Help me prioritize - updated, we have numbers and now DH is looking for a new job

[Flower of Bliss]

DH will be getting a bonus in late January - we don't have the numbers yet, and likely a substantial raise, but again, we don't have the numbers yet.  We'll also be getting our tax return likely in Feb (I file asap).  I anticipate that between the bonus and the tax return, we'll have about 12-20K in cash.  I'm trying to decide how best to use it.

We have about $3K in home maintenance we'll do first (a UV light to address mold on our furnace and getting our electric system up to new fire code regulations).

I'm currently driving a 2000 civic.  We planned to replace it with a minivan this year, likely a 2007-8 (we plan another child in the next 2 years, or whenever it happens, and likely a 4th child a few years after that).  The car is worth about $2K, and is due a new timing belt, about a $1000 repair.  If the timing belt goes before we replace it, the car will be essentially worthless.  Otherwise it's in fine running condition, but the windshield wipers and stereo are finicky, and it's just beat up and old.  If it weren't for the timing belt issue, I'd be fine with the other stuff for another year.  I've loved this car, and planned to drive it into the ground.

We have about $14K in debt mostly student loans and some 0% intro period debt from a big surprise trip to Hong Kong DH took for work that we decided to make a family trip.  (No regrets, but it pushed back my financial plans.)  DH's car is a paid off 2005 civic.  We have no plans to replace in the near future.

I'd like to build up an emergency fund too, and then move on to upping retirement savings and college savings for the kids.  We'd also like to move in about 2 years to an older, slightly larger home closer to DH's office.  His commute is about 90 minutes each way right now.  We have about $50K in equity on a home worth about $175K.  We refinanced last year with a 15 year note and 4.5%.  I imagine we'd be buying a home worth about $225K.

So, here are what I view as options:

A) pay off debt with cash, then buy a van on a 2-3 year note and pay it off asap

B) buy a van with cash, then do the Ramsey debt snowball game

C) replace the timing belt, then pay off the debt mostly with cash, then save the cash for the van (so likely drive the car for another year)

D) not replace the timing belt, pay off the debt, save for the van, and hope the timing belt holds out till then.

I anticipate that we would be able to pay off the debt and a van by next year at bonus/tax return time, and also be well on our way to a 3-6 month emergency fund. 

[Carson]

How much do you have leftover each month with your normal budget? How much will the new [used] van cost?  How much do you have as an emergency fund now?

I guess I would look at this money as a way to solve your biggest financial challenge, whatever is the most difficult to overcome.  Not knowing the above, I would lean towards replacing the timing belt (if that's really the only major issue) then paying off the consumer portion of the debt, then saving the rest as an emergency fund.

Then until you need the van, make a car payment into a savings account to save up for some cash to put down.  That will also allow you to work your budget with that payment.

[VisionaryMom]

If you have a good mechanic, take the Civic to see if the timing belt is the only likely major issue. It it is, I'd fix that because you won't get another car for $1,000. I don't think the value of the Civic is the issue for you; the cost of replacing it is.

So that would leave you 11-19K.

I would pay off the debt in the intro period. Then I would look at whether I'd make more by saving the rest or paying off the student loans. Factors for that would be 1) how comfortable you are month-to-month and 2) how much your interest rate is versus what you could make in a short-term investment.

Have you checked actual selling prices for homes in your area? I know that our house is still valued around what our mortgage assessment is, but homes in our neighborhood are selling at about 12 percent less. I say that because the need for a down payment for a new home would factor into my decisions. You're looking at around $45K for 20 percent down and then 2-3K in closing costs plus the cost of moving. So if I couldn't save a substantial amount of money in 2 years, I'd probably scrap my above plan re: debt and put this money away. 

[ilovemygirl]

First .. Congrats on the big bonus and raise! That's so exciting!

Definitely pay off any of the debt with the 0% intro rate first. Who knows what they could rocket that rate up to in the near future.

Is the 2k value of your car the actual trade in value of the car ... as in whoever you are getting the van from will actually give you 2k for it? If it's not, I would fix the car. It also depends how much you drive. If you just use your car for local errands and such I would try to make due with the car you already have. Also, since you won't need the van for almost two years at the least it might be best to hold off on it just for the gas mileage alone. I only upgraded from a compact sedan to a mid size sedan and the gas difference is truly frightening to me. I want to cry every time I fill up. It's obviously not comfy or roomy but you can fit three children into a regular car unless it's a teeny tiny compact one. 

