More than doubled my annual income - advice on debt/first home/car/etc

[KrautFed]

I have finally gotten back onto my feet after closing my eyes and making the most difficult decision I've ever made. When I got married, I quit my job and relocated hoping my experience would let me seamlessly transfer into similar job. Well that seam was 2 years and has drained all savings and emergency funds that we've had. During that time, I've figuratively been flipping burgers. I start a job later this month that is more than double what I make now and 1.5 times what I made before getting married. It's not GREAT money, but our household income will definitely be more than comfortable with the cost of living in the area.

Our debt:

$8k - CC cards (some 20+ % )
$2k - LOC, low % used for me to attend school
$20k - Student loan paid off by family member (no interest), but a man's word is a man's word, we are paying $400/mo

After the new job, we'll have pretty close to $3k extra /mo for expendables.

My concerns in order:

1) Wife needs a newer car no later than mid summer.
2) Current apartment rental renewal comes in May
3) Want first house
4) Want kids SOON, we are 30 & 31

1) I really haven't decided on a budget for a car, considering our current debt. Both of us are 6' or taller, so I don't want an econo box, even though both of us don't mind driving them. Ideally I'd want something ~mid size, 4 door, car with mileage and age that would get us another 2-3 years max before needing to get something family sized. My heart wants to pay cash, but I know I should do my homework on saving and paying w/ cash or getting immediate and paying monthly. Should I pay off CC's & LOC then save and pay cash, should I pay off CC's & LOC and then finance, should I just finance, etc.

2) The apartment living is crap. We want out badly but I know we need to be patient. We honestly couldn't improve the cost by signing somewhere else and it would just make one hell of a hassle to move. The question comes with how long should we sign another lease for. They offer month-to-month, 6 mo, 12 mo and 15 mo (which is what we are on now). The apartment agreement ties in with #3.

3) This is probably the biggest issue as we have the change in our pocket for a down payment and I've been advised by several respectable family members in very different directions. Some have advised to stay in apartment another year+, save as much as can for downpayment, and at the end of a year (or abouts), try to hit 20%. Others say forget the downpayment amount, shop now, throw together 5%, and get while the rates are low-ish (because economy is trending up).

4) We both want kids so bad, we can't stand it. Because I am more of a planner, I don't know if I should wait until we settle into a house or just start letting them pop out.

Any helpful advice is welcome.

[MrRizzmeister]

sorry to be brief, i am at work and cant elaborate as much as id like

my advice would be to add up yours and your wife's total net earnings and figure out a good balanced budget that will provide a decent sustainable return in the long-run. It is very easy to fall into a trap as soon as you begin to make more money (cars, homes, etc.). try not to spend
80%+ of your income into personal consumption, so leave more than 20% of your net income for savings.

i would expect that our preferences are different from each other. personally, i have never been in credit card debt, but i do have a deferred college loan.

what i would do
- put a little more into your 401K, if you never see it, you will adjust your income proportionally

- with your extra earnings, setup a seperate bank account and have them remove a certain % from your paycheck. this way you will have an extra cushion saved up for your planned parenting

- lastly BE PATIENT! your horizons are greater now than what they were before and your expectaions have increased. dont go crazy and spend on un-necessary things that you never bothered to purchace before. now that you have your goal in mind, create a budget between the two of you to save up for it

hope this helps

[redman43]

Regarding the new rental agreement part, if there is litle to no cost difference in month-to-month vs 6-month vs 12-month, I would change it to month-to-month. It will allow for greater flexibility. You can be looking at places now (or later), save up whatever you want for a downpayment and then leave when you are ready without having to deal with whatever problems may arise with getting out of the lease agreement.

I would also take a decent chunk of the extra $$$ each month and put it into that debt. 20+% is brutal. Ask me how I know, I have over 10k worth of credit cards at 20-27%, most of the purchases are 4+ years old (minimum payments would reduce the balance by $20 a month so it was moving so slow. With that kind of extra money, you could be out of debt (excluding the student loans) in 6-12 months (even shorter if you delay any saving/401k increases for a couple months). Personally, I would put maybe 1000 - 1500 into the debt each month, and the rest into savings/401k. Some of what you put into savings could be earmarked specifically for a downpayment on a house, while the rest should be set aside for emergencies. A seperate account isn't a bad idea for this, have your payroll put a % of each paycheck into that account and you'll never know it was there, think "out of sight, out of mind". I bought a brand new house a few years ago, so major repairs weren't a concern for me, but if you buy an older home, it'll get real expensive, real FAST.

