Monday, January 5, 2015

What would you do?

Now that my credit cards are paid off, a new question has popped into my head and I'm looking for advice.

I currently rent a room in a duplex with 2 other roommates. The location is great and the rent is roughly $500, which is fairly cheap for this area. Our lease is up at the end of April, both roommates are moving out and I find myself at a crossroads.

Do I use these next few months to save for a downpayment and buy a house? The housing market is still good and interest rates will only be getting higher by next year. I would find a 3 bedroom with 2 roommates to pay the mortgage for me. My current $500/month would go into savings/home maintenance expenses.


Do I find 2 new roommates and stay where I am. Continue to pay $500/month and continue to pay off debt for at least another year? I may miss out on equity on a house and cheaper housing costs down the road but I avoid unexpected expenses that come with home ownership and I would have more time to save for a stronger down payment maybe next year.

What would you do?
December 1st Balances
Amex: $1,545.79 $0
Mastercard: $5,714.27 $3,646.73
Sallie Mae: $14,123.57 $11,451.11
Chase: $19,907.33 $19,723.04
Sallie Mae: $24,754.52

January 1st Balances
Amex: $1,545.79 $0
Mastercard: $5,714.27 $0
Sallie Mae: $14,123.57 $11,410
Chase: $19,658.65
Sallie Mae: $24,735.87

That's a total of $3686.73 this month.

Thanks to my 401K learning experience, I was able to pay off my credit cards fully, which feels great. And I won't be using those again for a very long time. However, the rest of December was a wash and if I'm being honest, I'm ok with that.

The hardest part about the challenge this month was: 
The holidays. Hands down. Between presents and holiday parties and going away parties etc, I couldn't do the spending challenge. I felt guilty about it for a while but eventually I forgave myself. It's the holidays and despite my goals, spending time with loved ones is more important than money. Sure, I could have asked to adjust plans that were more affordable, but I didn't.

Instead I soaked up time with my favorite people and was nice to myself during a challenging time. My parents moved to South Carolina on December 22nd, leaving me to be without family in my home state anymore. It was a tough transition but now I'll have a warmer place to visit.

What I learned from the challenge this month was:
I have so many people to love in my life! That probably sounds ridiculous and obvious but it's apparently something I learned. When I started the challenge, I didn't factor in holiday expenses or Christmas presents for anyone. In August I bought my family their Christmas present, a family photography session since we were all in the same state at the same time, a rare occurrence. And with that, I thought I could get away with a skimpy Christmas.

Last year at this time, I was living alone, working from home, and didn't have too many friends nearby. So this year I told myself I could skip all the hoopla and be a bit of a scrooge. I was so wrong. Since last year I now have roommates, a job full of wonderful people I love, a great book club, and an amazing group of friends. There was no way I was going to skip out on giving presents and getting into the holiday spirit with them, just because of money. I didn't go all out on anyone's present but doing something small to show I care really added up. There were Secret Santas, Favorite Thing parties, cookie exchanges, and presents for the family that took me in for Christmas after my family left. Sure, I could have skipped presents this year or found ways to make presents for cheap/free, but I didn't. None of them needed a present from me to know how much I care but I didn't want to skimp on others just because I wanted to focus on my selfish goal.

Being ok with adjusting the challenge to work for me was another great lesson. I didn't beat myself up over not saving anything extra in December. It was actually a good break for me. And now I'm ready to bounce back and get intense with my finances over the next 8 months!

The best part about the challenge this month was:
Paying off my credit cards! Seeing a $0 balance and knowing that the only debt I have is from student loans and my new car loan feels great. It was just the push I need to kick off the new year with a strong foot. And let me tell you, it's going to be a good year! 

4 months down, 8 to go!

Thursday, December 11, 2014

401K Fun

As I learn more about finances, I'm realizing just how much there is I need to know. I recently learned one big lesson the hard way and it's been an interesting pill to swallow.

When I left my last job in April, I had a 401K with that company. They had matched 3% to the 6% I contributed so it was sitting just under $6,000.

I regularly saw that money on my Mint account and loved that tiny investment portion of my finances. Even after sitting down with 2 financial advisers, I didn't realize I had to do something with that money after leaving the company. However, when I recently logged into my account, there was a notice that said I hadn't taken action on my 401K after 6 months of not being employed with that company so the account would be liquidated.


Apparently I was supposed to roll it over into an IRA if I wanted to keep the funds for retirement. I guess that makes sense because I wasn't vested with my company so they couldn't keep their match tied up with me when they could get it back. I just didn't know and admittedly didn't make the effort to learn.

So after the company match, taxes, and the 10% fee were removed, I had a check for about $3,000 in my hand. It bums me out that I don't have that money for retirement anymore and come to think of it, I could have just re-invested it. But I didn't.

Debt has obviously been a big struggle for me and it was my first instinct to knock out $3,000 worth of debt with that money. And that's exactly what I did. At the unfortunate sacrifice of retirement, I'm happy to announce I will be ending 2014 completely credit card debt free.