Personally, I hate owing anyone anything ever so I would use the rest to pay off the student loans just for my sanity but it might not be the best option if you have a low interest rate on it and can make more by investing/saving the cash. 

[Flower of Bliss]



 

Originally Posted by Carson 

How much do you have leftover each month with your normal budget? How much will the new [used] van cost?  How much do you have as an emergency fund now?

I guess I would look at this money as a way to solve your biggest financial challenge, whatever is the most difficult to overcome.  Not knowing the above, I would lean towards replacing the timing belt (if that's really the only major issue) then paying off the consumer portion of the debt, then saving the rest as an emergency fund.

Then until you need the van, make a car payment into a savings account to save up for some cash to put down.  That will also allow you to work your budget with that payment.

It's really hard to say how much we have left over each month.  Our health insurance is going up again starting in January, and DD1 has just started a Waldorf school part time, so we're adding in her tuition this month too.  I have a regular budget that I do a decent (but not stellar) job sticking with, but it could definitely stand to be trimmed.  This next 12-24 months I'm committing to getting us in a better place for long term financial planning.  I really won't be able to figure out a monthly budget until we have DH's new numbers - next week sometime.  It's a really stressful time of year waiting on his numbers and feedback.

I've been pricing used vans, and I'm looking at roughly $20K right now.  I'm not  settled on what we want exactly.  I'll look at budget and year end info before buying of course, and could do more like $17K - $25K depending.  Lots to research.  We tend to be happy buying newer cars and driving into the ground.  The $2K is a pretty good trade in estimate, but I haven't had it officially appraised. 

My biggest financial challenge is revolving cc debt.  I'm very good at paying it off within a year, but then we rack it back up, pay it off, rinse, repeat.  It's a bad cycle.  I'd like to pay off the debt, and then build up real savings so that when we suddenly have to cut down a dead tree for $1000, or repair some electrical work for $500, replace our furnace for $2000, or replace our washing machine, or fly to Hong Kong   I'm not putting it on a credit card.  I'd also like to be in a place that selling the house and buying a new one feels like a real possibility.  Our current emergency fund is almost nonexistent (cleaned it out for the HK trip...).


 

Originally Posted by VisionaryMom 

If you have a good mechanic, take the Civic to see if the timing belt is the only likely major issue. It it is, I'd fix that because you won't get another car for $1,000. I don't think the value of the Civic is the issue for you; the cost of replacing it is.

So that would leave you 11-19K.

I would pay off the debt in the intro period. Then I would look at whether I'd make more by saving the rest or paying off the student loans. Factors for that would be 1) how comfortable you are month-to-month and 2) how much your interest rate is versus what you could make in a short-term investment.

Have you checked actual selling prices for homes in your area? I know that our house is still valued around what our mortgage assessment is, but homes in our neighborhood are selling at about 12 percent less. I say that because the need for a down payment for a new home would factor into my decisions. You're looking at around $45K for 20 percent down and then 2-3K in closing costs plus the cost of moving. So if I couldn't save a substantial amount of money in 2 years, I'd probably scrap my above plan re: debt and put this money away. 

We have a good mechanic who has done all of our car maintenance for the last 7 years.  We asked his advice on the car, and the timing belt is the main issue.  There are a host of other things that may end up needing to be done in the next year or so, but the timing belt is the really big expense and the biggest risk.  I'm conflicted on the whole thing.  I anticipate being pregnant by this time next year (to have the baby sometime in 2012), and I'd like to be in a paid off van (or very close to) by the time we're putting our house on the market (which we really hope to do spring of 2013).  So, I'm thinking about buying the van on a 3 year note so we have some liquid savings for around the time we're selling the house.

I do watch home listings in the area pretty well.  I think $175 is a pretty good ballpark for the selling range of our house.  Homes in this area actually tend to sell for OVER their appraisal value! 

At the moment, I'm leaning towards

1st - $2K in savings (our water heater is really old and expected to go "soon" and it's a $1000 replacement cost, so I'm counting that plus $1000)

2nd - $3K towards home maintenance

3rd - remaining cash towards debt

4th - buying a new (used) van on a 3 year note

5th -  paying off any remaining debt (besides the van) asap

6th - $13K more in emergency fund (for a total of $15K)

7th - paying off van

8th - upping retirement savings

9th - college savings

We do have some DH's company stock (some restricted, some not) that we could sell.  We may sell what we can now and put it towards the immediate goals, or sit on it till we're closer to selling the house.  I'll have to look at the market more before we decide.