Once the debt is gone, then shift all of that money you were using to pay it off and start putting it into savings.

Oh, and don't go out and get yourself back into debt. It's just a revolving door that is so hard to get out of.

Good luck, I wish I got a raise that would double my income.

[dunhamjr]

A couple of quick things.

You mentioned having a down payment for a house sitting somewhere. Do you need to be smacked? You have cash sitting in an account while you pay 20% interest on CC debt?

I think you need to take an honest reassessment of your situation.

You have a pretty decent amount of debt that needs to go away ASAP, $8k CC and $2k LOC, need to be gone.

Then you have a need for a new car.

Plus you want to add kids to the mix.

Do you REALLY think you can afford a house?

Please look at your situation honestly.

Buying a car is going to cost money. Having a kid is going to cost A LOT of money. Buying a house is going to cost even more... and heaven forbid you need to make an emergency $5k repair 2 months after you move in.

I know it sucks. But I think you need to stay put for a couple years. Rent is cheap. You may think it sucks now, but how bad would it suck to buy a house... and then have to give it up in 3 years because you didn't have a solid financial base going into the biggest purchase of your life.

[KrautFed]

Thanks guys, keep the suggestions coming.

You mentioned having a down payment for a house sitting somewhere. Do you need to be smacked? You have cash sitting in an account while you pay 20% interest on CC debt?

we have the change in our pocket for a down payment

Change meaning less than $1, change meaning cents.

I think you need to take an honest reassessment of your situation.

You have a pretty decent amount of debt that needs to go away ASAP, $8k CC and $2k LOC, need to be gone.

Then you have a need for a new car.

Plus you want to add kids to the mix.

Do you REALLY think you can afford a house?

Please look at your situation honestly.

Buying a car is going to cost money. Having a kid is going to cost A LOT of money. Buying a house is going to cost even more... and heaven forbid you need to make an emergency $5k repair 2 months after you move in.

I know it sucks. But I think you need to stay put for a couple years. Rent is cheap. You may think it sucks now, but how bad would it suck to buy a house... and then have to give it up in 3 years because you didn't have a solid financial base going into the biggest purchase of your life.

Legit points. The CC's were married into and the LOC was mine used to consolidate some of her worst CC offenses. The LOC has a low max and believe it or not, the CC's were closer to $20k when we married. We've been, and are still paying our asses off for the CC's and LOC. I'm very proud of how far we've come along. In all honesty, I plan on paying off all CC's and LOC by July, devoting all new expendable from the new job + what we currently pay on them + tax return. At that point, which is stated in my 1), is the auto situation.

The auto situation is one that might not be serious to others, but is to me. My wife currently drives my former work/beater van w/ 250k miles on it. She travels a lot across the state and it's gotten to the point where she's gotten stranded. Also, we have no means to travel to see family, which has caused a lot more psychological trouble than I ever imagined. I don't have to go into details, but it's caused some pretty serious mental stress on the both of us only seeing family once a year (if that). I can be a man about it, but I'm not putting my wife through it any longer.

To answer your question, do I really think I can afford to buy a house? The answer is no, and no to just about anything. I learned while working for some property investors that you really truely can't afford something unless you pay cash for it, be it car, boat, house, etc. However, that doesn't mean it's a bad thing. What % down do you suggest?

[dunhamjr]

Thanks guys, keep the suggestions coming.

Change meaning less than $1, change meaning cents.

Legit points. The CC's were married into and the LOC was mine used to consolidate some of her worst CC offenses. The LOC has a low max and believe it or not, the CC's were closer to $20k when we married. We've been, and are still paying our asses off for the CC's and LOC. I'm very proud of how far we've come along. In all honesty, I plan on paying off all CC's and LOC by July, devoting all new expendable from the new job + what we currently pay on them + tax return. At that point, which is stated in my 1), is the auto situation.

