether I could continue to make my loan payment. [PS, none of this is my own theory - it's all Dave Ramsey if anyone is interested.]

So, I think it is financially unwise to take out a car loan even if you have the cash on hand to pay for it. Again, am not normal but also sleep well at night. And drive an old, old Honda"

Those damn quotations, I hate when it drags the whole posting...

Anyways, you are missing the point. There is NO RISK. NONE. If you have a 0% interest rate and you have the CASH on hand to pay the loan down and if you lose your job, then you can pull out the money and immediatly pay off your car. AND you can even be better off, for instance:

35K car
48mos loan 0% $730/mo
you lose your job 24 mos in
You pay off the loan balance of $17,500
You now have $17,500 dollars left over that you would not otherwise have had to use to cushion your unemployment.
You are $700 richer from the time your money spent in the CDs, might be paltry, but you can use every dollar now that you have no job.
You have become the lender to yourself.

I agree with you that you should not take out big loans for cars you could not otherwise afford, but I don't see it as a "loan" at 0% if I have the money in the bank. I am using the bank to float my purchases so that my money can work for me. Are you implying that the money in the bank somehow disappears?

This whole scenario looked much more appealing when CDs were at 3-4%.

[Anonymous]

In response to refrences to Dave Ramsey.

His target audience are people who way over the head in debt and the interest charges are greater than one's returns from personal investments. He operates on the premise that most people do not have the discipline to keep the savings for the car in the investment, but instead spend it (which is probably true). However, people who are interested in creating wealth and understand how to read a balance sheet know that there are reasons to use other people's money at times. However, many people think they are operating under this premise, but really don't practice proper money management. If you do not like to crunch the numbers, it is best to follow Dave Ramsey's advice which is good for the majority of people who find understanding interest rates and ROI mind boggling.

[Anonymous]

PP, I'm not missing your point, I just still disagree. And, by the way I'm enjoying this very civil debate, so thanks for that.

I believe personal finance is more than just the strict numbers on the ledger and owing someone a car payment, even if at 0% interest, feels different to me than having paid for my car outright. And owing money is always a risk - there's a risk that you promised to keep the money to pay off the car in the bank but then there was a family emergency and you used the money. And then you lost your job.

I get your position from a purely dollars and cents point of view but (for me, anyway) it's not just about that. Again, the OP's post shows why - she makes tons of money but still feels like she is a financial disaster. I bet she would feel differently if she did not have that $800/month car payment and did not have those student loan payments.

[Anonymous]

Anonymous wrote:PP, I'm not missing your point, I just still disagree. And, by the way I'm enjoying this very civil debate, so thanks for that.

I believe personal finance is more than just the strict numbers on the ledger and owing someone a car payment, even if at 0% interest, feels different to me than having paid for my car outright. And owing money is always a risk - there's a risk that you promised to keep the money to pay off the car in the bank but then there was a family emergency and you used the money. And then you lost your job.

I get your position from a purely dollars and cents point of view but (for me, anyway) it's not just about that. Again, the OP's post shows why - she makes tons of money but still feels like she is a financial disaster. I bet she would feel differently if she did not have that $800/month car payment and did not have those student loan payments.

I agree if you look at it from an emotional view. You want the car out of your hair and I can respect that. I see the money set aside for the car completely separate (it sits even in a separate account) from my employment cushion, I would never have to dig into the car savings because I have a completely separate fund for employment problems, in the amount of a years expenses and growing monthly.

As for the OP? I don't think she can really afford her car payment. She does not have enough cash reserve IMO, especially if the loan is a recent one. It would eat a huge amount of savings to pay it down if she lost her job. Given her monthly obligations, if disaster struck, the car would be a "drag" (I crack myself up :lol

For us we have followed my above scenario, and now the car is paid off ( faster than the actual terms of the loan) I have a nice cushy savings left in my CD until time when my car croaks and I start the cycle all over again (if the interest rates cooperate). Now that my car is paid off, I not only have my original investment plus interest, I then add the same monthly payment to my CD because even though the car is paid, I'm just used to parting with that money anyways-it is simply part of the budget.

It all boils down to discipline.

[Anonymous]

Anonymous wrote:
It all boils down to discipline.

Truer words were never spoken.

We also decided to use cheap money to buy our car and leave the cash in an online savings account. What I am reminded of by your wise words is that once the car is paid off I must be strong and insist to dh that we continue paying the same amount of money (that we spent monthly on the car) into our savings account.

[Anonymous]

OP here. I agree that we should not have that damn car. And, it is actually a LEASE. Does that make it worse or better? Worse in some sense as we pay over 700/month and we don't actually own anything, but better in that it is temporary -- when that lease is up (1 more year) I want to talk DH into a less expensive car. I'll send him this thread -- that will do the trick!
(In his defense......he leased this car after a big promotion. I know, I know........stupid.....but he works very hard to give everything to our kids and enjoys this car immensely, and other than the damn car he doesn't ask for much and his still wearing his khakis from 1999, so I try not to make a big deal out of it.......even though I refuse to drive it out of principle )