- November 20, 2023
- Posted by: legaleseblogger
- Category: Related News
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Background Information:
My current situation involves working in the finance department of a large car dealership in San Antonio while completing my last year of college. At 27 years old, I have no plans to marry and prefer a girlfriend to starting a family. In terms of expenses, I am currently paying less than $200 in bills or rent each month.
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For the financial decisions and credit questions I have mentioned, the AI Legalese Decoder can provide me with simplified explanations and recommendations based on the legal and financial jargon associated with such matters.
Questions:
1. Now that I have significantly more money, I am considering moving into a condo that I can eventually own. This would allow me to pay off the property and rent it out to someone. Is this a wise investment?
2. I am driving a 2003 Ford Explorer that gets just 14 miles per gallon and I commute over 60 miles round trip daily. Should I invest in a used or new vehicle for better fuel efficiency?
3. In terms of rebuilding my credit, I lost half of my income due to the impact of the pandemic back in June. I stopped paying my two credit cards and medical expenses, resulting in a total debt of over $3250. I plan to pay this off completely in the next month or two. How long will it take to improve my credit score from 552 to at least 700? What about reaching a score of 650?
4. As I am paid bi-monthly, I would like to start saving money. How much should I be saving from each paycheck to contribute to a Roth IRA, 401K, and general savings account?
EDIT: Your detailed inputs have been greatly appreciated and have provided me with a tremendous amount of knowledge. I have read each response, and I am grateful for the insights and advice offered.
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****** just grabbed a
Hey! Congrats thatÔÇÖs amazing and we are all proud of you!
1. No you shouldnÔÇÖt, your top priority should be setting up a plan and approach with your money. (Saving/investing)
2. While this is the most common want among people who get a significant raise, this is one of the worst things you can do with your young money. Drive the car till it goes down, saving money and building credit in the time in between.
3. This shit sucks cause you need it. Pay off those cards ASAP AND DONT MISS A PAYMENT AGAIN. Call and talk to the hospital, see if a payment plan or anything like that is an option. the interest needs to at least be covered in your payment.
4. This in my opinion is number 1. Make a plan/ strategy and stick to it. Focus on building wealth and minimize lifestyle creep. Free to open a Roth IRA through vanguard ( do it! 6000 a year), fully contribute to your company 401k plan up to the match. STAY HABITUAL
Books – ÔÇ£Richest man in BabylonÔÇØ -George Clason
ÔÇ£I will teach you to be richÔÇØ – Ramit Sethi
Sorry if that isnÔÇÖt enough detail but congrats again on the new career!
*Mobile*
Congrats on the new job. Now that you are in the finance dept, you should focus on the math.
1. $200/month rent is awesome. Condo will cost you a lot more whether you buy it or rent it out )taxes, insurance, etc). Might want to hold off until you rebuild the credit score. Otherwise you will pay way too much for a mortgage. You probably have a year or more to muddle through while you up your score.
2. Keep driving the car and rebuild your credit score. Calculate the cost of ownership. How much is gas where you are ? Figure out that you spend 4 gallons a day x number of days x x weeks and then figure what the mileage savings are for newer car. The difference probably is not enough to warrant a new car. Figure insurance costs since you should only have liability on your old car. Add in depreciation on something newer vs fully depreciated. How much on repairs and other maintenance ? I just sold a ÔÇÿ04 suv w over 270k. It had some rust spots but ran great getting maybe 13 mpg. My wife wanted a newer car so now I drove her ÔÇÿ13 suv and paid cash to get her a certified preowned car driven for less than 6 months. It is just a tool. DonÔÇÖt fall prey to impressing others. I made 7 figures last year. But I donÔÇÖt care what people think and my money is better served in my retirement and investment funds rather than a depreciating asset.
3. Give it a year or better for your credit. Get Experian app. It is free and gives you alerts. Learn how credit works (lots of YouTube videos) so you can manipulate between due date and statement date.