The auto situation is one that might not be serious to others, but is to me. My wife currently drives my former work/beater van w/ 250k miles on it. She travels a lot across the state and it's gotten to the point where she's gotten stranded. Also, we have no means to travel to see family, which has caused a lot more psychological trouble than I ever imagined. I don't have to go into details, but it's caused some pretty serious mental stress on the both of us only seeing family once a year (if that). I can be a man about it, but I'm not putting my wife through it any longer.

To answer your question, do I really think I can afford to buy a house? The answer is no, and no to just about anything. I learned while working for some property investors that you really truely can't afford something unless you pay cash for it, be it car, boat, house, etc. However, that doesn't mean it's a bad thing. What % down do you suggest?

ah ok. i thought you had savings just sitting. you are save from the trout slap.

debt is debt, no matter how it came about. good that it was more and is now less. now with your new job, it will hopefully die by July like you planned.

the car thing. its a priority for you. if the vehicle is not reliable now. can it be made reliable for a fraction of the cost of getting something else? if not, then just get something newer and cheapish that will fit your current situation. don't buy a minivan thinking kids are on the horizon. things change in an instant. you may need that minivan in 10 months... maybe 3 yrs. just get something that fits your needs now, and if you have to suffer a little bit down the road till you can upgrade again, so be it. you might want to think about how many miles you will drive a year, and then see if a super low dollar lease wouldn't turn out to be a good option. some leases are like $189/mo with no $ down, and 12k miles a year. hard to turn a nose at that.

property investors are an odd bunch at times... so yeah, it might be best to buy with cash only. but how do you get that cash. unless they were born into money or became that 25 yr old startup CEO... they had to borrow sometime, from someone to get started.

the down payment topic is an odd one. we have all seen what happens when you put 0% down. we were doing that 10 years ago till about 5 years ago and things exploded. but saying that, i was actually a 0% down buyer. HOWEVER. i was buying a house from my sister. which appraised for $100k more, then what i purchased it for. so even with all the turmoil and home equity lost, i still have about 15-20% in the house.

i also dipped my hand into property investing. so i have a rental house as well. i bought my rental property with only 10% down. not something that is probably an option if i went to purchase now.

i would say the down payment needs to be as much as your patience can afford. if you can get to 20%, all the better. if it is obvious at 10% saved that the housing recovery is about to blast off in your area, there is no harm in looking.

the bigger thing to be aware of to me, now after 7 years and owning two houses... really is how much you borrow, and how big of a house you get.

when i bought my house, i truthfully could not afford it. i had 2 roommates though and it worked out well. if i had lost either roommates, or my job for an extended time early on though... the house would be gone.

also. my house is huge. when i bought it i thought it was big-ish, but not that bad. now, 7 years later. i can tell you, 3100sqft and 1 acre of land is no joke. if i had it to do over again, i would be looking for a house around 2200sqft (planning for a family of 4), with a 3 car garage, and a 1/3 acre at the most. there are seriously days i just want to burn the house down and move to a condo.

[KrautFed]

Thanks for the reply. I've really looked into the lease thing, because it seems to fit the need... 2 years, zero reliability issue, relatively low monthly. The only thing that scares me is my wife is on the edge of 10k /yr now and add in some road trips back home, we would be very close on mileage. If I purchase, it would have reliability somewhat because I will never purchase a new car again. I've never dealt with extended warranties on (~3-4 yr) used vehicles, but I do want to look into it.

As far as houses, I hear you on the size. One thing I want to target is size and price that could target college renters down the road. Renting is hot here, and has been for some time. The drawbacks are that the tenants will change every 4-5yrs and they are, college age, but the benefits are that there's no shortage of them and the parents are the willing to pay top dollar to keep their child in a safe area while in school. There are some great houses in the $175-$200k range here, and thats where we will probably start looking.

[Vision33r]

It's not about how much you make but really how much you keep.

Although houses are cheap, find out what the rates are for rents. There are more drawbacks for buying a home than renting.

A lot of people would disagree but I'd say for someone like you who's got a lot of debt. A house will double your debt loads easily and many banks will turn you down because of the debt load you have unless you have atleast a 20% downpayment.

With a house you have to pay for maintenance and extra bills running it. It's a money pit.

With a rental you pay rent and minor bills if you can get the landlord to cover most expenses. You may actually pay off more of your debt faster by renting than owning a home.

[dunhamjr]

With a house you have to pay for maintenance and extra bills running it. It's a money pit.

