Hello folks, I'm new here and was just looking for some guidance from some folks who may have a bit more wisdom than myself. I'm 27 years old. Married with no kids. I work part time while finishing up my school, while the wife works full time. We don't overspend and We're pretty much debt free besides 8 grand left on a car note. We just started budgeting about 3 months ago. We're not perfect, but we're making serious progress. I'm wondering if I should sell my 2007 GT500 mustang to put us in a better financial state currently. It's in immaculate shape, and I am told I can sell it for $26-30k.
I have been thinking of the Pro's and Cons of this situation for some time and would really love any help, or extra things to consider. THe main concern that I have with the car, is that it usually just sits in my dad's garage. I enjoy driving it when I can, but am worried that if something serious were to break, we either couldnt afford to fix it or it would risk putting us in a financial bind. I dont know how I feel about something I drive rarely doing that to us. We are just getting started with our lives together, you know? And I honestly don't think it will retain or increase in value over the years like the vintage Shelby Mustangs.
I feel this can go either way for us in the future and just want to make our lives easier regardless. On one hand, I wont have to worry about buying a toy for a long time. On another, it'd be nice to have 3-6 months of living expenses in a savings account, and money for a baby within a few years. Or a house. My heart tells me to keep it cause I do enjoy it, but my brain tells me that if I am successful as I hope and push myself to be, I can always afford another one when we are more secure in our finances.
Sun Oct 25, 2015 8:38 pm
oldguy Senior Member
Cash: $ 717.80
Joined: 21 May 2006
quote: while finishing up my school,
What is your major? (A high paying field? Or a $25k/yr field?)
Soon after getting my engineering degree (1963) I bought a new 1964 Pontiac GTO convertible, 4 spd, 3 - two bll carbs, posi-track, yada. The price was in the $4000 range. Sold it after 5 years and got a 'family car that DW could shift. Someone told me last year that a similar car went for $100,000 at the Barret Jackson show. lol
However, over the past 50 years, I've done well at investing - stocks, real estate, rental houses. My returns have averaged about 11%/yr - so $4000 invested in 1963 is worth about $900,000 now. I have to say, I'm much happier with the $900,000, that dang Goat was a PITA to keep maintained and running.
Yeah, I'd sell it in a heart-beat and capture that $18,000+. You probably have a pair of daily drivers that are affordable/sensible? At least your wife does?
You've hit on a topic that is a major factor in the financial failure of middle class families. For unknown reasons, people think in terms of "what monthly car payment can I afford?", not what car do I need. And the car has found it's place as the US status symbol, nothing like a pair of near-new beemers in the drive to Keep Up With the Joneses. But here's the deal - a late model car depreciates at about $4000/yr, gas about $3000/yr, tires/brakes/batts about $600/yr, ins & tags $2000/yr, washes/oil $250/yr. Ie, $9500/yr. That's $19,000/yr for a pair. And you need about $28,000/yr gross to raise that $19,000/yr out-of-pocket. Most folks don't think that way, they only look at "is it $550/m or $650/m?". You may have read in finance books that most millionaires drive older cars? We have a minivan with 187,000 miles on it, lol - and we're wealthy.
So my choice would be to grab the $18k, get it invested at 11%/yr, and turn it into serious money over a decade or three. Your interests will shift quickly over the next 5 yrs - your new "real" job, kids, a house in a good school district, should I spend $200 on a trendy baby crib or $100? Hard to believe - but it's going to happen - and you'll actually enjoy it, lol.
You mentioned that you recently started budgeting. Try a Pareto Analysis - list ALL expenses on an annual basis. They should sum to your gross incomes. Ie, you'll list fed federal tax (maybe $10,000), SS/Medicare, rent (say $10,000), vehicles $12,000, Starbucks at $750/yr, etc. Then do a "descending sort" - the highest costs at the top. This will identify the "significant few and the insignificant many". You'll see that skipping the lattes will only affect your $100,000 gross incomes by $750 (negligible), but a car concept change might affect things by $6000.
This won't serve as a working budget - but it's a good exercise to help plan a budget. And you get to keep going to SBUX.
Sun Oct 25, 2015 11:36 pm
jre8806 New Poster
Cash: $ 0.45
Joined: 25 Oct 2015
I am majoring in Computer Science. I'd say its a mid-high paying field. We do have daily drivers. The Wife has a 2008 altima with 162,000 miles and then I drive a 2012 Ford Fiesta with 50,000. The fiesta was the mistake, but gladly it was only a 10,000 dollar mistake as oppose to the usual trend of buying a 25-40k car. I am making extra payments currently to get it paid off within 2 years.
Although, I never really thought about the costs to maintain a vehicle like you mentioned below. Being so close to school and with work being primarily from home for me, it may be more beneficial to sell one of the vehicles and snag a bicycle.
Thank you for your opinion. I decided to come here because quite honestly, I come from a middle class upbringing, and often times the parents are not really the best to look for guidance on a manner such as this ( I think you catch my drift). Thank you also for the tip on the Pareto Analysis. I have never heard of this, but will definitely try it out with the Wife very soon to see more thoroughly what you are implying.
Sun Oct 25, 2015 11:57 pm
oldguy Senior Member
Cash: $ 717.80
Joined: 21 May 2006
altima, ah - so your wife is the smart one. What was her major? lol
Yeah, CS should provide a solid career, good.
quote: The fiesta was the mistake, but gladly it was only a 10,000 dollar mistake as oppose to the usual trend of buying a 25-40k car. I am making extra payments currently to get it paid off within 2 years.
To clarify - I wasn't speaking against car loans, I was pointing out the futility of using of using the monthly payment as a measure of affordability. I always get a 5-year car loan and keep it full term. Here's why - say that we want a new $25k car. Two scenarios.
A. Sell $28k out of our Taxable SP500 Index Fund, use $3000 to pay the capital gains tax on the profit, and use $25,000 to buy the car.
B. Instead, get a $25,000 5 year loan @ 4% or 5%. Buy the car with a zero down payment, ie, finance the taxes, the license, everything. Sell our old car privately for about $4000, add that to the $25,000 in the SP500 Index Fund.
With Plan B, I now have an extra $29,000 in the SP500 Fund. It grows there tax deferred at 11%/yr, the longterm average. Via the Rule of 72, that $29k will double to $58,000 in about 6.5 years. And I'll pay about $27,650 for the $25,000 car ($2650 interest). Ie, I retain the use of the $25,000 and use it to earn the extra $29,000.
Nothing wrong with the Fiesta. Unless you have a toxic loan, I'd keep both the loan and the car. It will probably give you 200,000 trouble free miles, most modern cars do that. (And Alan Mullaly was building some very good products during his tenure at Ford).