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Wanting Financial Freedom, but A New Car Is My Current Goal
Old 03-14-2013, 03:25 PM   #1
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Wanting Financial Freedom, but A New Car Is My Current Goal

I will try to make this quick.

About me: 24 years old, 3 year old daughter, 5 months pregnant, full-time senior in college, 1 full-time job, and 1 part-time job.

Current car: 2007 Kia Rio, 120k miles on it, worth about $3,000, still owe $8,800 (I had a really bad interest rate - 22%).

I want a new car, because I feel my current car is too small for my growing family. I am looking at a used Hyundai Santa Fe. I won't spend over $12,000.

Do you all think I should buy the new vehicle, or just stick with what I have?

I don't understand all the financial language used on this site, but I will try to explain my financial situation as best I can.

Rent: $674
Utilities: $90
Car payment: $360.55
Car Insurance (bundled with life insurance: $170
Cell phone: $100
3 year old's tuition: $1000 month
Gas in card: approx $160
Monthly income after taxes: $2,600

All help and criticism appreciated! I really need help!!!!

ETA: I am signing up for a secured credit card through my bank to fix my credit. Current score is 524. I want to get a new car soon though, and I know it'll take at least a year to see a significant different in my credit with the card.
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Old 03-14-2013, 04:15 PM   #2
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The expenses you list above are $2,555 and your take home pay is $2,600. I don't see any amounts for food in your "budget" above. Do you have any credit card debt ? Student loans ?

How much of the $12k on the new car would you need to finance ? What would the payment be (in other words, how will it compare to the $360 you are currently paying) ?

I agree that the Rio is probably "cramped" when packing all the "little one gear" needed but it doesn't seem to me that its a "critical need".

If it were me I would try to think longer term, get out of debt, and start putting money away for the future.
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Old 03-14-2013, 04:29 PM   #3
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Your 3 year old's tuition is $1000/month? Does that include full day child care? That's almost equivalent to what I'm paying for my son's college tuition.

That bill alone is 38% of your take home pay, is the tuition necessary? What do you get for it?
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Old 03-14-2013, 04:33 PM   #4
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Hi. I don't have any credit card debt, and my student loans are deferred. I am immediately going to graduate school, so I won't pay anything on my student loans for at least 5 years.

Honestly, I fall behind a lot on bills. I want a car with a cheaper payment for that reason. My daughter is also starting a cheaper school soon. I have $4,000 put aside for a car. So, the remaining $8,000 will be financed (sorry I should have put that in my original post!!!). That will make my car payment about $100 less after they bundle in my current loan.

I agree, it probably isn't a critical need. If you all think paying off the debt first (my current car) and reducing my current bills is more important I will definitely do that first.
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Old 03-14-2013, 04:34 PM   #5
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Does your current car accommodate 2 carseats, even if cramped? If so you need to keep it and forget about a newer one til you're out of school and making more money.
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Old 03-14-2013, 04:36 PM   #6
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Your 3 year old's tuition is $1000/month? Does that include full day child care? That's almost equivalent to what I'm paying for my son's college tuition.

That bill alone is 38% of your take home pay, is the tuition necessary? What do you get for it?
Yes, I know that tuition is ridiculous

She goes full-time Monday - Friday. That includes meals, spanish classes, music classes, extra phonics classes, and standard preschool curriculum. I love the school, but I have the opportunity to switch her to a school that's $150 a week and supposed to be equivalent. That's what I plan to do.
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Old 03-14-2013, 04:37 PM   #7
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Does your current car accommodate 2 carseats, even if cramped? If so you need to keep it and forget about a newer one til you're out of school and making more money.

Yes, it does. Cramped, but 2 car seats will definitely fit.
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Old 03-14-2013, 04:41 PM   #8
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Daycare at a an accredited preschool is expensive. Period. Especially if they have 3 year olds still in diapers (which many are). Most centers get cheaper when they "graduate" to the potty trained rooms. Ratios are set by the state - but are lower ratios (teachers to kids) for the younger ones.

But - when you have the baby you're expecting... you're back into newborn rates. Cha-ching. Having multiple young kids in daycare is expensive. But it sounds like you are still ahead, financially, when you're working.

Being underwater on your car is the bigger issue. You'll probably have to pay down the balance on trade in (which will roll into your new loan.)

I'd find a way to fit the car seat and booster seat in the Kia and make due.
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Old 03-14-2013, 04:48 PM   #9
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If you want financial freedom you need to live below your means. I don't see that now.
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Old 03-14-2013, 04:54 PM   #10
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Originally Posted by kaharris05 View Post
Yes, I know that tuition is ridiculous

She goes full-time Monday - Friday. That includes meals, spanish classes, music classes, extra phonics classes, and standard preschool curriculum. I love the school, but I have the opportunity to switch her to a school that's $150 a week and supposed to be equivalent. That's what I plan to do.
Cutting expenses is as good as getting a pay raise. I'd switch schools, keep the KIA, and use the $400 extra a month saved from switching schools to pay down your debt.