4. Save 15% of your income. Again lots of good advice out there. Go to r/fatFIRE and you can lurk for awhile. As you learn, you can start saving more and investing. But again it takes time. The first $1m is the hardest. After that it does get easier. Just be disciplined to be patient.
Best advice I can give is to set up your direct deposit before your first paycheck. Funnel a % to an IRA, 401k, and savings account. Due to the high increase in salary youÔÇÖll have more money then youÔÇÖre used to in your checking and wonÔÇÖt even miss the pieces that go into your other accounts
You work for a car dealer, I think you should get a reliable low cost vehicle, new or used. (unless you can “be your own mechanic”). That car will cost you a bunch in gas. Additionally the people saying to keep it aren’t considering the unpredictability of an old car. If you have a brand new awesome job you don’t want to be late evertyime it breaks down and you are stranded and need to get it towed. That’s a long commute. Good luck!
. My advice is spend a little time in povertyfinance and frugal. Great bunch of folks and lots of great info. Middle class finance I don’t really learn a whole lot except about lifestyle creep which is a real thing. You can also search the Web for some great info. I like Mr money mustache and motley fool. I feel like the povertyfinance has great info on credit. Those folks are more likely to have bad credit unfortunately so they are more likely to be in the same boat or have been in it as you are. If you are middle class typically you have more cushion to pay that unexpected expense as opposed to just having it go to collections due to non payment.
Oof congrats, but i just have to say: take it S L O W. You seem excited and, with that, hurried potentially to make all of these decisions at once. It wonÔÇÖt be in your benefit to make hurried decisions out of excitement or emotion or pressure or stress. Put it in a savings account, take your time, do your research, and make decisions only when you have had time to think them over and do your background research.
Knee-jerk reaction is probably ÔÇ£GO GO GOÔÇØ / ÔÇ£NOW,ÔÇØ but that wonÔÇÖt give you your best results and youÔÇÖll probably end up regretting things.
Congrats, youÔÇÖre doing great.
Edit: IÔÇÖve heard people *rave* all over the internet about YNAB (You Need A Budget) ÔÇö itÔÇÖs a useful service you subscribe to that helps you plan out how to save and spend your money with a plan and a purpose. I personally donÔÇÖt use it because my money is all going to my loans/food/rent, but once my income becomes more expendable, lÔÇÖll probably look into using it.
As you probably know, getting a car loan with a low credit score is not a great idea. You will be paying very high interest, even if you can afford the higher payments, it really is just wasted money. You should consider waiting to purchase a new(er) car until your credit score has increased and you have a decent down payment.
As others have said, work on paying off the debt, if you can do it within the first few months that would be fantastic and go a long way to rebuilding your credit. Then work on using credit wisely – use credit cards that offer rebate or rewards and more importantly – pay off your balance every month.
Again, before worrying about a condo, work on getting your credit score up. Generally, lenders will want 2 years of employment, which gives you a timeline. Also work on setting aside some cash for the down payment/closing costs. Many people say you need 20%, but you can get a conventional mortgage with 3-5% down (plus closing costs), but make sure your credit score goes up so your PMI isn’t too high.
Finally – retirement! Absolutely start saving, and as others have mentioned, get it set up now before you get used to seeing the money. Look to see what your employer offers in terms of matching and options. You can contribute $6,000 per year into a ROTH IRA, you should also take advantage of any 401K matching from your employer and contribute that amount as a minimum. Then you have two specific goals to save for – new car (~1 year), new home (~2 years).
My personal recommendation is to not make any large purchase decisions in the first few months. But at the same time don’t completely deprive yourself. For example, maybe spend some money on your car – take it in to get checked out to make sure it will last a few more months to a year. Get it detailed so it looks nice and new.
This also buys you the time while you finish your degree and decide this new position has long-term potential.
Congratulations on the job!
Live like you are and save all of it the for the first year.. then see if want to keep doing it. Then setup your budget and get want you need/want
1. Depends if you want to live in a condo or prefer somewhere else. There’s a good sub about landlording if that’s your interest.
