Don't know where to post this question, move if needed.
Im not an investor. I have aspirations of being one, and need some serious advice.
I just listened to the podcast with Scott Trench, which has made me feel like what I am proposing makes more sense. Here is my story.
Im 36, live in NW Houston (Cypress, TX). I have 3 kids, 1.5, 9, and 13. I am a contractor who installs window film for commercial and residential applications, with an emphasis on commercial. I made $126K gross in 2016. My wife is a realtor, but rather wet behind the ears, and brought in around $20-$25K in 2016. This year to date, my gross is $53k, and we are projecting over $160k gross (my income).
We have been incredibly negligent with where money has been spent in the past 3 years. In fact, we were damn near debt free in 2013, but thought it was a good idea to buy 2 new vehicles. I owe $110k on my home, and the appraisal is $143k, market value of $157k, and we have seen our exact home selling for $150k-$165k. We believe ours would sell on the higher end.
We have about $32k on CC debt, and about $60k on auto debt. As a contractor, I dont usually get paid on my work for 30-90 days, which has made budgeting a nightmare. Regardless, I realize the errors of our ways.
I could go into far more detail, but my question is, should I sell my house, and take the equity after closing to pay off my CC debt, and rent for a couple years (or more) and start over?
Hi Troy. Selling your house for $156k when you owe $110k will give you 46k profit but you have to remember you will lose real estate fees, Escrow's fees ect for closing costs. I would estimate you would get mid 30's cash back after you sold (not sure exactly what the fees are to sell in Texas). This would be just enough to pay off your credit cards but then you have no where to live and would have to rent. Renting is throwing away money and moving isn't always the best option when you have kids to consider. You seem like you and your wife make a lot of money. Can you not create a firm budget, stop using the credit cards, and pay off your CC debt with just your income in the next year? Auto debt isn't too bad as you have set monthly payments to pay it off. I hope you got 0 interest on them. Best of luck!
Can you find unique ways to make some extra money to put towards debt such as renting out a part of your house or room for extra income to be used to pay down debt? Don't sell your house so fast just to make the debt go away until you deal with HOW you got into debt, which is a lack of living on a budget. If you sell now to pay off some of your debt now and then go back into debt, you now have no more assets to sell. Deal with your human weakness (we all have an area) and grow from it first. Learn to live below your means and create a budget and look to add some extra income. It will be worth it in the end! (sorry for not sugar coating my opinion. I used to be a budget counselor!) Oh, and btw, get your wife and family on board and make goals so your all trying to move in the same direction or frustration will ensue! You'll so be glad to get your life in order by doing this and your wife will think your quite the man! (not to imply that you aren't already, lol!)
I know what I should be doing, I was just considering a much quicker way. My NET income is quite lower than my gross. Anyhow, I appreciate the insight, and just need to grind.
I no longer have CCs. The biggest issue as mentioned is trying to budget. Sometimes I don't collect any money for 2 months.
Originally posted by @Troy Peters:
I know what I should be doing, I was just considering a much quicker way. My NET income is quite lower than my gross. Anyhow, I appreciate the insight, and just need to grind.
I no longer have CCs. The biggest issue as mentioned is trying to budget. Sometimes I don't collect any money for 2 months.
Don't let your cycle of payment dictate how you budget. If you get paid every day, every week, every month, every hour, etc. so long as you make a given $x a year, budget for $x. If you're making $120k/year, in theory it shouldn't matter if you get a $120k check every 356 days, or $10k/month or ~$2k/week.
A more extreme example: People don't get paid each hour, or each day (for the most part) but still budget.
But if you're going to have large gaps, you'll need to build a buffer. So make sure you have 4-6 months of income as a safety net
Thanks for all the advice. I feel silly for having asked, as I know better. I just landed a project that will leave money in my pocket after paying off all of my debt, cars included. I will be back for an update in a few months.
@Troy Peters congrats on the project and never feel bad for asking (we all know better or we'd all be skinny, rich people running around, lol!) Sometimes we just need held accountable or reminded or someone to just say the right thing, the right way at the right time. I apologize again for being abrupt just didn't want to see you sell your asset for a quick fix. Good luck on the project and do keep us posted!
@Troy Peters I found BP through the FIRE (Financially Independent/Retire Early) world of mrmoneymustache.com, madfientist.com and the book Your Money or Your Life which has shaped the way I view money. These suggestions will probably come across as a little harsh, but here it goes.
Sell the cars and buy two reasonably priced cars in cash. I will never understand going $60k in debt on something that is guaranteed to depreciate.
If you're not already, start tracking your spending. Mint.com works great for this. Once you see exactly where your money is going each month, it's much easier to make changes.
It sounds like you'll be able to pay off the credit cards soon with the new project, awesome!
Next, save up at least 6 months of living expenses. This is your emergency fund which is especially necessary in your line of work where you get paid infrequently. You will feel much better knowing you can go six months no problem without getting paid at all. You will be able ride out rocky patches without wondering if you should sell the house. Don't touch this fund unless necessary, it's for emergencies only.
The more you trim your spending, the less you have to save for your emergency fund and the faster the fund grows. These are just example numbers, you can plug in your own. If you're spending $10k a month you will need an emergency fund of $60k. If you can save $1k/month it will take you 60 months to get to the point where you will feel comfortable. But, say you can trim your spending down to $6k/month. Now you have $4k/month plus the $1k/month (that you were saving in the $10k/month example) which gives you $5k/month going into your emergency fund. With a spending rate of $6k/month you only need an emergency fund of $36k. At a savings rate of $5/month you will have an adequate emergency fund in just over 7 months. Trimming you spending has a double effect: the total amount you need to save is less and your savings rate increases.
You're in a great position to set yourself and your family up for being debt free and able to go a few months before getting paid. Best of luck!
In the podcast, didn't he mention house hacking? If you sold, would you be able to purchase a duplex so you could collect rent to offset new mortgage?