Going forward, I will also be working to save towards retirement because now I'm really behind. I have been with my current company for 6 months now, which means I am eligible for a 4% match that is 100% vested at the start of the new year. I will take advantage of that and the rest of my extra income will still go towards debt repayment. 

It is a huge relief to kick off 2015 with a financial focus on student loans. I felt incredibly guilty having credit card debt because it's obvious proof of not spending wisely despite the mountain of student loans I have. As the spending challenge continues, I want my hard work to reflect smart spending habits.

Monday, December 1, 2014

Spending Challenge: November Totals

November 1st Balances
Amex: $1,545.79 $0
Mastercard: $5,714.27 $3,760.59
Sallie Mae: $14,123.57 $11,472
Chase: $19,907.33
Sallie Mae: $24,754.52

December 1st Balances
Amex: $1,545.79 $0
Mastercard: $5,714.27 $3,646.73
Sallie Mae: $14,123.57 $11,451.11
Chase: $19,907.33 $19,723.04
Sallie Mae: $24,754.52

That's a total of $113.86 this month...
Now, I know that sounds like a teeny tiny number, and it is, but it's not exactly representative of what actually happened in November. There were 2 very large car expenses (taxes and maintenance for the new car) that I put on my credit card. I have the money to pay myself back, it just hasn't gone through yet. So when you see the totals for December, it will be drastically different.

I still worked hard, earned extra money and stuck to the spending challenge. I babysat, wrote resumes, did 2 freelance research projects, earned a small bonus at work, worked on, dog sat, and stuck to the spending challenge rules to make this possible. 

The hardest part about the challenge this month was: 
Having my friend Jessie and her fiance visit. Of course I LOVED seeing her and I don't regret spending a little extra money on hosting her. I did some extra grocery shopping to feed them and we went out to eat a bit. It wasn't a huge budget buster but it did go over. I knew she was coming with plenty of notice so I could have planned better.

What I learned from the challenge this month was:
If you need to get a book for book club and you're 168th on the hold list at the library, check out the large print version. I was only 6th in line and I already have the book. Yes, there's an extra 200 pages because the text is so big but I didn't have to buy the book!

I also learned that you have to do something with your 401K within 6 months of leaving a company. More on that in another post. 

Lastly, I learned that sticking to a budget your comfortable with is crucial, especially with big purchases. I could have justified buying a fancy 2013 car but I would have been car poor. Considering cars are never an investment, I'm so glad I found a better deal. If you're not finding a deal you're comfortable with, keep waiting. It will happen, you just have to wait and dig a little deeper.

The best part about the challenge this month was:
Budgeting for stuff I'm allowed to buy. Living in Minnesota, we got hit with some snow early in the month and it was time to buy winter boots. Rather than treating it like an unexpected expense and putting it on my credit card to "pay off later," I was prepared and didn't feel guilty about making the purchase. Better yet, I was smart and more thoughtful about what I bought. I usually buy Uggs, which are warm but not waterproof. Instead, I went with Sorel boots at the same cost. They are more sturdy, waterproof, and will last for many more years.

3 months down, 9 to go!

Monday, November 17, 2014

The time brunch fixed everything

Two weekends ago I went out to the Lyndale Tap House for brunch with two of my favorite friends. I had a Groupon from an old birthday present so that made it even sweeter. As we were brunching, we were talking about needing to buy cars, because both my friend and I were looking for a new one.

My friend, Jamie, is from Illinois and is not a great driver (self-proclaimed), especially in the MN snow. She has a 2008 Ford Focus and wanted something more heavy duty with all-wheel drive. As I listened, I had a light bulb moment. I should buy her car.

I asked her 20 questions and found that there's only 75,000 miles on it. It has remote-start. It has some cool stereo bells and whistles. It gets great gas mileage. And she was simply hoping to trade it in to the dealer for whatever they will give her. Even by paying more than the dealer, I was still going to get a great deal!

Jamie even took the car to a mechanic to make sure everything checked out. The brakes need some work and we agreed to split the cost. This deal couldn't have gone more smoothly!

Best of all, it was much closer to my comfort zone of a car payment. Yes, I would still need a loan but it would be much more affordable than something much newer. And car insurance would be more affordable too. What a huge sigh of relief!

Since I wasn't needing such a high loan, I was approved for the $6,500 I was looking to take out, despite my credit issues. Technically I paid $5750 for the car but I had to consider taxes and fees, fixing the brakes and few maintenance expenses. The dealer was willing to give her roughly $5,000 at best and the car values at up to $8,000.

So without further adieu,  I am pleased to introduce you to my new car!
Meet Lloyd Christmas! Fitting name, as he is my Christmas present to myself, he's red, and Dumb and Dumber is one of the funniest classics of all time :)

Now Jamie is thrilled with her brand new Chevy Equinox and I am loving Lloyd. You can even imagine us doing a happy dance, jumping around the Chevy parking lot when we both got new cars!

It really was the best deal I could have found and I plan to run this car for as long as it will last. Now to navigate selling my old car and continuing with the spending challenge!! 

Wednesday, November 5, 2014

When Life Hands You Lemons...