1. Either. I drive an ’06 SUV 250k Miles on it. Almost bought another used car but the engine just is going so good. I like buying used but that’s because I’m comfortable being my mechanic. I’m an engineer married to an engineer so there hasn’t been a car problem we haven’t fixed. Individual ability/want plays an important part.
2. Can’t tell you the exact time as that’s not something I have experience with. I have seen credit bounce within a month of activity.
3. Budget your income. Every month we sit down and make a plan. I’d follow the guidelines of saving at least 15% of paycheck into retirement. My perspective is heavily skewed towards saving because we’re planning to FIRE. Look into using a budget app which will help. Like YNAB or EveryDollae
Questions:
1. Now that I have significantly more money is it wise to move into a condo I will eventually own? That way I can pay it off and rent it out to someone?
> No. Wait a couple years. If you start spending now, you’ll never learn to save the big chunks of cash you’ll need to get the dream home you really want. Patience pays off!
1. I want to buy a new vehicle because IÔÇÖm currently driving a 2003 Ford Explorer that gets 14 mpg and IÔÇÖm driving 60+ miles round trip daily. Should I go for used or new?
> A used hybrid will go a long way. Once your credit is 630+ I say go for it, *once your credit cards are paid off.*
1. Rebuilding credit: I lost half of my income back in June due to Corona and I just stopped paying my two credit cards. I owe $2500 combine on both credit cards and $750 in medical expenses, which I also havenÔÇÖt paid. Total debt is a little over $3250, which I plan on paying off completely in the next month or two. IÔÇÖm at a sad 552 and am looking for advice on getting this to the 700ÔÇÖs. How long will that take? How long until at least 650?
> It could be months, it could be a year. You have to put almost everything you can into this debt.
1. IÔÇÖm paid bi-monthly and want to begin m savings. How much should I be saving each check? I want a Roth IRA 401K and a general savings account.
> Look at your budget. Your checks are roughly 3x what they used to be, right? Now is a great time to save 15-20%, pay down debt, and hold off on purchases til your credit comes up. As soon as you have 3 months of your new pay in savings, you’re good to go on investing. You can cut down the saving and try investing up to 10% of your income in an IRA or 401k. But for now, *debt and savings come first.* Don’t even think about investing until those credit cards are good and dead.
Here’s the advice I can give. Save as much as you can now. The reason is compound interest. The stock market returns 10% per year on average (roughly). If you max out a Roth IRA (6000/year) for the next 37 years (assume retire at 65), and achieve those rates the whole time, you’ll retire with over $2,000,000 in that account ALONE. But that is because you’ve been building compounded interest for so long. If you contributed that same amount (6000*37=$220,000) over 20 years (11100 per year), you’d only have $650,000. Does this make sense?
The other big advice is to never see money that is reserved for something else. To pay my mortgage, the day I receive a paycheck, half of my mortgage is transferred into another account. My Roth IRA money is taken out the same day. As is savings for an emergency fund. So when I look at my bank account, the only money I can see is money I actually have to spend. I’m incapable of spending more money than I have, unless I do it on credit cards.
Personally, I max out my employer match 401k contribution (3% salary), then an additional 7% into a Roth 401k. I’m doing this because I am assuming I’ll retire making more money than I do now. I also max out a Roth IRA (6000 per year max). If I don’t ever raise how much I’m saving, and manage that 10% growth per year, I’ll retire with almost $4 million. Between those, extra mortgage I’m paying on my house, and general emergency fund savings, I’m managing to save over 40% of my salary (just under $70k).
First, congratulations! Second, take a deep breath. My advice (and I am not a financial advisor, this is purely based on my own experience) is this:
1. Mortgage rates are super low, so buying a condo you intend to pay of is a wise move. Be aware though that most lenders will want you to have been at that salary level for at least a year, if not more, so don’t feel like you need to rush. Based on your other items you probably have a couple years of financial clean-up to do first anyway.