With a rental you pay rent and minor bills if you can get the landlord to cover most expenses. You may actually pay off more of your debt faster by renting than owning a home.

This is what I have seen.

Before owning, I had a huge amount more free money to 'play' with. Even though I made 50% less money than I do now. Not to mention that now I have my wife's income as well.

So yeah, renting can be a better way to go in a lot of cases.

[KrautFed]

I'm a bit confused, you guys are saying that I should rent for life, live on cash, and never have equity?

[dunhamjr]

I'm a bit confused, you guys are saying that I should rent for life, live on cash, and never have equity?

No.

You have debt.
Pay that off.
Save up 20% down.
Then buy a house.

The advice that has been given to everyone wanting a house since the beginning of time.

What we want you to be aware of is...
Do not buy a house when you have debt and can barely service it.
Do not buy a house because 'now is the time to buy'.
Do not buy a house 'to live the american dream'.

Buy a house when it costs less then renting. Buy a house when your debts are paid. Buy a house when you are ready to set roots for a large number of years and can weather the changes that life and the economy will throw at you.

[KrautFed]

Gotcha, July should be debt free.

[Vision33r]

The reason we have this housing crisis because a lot of folks over-extended themselves. Like you they have debts or make very little just to cover the mortage. Then once they bought the house and they lose their jobs or some financial loss happen. They can't make their mortgage payment and face foreclosure.

I would go rent until you got sizable capital/saving and you moved to a new higher tax bracket.

[firefighterjunkie]

No.

You have debt.
Pay that off.
Save up 20% down.
Then buy a house.

The advice that has been given to everyone wanting a house since the beginning of time.

What we want you to be aware of is...
Do not buy a house when you have debt and can barely service it.
Do not buy a house because 'now is the time to buy'.
Do not buy a house 'to live the american dream'.

Buy a house when it costs less then renting. Buy a house when your debts are paid. Buy a house when you are ready to set roots for a large number of years and can weather the changes that life and the economy will throw at you.

Love this. Don't forget to add that you will want a good emergency fund/nest egg for home repairs, emergencies, etc especially since you want to have kids.

I'd say just rent somewhere you enjoy (as much as you can renting) and can save money each month, pay off your debt as fast as possible, then start saving. I don't think you need to wait to have kids until you have a home (some people would be waiting forever to have kids!)...make sure to figure out your finances before a baby and make important decisions like whether or not you can afford daycare of your wife will stay home with the baby. I think kids can be expensive but aren't necessarily - but some of that is on the parents. You don't need every gadget, outfit, toy, etc that people make you think you need. Diapers and formula cost the most and you can probably do some research to account for that into your budget if needed.


Oh and about the car leasing - just read the fine print. If you already know you're going to go over mileage, I wouldn't do it. I leased my GTI before buying it out and it was such a disaster because I didn't know what I was going into. Basically, I was over mileage and they wanted proof of all of the scheduled maintenance repairs done by an approved mechanic (that I didn't have), new tires, new windshield, etc - when all was said and done, they wanted $5k for me to TURN IN the car or I could just finance $12k and keep it. So, that's what I did. Of course now I own the worlds most expensive GTI

[GeoffD]

No.

You have debt.
Pay that off.
Save up 20% down.
Then buy a house.

The advice that has been given to everyone wanting a house since the beginning of time.

What we want you to be aware of is...
Do not buy a house when you have debt and can barely service it.
Do not buy a house because 'now is the time to buy'.
Do not buy a house 'to live the american dream'.

Buy a house when it costs less then renting. Buy a house when your debts are paid. Buy a house when you are ready to set roots for a large number of years and can weather the changes that life and the economy will throw at you.

I'd add:
You have zero savings and significant debt. Don't move for a year. Limp as long as you can with your wife's old car and replace it with basic dependable transportation. Do not crank up your spending. Your focus now is to zero out your debt. Then, your focus will be to create some savings.

There are two ways to get wealthy:
* Have a huge amount of income
or
* Spend less than you make for your entire life

It doesn't sound like huge income is likely so you need to control your urge to spend

[auburnjosh]

These guys speak the truth. I had a nice surplus before buying a house and now I don't. Things come up that you would never think of and they like to take away your cash. Also, make sure you want to stay where you are because it could be a pain to move in the future.