Thank you for all the advice and perspective on what car to buy. This is the first time I've been looking at buying a car and making the right choice is nearly paralyzing.

Here are the dirty deets on what I'm looking at, numbers wise. The most I'm comfortable paying on a monthly basis is $225/month. I can't emphasize enough how that is the absolute most I'm willing to pay and even the idea of that amount makes me want to throw up. I understand that is not a huge car payment compared to many but for my situation, that's where I'm at.

That averages out to a car loan of $10,000. When I look at used cars for $10,000 or less, it's nerve wracking. A car in that range will be older, roughly 2008 at best. And it will have a lot of miles, nearly 100,000 in most cases. By the time I paid off a 4 year loan, it would be time to get a new car. Stretching my budget and financial comfort zone so much while still driving a car that could come across several problems at any time just didn't feel ok. Even thinking about it now puts knots in my stomach.

However. If I bumped my budget up to $14,000 I could afford a 2013 car (used of course) with 40,000 miles. A car like that could last me 10 years at least. If I had a 4 year loan, I would have at least 6 years of no car payment. But that bumps my monthly payment up to $305. *Excuse me while I dry heave*

So this dilemma lead me to my last post where I simply don't know what to do. But then life made the decision for me.

I went over to a local credit union where I found the rate of 2.99% to get pre-approved. They dropped a big bomb on me that my credit is all screwed up from 2 unpaid bills that I never received. Apparently all my moving around has left a few bills that did not get forwarded. When a bill is mailed to you, you have 30 days to pay it. There is no legal requirement for them to call you or email you before it gets sent to collections. Who knew?

Between those hard credit hits and my high debt ratio with student loans, it puts me in the "maybe" category for qualifying for a loan. If I tested it and applied anyway, the poor credit would hurt the terms of my loan at best. At worst, I would not qualify and I would have another soft hit on my credit from the application. I guess that solves my problem before it began.

After a few incredibly frustrated Lauren Conrad tears, I called the collectors and got the bills paid from the parking lot of the credit union. The pleasant man named Mr. Royal explained that it will take 45 days for my credit to be redeemed. December 19th to be exact.

I am thankful my car still runs relatively well and I'm praying every day that my car works one more day as I get closer to December 19th. I think chances are good but as always with a 198,000 mile car, ya just never know. It helps that I've been listening to Amy Poehler's new book on CD so it makes me enjoy my time driving whenever necessary.

In the meantime, in true Katie fashion, I came up with a plan. The spending challenge is still completely in tact and in fact, even more important than ever. Instead of putting all my extra money towards debt, I will be saving every single penny I can find until December 19th. The goal is to save enough to get my expected loan amount down from $14,000 to as close to $10,000 as I can get. That way I can get a longer lasting car without going drastically over my comfortable monthly payment.

I'm expecting to save at least $2,000 with the hopes that it could be more. Whatever I can save myself now will ultimately reduce my monthly payments and leave room for extra money to go towards my student loans.

It bugs me that the spending challenge is being rerouted a bit. I hate that I'm tacking on more debt but I'm determined to get rid of it all one way or another. I am not giving up and trust me, I'm learning a lot along the way. I have to come to terms with the fact that I will be entering my 30's with debt, unless I win the lottery that I don't play.

So that's the scoop. The count is on and I'm being more frugal than ever to make this as painless of a blow as it needs to be. In fact, I found a quarter on the front walk and you bet I snatched that up!

Monday, November 3, 2014

HELP - I need your advice!

Good morning, blog world!

I mentioned in my monthly update post that it's time to buy a new car. Unfortunately, that means I'm adding on a car payment in the midst of trying to get rid of debt. It's safe to say this is not a happy decision for me but unfortunately it is necessary.

As I look at what I can afford, I am completely torn. A newer, nicer, reliable car will likely last me 10-15 years, but it hits the max of my budget, which is already as tight as can be thanks to this spending challenge. This loan will last 3-4 years, which means I couldn't incur any further expenses for the next 3-4 years unless my income drastically improved and I would barely make a dent in additional debt payments with my paycheck alone.

However, if I look at an older car with higher mileage on it, it will cost me a few thousand less total but will likely only last 5 years max and the chances of it requiring repairs is obviously higher.

Thankfully, I have found a wonderful credit union who is offering 2.99% interest on any car loan I get, which is the best deal I've found so far. That's the only silver lining I have found so far.

I am frustrated to be adding to my debt when I am trying so hard to reduce it. I'm frustrated that I have worked several jobs for my entire adult life and yet I'm always pinching to make ends meet. I'm frustrated that in all my years of learning about finance, I'm still in this situation. There are so many times I could have been smarter and I'm kicking myself for not applying what I've learned. I'm scared that I will take on more debt, be in over my head and not be able to get myself out of it. I'm scared that I'll take out a loan and something horrible will happen to the car and I'll be in big trouble financially.

I am trying really hard to set aside my emotions and do the smart thing. But to be honest, I'm not sure what that is.

Have you bought a used car? What models are good? How much mileage is too much? What would you do??