What do you think?

[eirual]

C!!

I think getting a van right now is not a wise decision. You have the chance to have complete financial freedom (or very close to, depending on what you get)!!!

I'd take your bonus income, make the house repairs you need, fix the car, and put $1,000 aside for emergencies. So that's $3,000 off what you get.

You can then use the remaining $9,000-$17,000 to pay down debt (if it's the smaller sum, then it will get you close, and if it's the larger sum it will get you entirely debt-free with savings for a van.

If you get a van now, you'll be putting an extra year of wear on it before need be. If you wait you can get that same van for less when you need it (does that make sense?....let's say you get van X with 30,000miles on it and pay what that specific van with 30,000 miles on it is worth. In a year's time you'll still have van X with about 40,000miles on it OR you could buy van X with 40,000miles on it in a year's time and pay what that specific van is worth with 40,000miles on it vs. what it was worth a year ago. Cars only go down in value. ....what would it cost you to drive a newer van for this year? ....what would it cost you to drive your current car? 

I really think you should save up and get the van when you really need it (I know that's not what you want to hear).

[mattemma04]

My dh bought a van at a car auction for 5k. It was a repod van.After 2 years we had to put about 1500.00 in it. I would opt to fix the car before buying something new.Dh bought me a prius,but I wish we did not have the monthly payments!

[Flower of Bliss]

 Well, we got the numbers.  The bonus is pretty, as is the tax return.  We'll have about $19.5K in cash between the two.  However, the raise really didn't pan out.  DH's salary is plenty enough to support us, and there are some nice family friendly perks (work from home time and rather flexible hours more about what gets done than when exactly he's working), but he's long over due for the raise, and career wise, he really needs to start a job search...  So, now I'm debating weather we should save more money now, or do the paying down debt we planned.  We're certain he can get a job offer (or several) in this area, but we often talk about relocation, and if he's doing a job transition, now might be a good time to relocate...

I've totally blown off the van for now.  In addition to all of your points, our insurance would certainly go up. 

We have about 1K in company stocks we'll sell too, which I haven't assigned.  We'd also be taking a desperately needed family vacation in the spring, paying in cash.   It might not be the perfect financial plan, but we haven't done a vacation in over 2 years, and DH and I are both really really needing the time away.

So, options:

Option 1 - $3K in home maintenance, $1K car repairs, $2K emergency fund, $12K cc debt, $1.5K student loans, then quickly (by May) pay off the last $1.5K in student loans, then build up savings (emergency fund, van, buying/selling home).  This really appeals to me.  It sounds like the right option. 

Option 2 - $3K in home maintenance, $1K car repairs, $5K emergency fund, $10.5K cc debt, then quickly pay off the remaining $1.5in cc debt (on 0% apr till summer, which would definitely motivate us to pay it off).  This option leaves us with more cash on hand.  DH is entering a job search, and I'm driving a 11 year old car.  There's lots unknown, and I can see the possibility of needing the cash.  We'd then still have the student loans.

Option 3 - $3k in home maintenance, $1K car repairs, $10K emergency fund, $5K cc debt currently accruing interest, remaining $0.5 towards 0% apr cc, working towards paying off the cc before we lose the 0%.  This option is really about the possibility of relocating.  On the chance DH is in the middle of a job search, and he gets a nice offer to relocate somewhere (like our home town), I hate to not have the cash on hand to do so.  We have mixed feelings about relocating, but we talk about it often.  Once DH is settled in a job, we'd clear out most of the emergency fund and pay off debt.

Any opinions?

[eirual]

If DH has the option to remain at the job he's in, I'd say option #1 and continue working and saving while job searching if he's unhappy there. You say his salary in enough to support you, so I would wipe your financial slate clean through option #1's plan, and start saving for all the exciting things coming up- car replacement, relocation (maybe), and pad your emergency fund. If he for some reason needs to quit his job to look for other work (???) then I'd go for option #2, but that's only if things are unstable due to circumstances beyond your control, which it sounds like they're not. 

[Flower of Bliss]

Originally Posted by eirual 

If DH has the option to remain at the job he's in, I'd say option #1 and continue working and saving while job searching if he's unhappy there. You say his salary in enough to support you, so I would wipe your financial slate clean through option #1's plan, and start saving for all the exciting things coming up- car replacement, relocation (maybe), and pad your emergency fund. If he for some reason needs to quit his job to look for other work (???) then I'd go for option #2, but that's only if things are unstable due to circumstances beyond your control, which it sounds like they're not. 