[Diamond Dave]

You've got a lot of moving parts going on. You're evaluating decisions today based on a salary level that isn't established. Wiat a year before you do anything drastic. Do not buy a house.

4) We both want kids so bad, we can't stand it. Because I am more of a planner, I don't know if I should wait until we settle into a house or just start letting them pop out.

As for kids, there is no denying that they bring costs to the equation; but only some of those costs are transferable and most are unique with little regard to budget or cash flow. Diaper cost and clothing cost isn't a big deal since you don't go snowboarding anymore. Wow, does child photography really cost that much? Screw public school, our child is going to Montessori; holy cow, how can pre-school be $400 a month?!

Also some activities take on new form. You and your wife might go out to dinner a few times a week and catch a show on the weekends today, but with kids, you'll order cheap pizza and rent movies on Netflix.

How's your insurance? Suppose your baby spikes a 102* temperature and your wife is freaking out. That means it's a trip to the hospital NOW, not later next month when you have the budget for the hospital.

[You are to blame]

My advice is to buy a house and car before you have kids. This way you are well adjusted to your new budget and ready for the kids. You don't want to wait too long for kids.

[Vision33r]

My advice is to buy a house and car before you have kids. This way you are well adjusted to your new budget and ready for the kids. You don't want to wait too long for kids.

My advice is just the opposite. There's not many good reason for having a house while you have kids and more reasons to upgrade to a house once you're done having kids and upgrade to what fits your family's size and budget.

If I had the same choice as the OP, that's what I would do. Unfortunately I had the house 1st then kids, now that my family is out growing the house. It's not so easy to upgrade the house in this market.

Put off all big purchases until your done with having kids. That includes shopping for a minivan or wagon. You really don't need a big car until you have two or more kids. I see plenty of threads with people buying minivans for just 1 baby.

[rlydntgvasht]

kids are stupid. if you cannot even sort out the inner child within you, how are you going to handle a child with no direct connection to your arms? i bet you'll end up abusing them. best to wait till you are emotionally mature enough to rely on your own wisdom rather than vwvortex money and investing section for guidance. good luck

[KrautFed]

kids are stupid. if you cannot even sort out the inner child within you, how are you going to handle a child with no direct connection to your arms? i bet you'll end up abusing them. best to wait till you are emotionally mature enough to rely on your own wisdom rather than vwvortex money and investing section for guidance. good luck

Just spit my drink out.

[trimphs3r71]

see the bold, and pm me if you want!

Our debt:

$8k - CC cards (some 20+ % ) Pay these off asap, no where else can you get a guaranteed 20% after tax return.


$2k - LOC, low % used for me to attend school, pay this off next


$20k - Student loan paid off by family member (no interest), but a man's word is a man's word, we are paying $400/mo , continue to make payments

After the new job, we'll have pretty close to $3k extra /mo for expendables.

My concerns in order:

1) Wife needs a newer car no later than mid summer. $7,000 honda accord answers this

2) Current apartment rental renewal comes in May , see if you can continue month to month

3) Want first house how is your retirement savings, remember you can always take a loan out for a house, but you can't for retirement. If you lost your job and have no equity how are you going to sell the house? I personally say 20% down, but if you can't way 10% minimum. Run an amortization table in excel and see how much extra interest you pay with a low downpayment, the housing market is weak and is likely to remain this way for years, don't rush

4) Want kids SOON, we are 30 & 31 wait until you have 12 months emergency funds saved and a retirement account that is well funded

[You are to blame]

My advice is just the opposite. There's not many good reason for having a house while you have kids and more reasons to upgrade to a house once you're done having kids and upgrade to what fits your family's size and budget.

If I had the same choice as the OP, that's what I would do. Unfortunately I had the house 1st then kids, now that my family is out growing the house. It's not so easy to upgrade the house in this market.

Put off all big purchases until your done with having kids. That includes shopping for a minivan or wagon. You really don't need a big car until you have two or more kids. I see plenty of threads with people buying minivans for just 1 baby.

I guess we need to settle this in a cage match

I see your point, I am looking to upgrade my house but I find it hard now with 2 kids. I should of just bought a bigger house before I had kids and I wouldn't have to worry about ever upgrading.