2. Don’t. If your car still runs and you don’t have a car payment, don’t upset that balance unless you absolutely, positively need to. Especially if you plan to take on a mortgage. BEWARE OF LIFESTYLE CREEP.
3. Paying off those cards is going to be huge for your credit and overall piece of mind. As far as your score goes, you should be up in the 700s in no time, so long as you don’t fall in to the lifestyle trap. Don’t do what I did and run the cards up as soon as you pay them off.
4. At the bare minimum, you want to put enough in your 401k to get any employer match (that’s “free” money). Beyond that, 10% is a good place to start since you’re already accustomed to living on less. 3-6 months expenses is the general rule of thumb for emergency savings or, if you like, Dave Ramsey’s Baby Steps are a decent guideline to get you started.
Congrats again and good luck!
First, congratulations on your new job and better pay. That’s an incredible leap! Do you have a budget for yourself so you know where your money is going with each paycheck? It seems like your ultimate goal is to own your own place and increase your savings, so for a car, you’ll probably want to go used unless your dealership can hook you up with a sweet discount on a cheap car. A car that doesn’t require many expensive repairs and is fuel efficient will be a God-send for you. A 2003 seems like a money sink, so, if you go used, I’d shoot for something from 2019 or newer. Then save as much as you possibly can so you can have a nice down payment ready to go on a condo in the future. If you can pay for the car you buy completely, that would be best so that your credit doesn’t show debt when you are attempting to close on a property and seeking financing. I’m not sure how long it will take for your credit score to recover, but it will likely do so over the coming months, but you will be saving money for your down payment anyway, so you won’t even notice. You just need to be diligent about using and paying credit debts so you look responsible and less risky on paper. 🙂
Good luck to you as you work on improving your situation! I wish I had been in your position at 27!
1) Think really hard about the condo. One thing to keep in mind with the condo as opposed to most houses is condo fees. Some condos have very reasonable fees, but I am definitely seen some that are into the hundreds of dollars a month.
2. Used versus new as a personal decision you have to make for yourself. Often times you may be able to find a few-year-old civic that gets 30+ miles to the gallon and is relatively inexpensive. However, if youÔÇÖre more into some of the newer keep creature comforts like CarPlay heated seats things like that you may find that new is better. ItÔÇÖs all going to come down to what you want they are definitely deals to be had on both, although my understanding is used prices have skyrocketed since pandemic started.
No idea on rebuilding the credit. One question would be have you ever had a loan in your name before? Getting a loan in particular a shared secure a loan for a credit builder loan might help.
4. Regarding savings, the first thing you need to do is figure out what type of bills you are going to have to pay. Is there going to be a car payment is there going to be a house or apartment payment? Once you figured out what your monthly expenses are going to be figure out how much you believe you need to live on and how much you believe you can save. One piece of advice IÔÇÖll give is open up a new savings account thatÔÇÖs separated entirely from your current savings and spending money like at a different institution. Have a set amount of money direct deposited into that from every paycheck. If you really need to get an ATM card and gives you access to that money, but try to avoid a debit card. The reason for this is it makes it harder to get to that money and it makes you think twice before taking a withdrawal. While still being available to you in case of emergency.
Regarding your credit, pay it off and set auto-pays for full balance. You also MIGHT be able to send a “goodwill letter” to your credit card companies/hospital. If your account is now paid in full and you attribute the default to COVID they might play ball with you and remove derogatory remarks from your report. If your score is important (and it should be if you are looking at financing a home or car) it would be well worth the hour or two of your time to ask them. Worst they can do is say no.
The answer to your car question hinges on your what happens in regards to your credit score. No amount of approved fuel efficiency is going to make up for the abysmal subprime rate you will be offered on a car loan. Unless you have someone to co-sign, either wait to buy or get something cheap that requires minimal to no financing.