At age 3, switching schools most likely won't have a disastrous effect on your child, either. I'm probably opening a can of worms, but I'm not sure that a 3 year old really needs to be in such a curriculum. But full disclaimer, I'm not an educator, just a parent.
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Old 03-14-2013, 04:57 PM   #11
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Welcome kaharris05. After reading your post, I think I qualify as the anti-kaharris. I had kids only after I knew I could easliy afford them, bought only used cars, kids went to public schools and avoided credit like the plague. If you are on this site because you really want to be FI one day, read, read and read some more, then start making written plans and spread sheets to track your progress. Your post doesn't state whether or not you have a spouse? What are going to grad school for? You are going to be 28ish after grad school, then the student loans come due.
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Old 03-14-2013, 04:59 PM   #12
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If you have 1.5 jobs and your income is $2600/mo, what is coming from the father(s) of your soon-to-be 2 children?

Who will care for the baby when you are in graduate school?

Is your graduate school plan something that will very quickly pay you back for your outlays and start supporting your faimily and allowing some debt paydown too?

You didn't bring up these topics, but they are the elephant in the room.

Ha
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Old 03-14-2013, 05:56 PM   #13
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I think most here will tell you just finish paying off that car. Pay off your student loans. Take care of your family and when you get into a better paying job (and you will because every successful man is a strong woman) you will thank everyone for it.
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Old 03-14-2013, 07:32 PM   #14
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What is your major and what are the grad school plans? How much student loan debt are you looking at in total and what is the average starting salary? These are critical decisions when it comes to FI.


I'm not too sure about the car replacement, I drove a 10yr old car that I bought and paid off while working my way through school. My current '07 is at 116k and I'm expecting to keep it until 200k
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Old 03-14-2013, 07:43 PM   #15
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Welcome kaharris05. After reading your post, I think I qualify as the anti-kaharris. I had kids only after I knew I could easliy afford them, bought only used cars, kids went to public schools and avoided credit like the plague. If you are on this site because you really want to be FI one day, read, read and read some more, then start making written plans and spread sheets to track your progress. Your post doesn't state whether or not you have a spouse? What are going to grad school for? You are going to be 28ish after grad school, then the student loans come due.
I'm not married, but I do get financial assistance from my boyfriend. I always make my budget according to how things will be without his help, just in case things change. It's happened, so I don't want to be caught off guard again.

I am going to grad school for counseling. Master and PhD program, so I probably have 5-6 years before I need to pay those back.
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Old 03-14-2013, 08:03 PM   #16
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Thank you all for the great replies!!!!!! I definitely am seeing things a new way. I have $4,000 to use as a down payment, but I will use that to help pay down my car. I truly an thankful for all the replies. All help is appreciated!

One more question, regarding credit scores, is it better to send in that $4,000 at one time, or just pay off a month at a time? My credit score is hurting, because of late car payments, so I'm hoping put $4,000 on the bill will help boost it.
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Old 03-14-2013, 08:43 PM   #17
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How did you manage to set aside $4k and also be late on your car payments? If you have those funds, can ou call your lender and ask to renegotiate?
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Old 03-14-2013, 08:54 PM   #18
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How can your current car not fit your family? You have maybe 2 adults and 2 very small children? Unless this is a 2 seat sportscar, assuming 2 carsets fit somehow, your family certainly fits this car.

Maybe you want a new car or maybe you want to get rid of your current car. But fitting your growing family has nothing to do with it.

Your current upside down 22% car loan is terrible. Sorry you are stuck in that. Can you get out?
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Old 03-14-2013, 09:02 PM   #19
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You might try to refinance your current 22% loan. I agree with others that you probably should not be buying a new car, but you can certainly improve your cash flow if you can refinance. Do an internet search for auto loan refinancing. (I see that Wells Fargo and Capital One pop up on my search)
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Old 03-14-2013, 09:12 PM   #20
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First, drive the car into the ground. Sell it only when the cost to repair exceeds the value of the car. Cars are REALLY expensive if you trade them in all the time.

It doesn't matter if you pay in lump or over time. They only look at "recent" delinquency." It will take 24 months after the last delinquency for the credit score to move significantly.

Since your interest rate is 22%, pay it in a lump...it will reduce the total amount of interest you will pay.

However, one big issue, I believe, is your emergency funds. Most people would recommend that you have some funds in emergency reserve. If you have an emergency that requires you find $ (loss of job, extreme medical bills, unforeseen costs), do you have anything to fall back on?

Maybe taking $2000 and lumping against the car loan, keep $2000 in cash for emergencies (Like saving yourself from being late on a payment again ). Reduce expenses and take your excess cash ever month and put it 50/50 to paying down the car and saving for emergencies.

Finally, I would seriously consider what your situation will be after all of your schooling. You will be 30 years old with how much student debt? What is the employ-ability of someone in your field with a PhD? What are the typical salaries?

Let's say you have been through 4+2+2 (likely more) years at $20K/year. You will have over $150,000 in student loan debt. Payment, with extended (30yr) term, you will be paying $1000/mo until you are 60 years old! That's almost $360,000 for your education.....WHEW!

Let's assume that you take the normal term, 10 years to repay. Your payments will be $1726/mo for 10 years. THAT IS OVER $20,000/YEAR in student loan debt payoff...

Let's assume that you make 40K after graduating, taxes will take 4K, so you are at 36K, take out 20K for student debt, you have 16K left to spend...about $1300/month to live on, not much. FOR 10 YEARS!

I would seriously evaluate the benefit of the Masters and PhD vs. the long term impact to you and your family. You might make a case for the Masters given some of the requirements in the mental health field vs. pay...but a PhD, maybe not so much.

Good luck. You are in a tough position, you can do it but it takes discipline to live below your means consistently. My sense is that you can do it!
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