Yes, he'll be job searching while employed.  His job is stable.  However, he is starting the job search NOW, not in 6 months.  It's definitely the right career decision.  Honestly, it's probably an overdue decision.  Likely, he'll end up in a job in the same town earning more than he is now - perhaps even with a signing bonus...  He's leaving because he's over due for a raise that should have come with a promotion he got 3 years ago. 

However, while he's searching, I imagine he'll apply to a few out of town jobs.  Perhaps in our home town, or elsewhere.  This could be a real opportunity.  If he gets an offer elsewhere, we wouldn't have the luxury of waiting to save money before accepting the offer.  Of course, we could just decide to stay here for the next 2+ years, and do a job search just here while getting ourselves in a better financial place.  I'm leaning towards that, but we both tend to really resist change, DH more so than me, and if he's relatively happy in a new job, he'll be disinclined to do a job search for the purpose of relocating in 2-3 years.  Am I making sense here?

[eirual]

Well, if you see a storm a comin' and you'd feel more comfortable with a larger cushion, then by all means go for it. You could always use its excess to pay off the debt if he ends up taking a job nearby and you don't need it after all.

Is there anything you can do to increase your income so you can still get rid of debt with avengence while still having a cushion? ...it sounds as though you have plenty to cover your means, but if you're hungry for financial freedom and getting financially comfortable with a potential rocky period coming up, it might be something worth considering.

[VisionaryMom]

How much will he need to move? I would take some time to sit down and figure that out first. We've always moved for cheap, but I know others prefer or need to hire movers and spend other amounts that we never have on moving. 

I like option 1 as well. If the $2K is enough to move, then I'd do that. I'm assuming the cc accounts are still open. If it becomes dire, then you can put some expenses on the card and pay it off. If not, then you've budgeted to live on what you have & you have no debt. If you don't pay off the cards, you definitely have those payments every month. For me, no debt but smaller emergency fund is right, but for some, a bigger EF w/ debt would feel more secure. The only difference is that I probably wouldn't worry too much about the student loans, assuming they have low interest rates. Just let them play out. It's only $3K. If you did that, then you could put $3500 in your emergency fund & still pay off the credit cards. (Plus lender-option forbearance is an option if your situation changes for the worst.)

[Flower of Bliss]

We own our house.  If we relocate, we'd be dealing with all of the expenses of listing and selling a home.  In this area homes are listed in near perfect condition.  We'd certainly have to do painting, new carpet, and a host of other staging type work on the house.  Then, of course, there would be all of the closing costs and such.  We'd likely move for cheap, and rent while we got to know the new area (so we'd need deposits too...)

Honestly, I don't think now is the time for a move.  The average salary for DH's job is higher here than any of the other places we'd consider moving, the cost of living here is lower, and there are many job oppertunities in his field here, and he has many professional connections in the field here.  Not to mention we own a home here, our lives are here.  However, our families - both sides - are in the same town.  Part of me wants to move back home.  Now seems like it might be a chance.  Logically and financially it's not the best idea.  But, that isn't all there is to life.  We also often feel isolated and frustrated because of how different our political, religious, and general life values differ from the mainstream here.

We talked well into the night about all of this.  I think next week when the bonus check clears, we'll pay off all of the debt and schedule all of the maintenance.  We'll sell the stock, which ought to just about cover the last of the student loans.  Then we can start throwing money into a savings account as quickly as possible.  We've also upped our retirement deductions to 5% (not as high as we want it, but moving in the right direction).  Once we've saved a bigger emergency fund, and a solid game plan for a van and a move, we'll up the retirement.

[VisionaryMom]

All of those costs wrt selling your home are negotiable. In our area, the seller paying for closing costs is becoming uncommon. I'm not pushing for a move. I don't know what's best for you, but I think that those expenses alone shouldn't be a major factor. 

I do know what you mean about money, though. We are moving in 2012, and we will be really, really lucky if we break even on our house. The market is starting to turn in that direction. Acc to our assessment, we have equity, but not according to local buyers! Still we're moving somewhere that we think will improve our quality of life so drastically that it's worth it.

Are you selling the stock for any reason other than to pay off student loans? Is the company doing ok? It seems to me that I would leave that money unless absolutely necessary to sell and view it as part of my retirement.