Barring some exceptional circumstances, don’t take out a mortgage until you can afford 20% down and can get your score into the excellent range. You’re making a lot of money with almost no bills. You’ll have the cash before you have the credit score. But, you work in finance and know how much that interest rate matters on a loan.
I would pay off credit card debt first. I followed the snowball method when I was in debt.
1. Wait on the Condo. Get your debt taken care of first. Start putting money away for this though. Aim for about 2-4 years.
2. Go with used for now. I usually aim for 2-3 years old. You’ll save in the long run. Once you have a better grasp of your finances, then you can think about new.
3. Yes, pay this off as quickly as possible. It’ll take time to raise it back up, but the earlier you start, the sooner it’ll be.
4. Since you’re 27. Try to start with 10% of your income. You’ll thank your self later. I usually add another percentage point every year, especially if I get a standard of living raise. (So, 2% raise, 1% goes to 401k)
You have debt and bad credit. I don’t think going for a condo immediately makes sense.
1. For now, live like you make 35-40k.
2. Pay off CCs.
3. Assuming your car is good for another year, build 5-10k, preferably 5-15k savings before you do anything. Don’t touch it. That’s disaster money. This will take a like a year if you live like you’re on 40k.
4. **After** you have the disaster money, 2003 is getting long on the tooth and you have a long commute. Upgrade to a newer used car, under 20k OTD. Put at least 5k down. Try not to use the disaster money for this. The financing your car dealership gives you probably won’t be as good as credit union.
5. The car loan + repaying your CC’s should repair your credit pretty well. It may take a few years though to get those CC dings off your record.
6. Some people consider money in a Roth IRA to be an acceptable disaster fund since you don’t pay a penalty to take it out. Although remember, you can never put it back in if you take it out.
7. Ideally, it’s better to put money into a 401k before a Roth cause it saves you money on taxes. However that money becomes largely inaccessible. You’ll have to balance what you want — accessibility or tax savings. Right now, I think accessibility for a disaster fund is more important. in 3-5 years, after you’ve established a comfortable cash pad, then you can start prioritizing the 401k for overall tax savings. If you choose the FIRE path you can prioritize maxing the 401k.
Probably shouldn’t even think about the condo until you’re finished with college, unless your parents can help you out with a giant down payment and act as a backstop.
These are obviously my own opinion. I donÔÇÖt know you at all except what you presented.
Crawl before you walk. Walk before you run. YouÔÇÖve asked so many great questions… each of which takes a lot of research and more importantly personal reflection to find your answers.
If I were you, before I ran out to buy a car or really do anything with that money… I would save an emergency fund (approx $1000 minimum) and then pay down debt and save up a 3-6 months emergency fund. Following that I would start saving for retirement and slowly spending it on things to increase my current living situation. ThatÔÇÖs when IÔÇÖd save for a down payment for a car or to buy new furniture etc.
Oh but if your company offers retirement matching, immediately put at least the match in. Check if it needs to be vested (so before they actually give it to you, you need to work for the company for x amount of time).
Remember your income may have increased but if you blow it all immediately youÔÇÖll continue living life as you were. Get the financial security beneath you before you move forward and youÔÇÖll start to feel weight lifted off you like never before. Not just that, if you end up back where you were, the financial freedom you bought will still be there and that will help you get back out.
Congrats on the new position! I hope it treats you well.
Congratulations! HereÔÇÖs my advice:
First: DonÔÇÖt shit on yourself.
Next: DonÔÇÖt shit on others.
Continuously: Learn and implement all you can about the above.
Live your same life and just save more money. Don’t let lifestlyle inflation fuck you over.
For the first year of the job, make not major purchases or commitments. Put a laser focus on paying off your debt, maxing out a Roth IRA, and saving an emergency fund. Year 2 once you are more secure in the position, your credit is better, and you have money saved for possibly purchase a car with cash.
Key to building wealth: live below your means.
Keep your living expenses low and buy dividends with all that extra cashƒÆ»ƒöÑ