Am I a saver or a spender Part II – transportation.

In my initial post searching for the answer to the question above I looked at one of the big spend items for our family – housing. Today I’ll look at my family’s transportation spending where once again I think we’re doing some things right and some things wrong.

We live in New Hampshire and I work in Massachusetts with a commute of about 45 minutes each way. This is offset by my wife who works a couple miles away from our house.  We chose our housing location when I was at another job but with a similar commute so this is nothing new to us. We accept the fact that our transportation costs are higher than they would be if we both had nearby jobs or lived in a state with a good public transportation system.

I do periodically look for a job that will bring me closer to home. However I make a good living at my current job and even after taking out the state income tax, reduced transportation costs and other factors I have not found a comparable job nearby. At some point the right job may be there but for now I will continue the daily commute.

CARS

My wife currently drives a 2012 Honda Odyssey. With two kids and a dog coupled with the shuttling to various activities and trips to the lake a minivan is the most practical vehicle for her to drive. We purchased this car new at the end of 2011 after getting 10+ years out of her Toyota Sienna and she will most likely keep this car for the same amount of time. Two cars in twenty years is a pretty good track record considering the wear and tear of transporting children and dogs. I’m pretty sure when we got rid of the Sienna there were still cheerios hiding in the nooks and crannies from when the children were younger.

I am currently driving a 2008 Toyota Camry. With the above referenced commute and extended commuting distances in the summer I average about 30K miles per year on my car. That means that roughly every six to seven years I end up buying a new car. If I was at all mechanically inclined I would keep my cars longer and repair the inevitable issues that arise when cars get over that 150K-180K mile marker but I’m not so I don’t.

My wife and I don’t get “bored” with our cars or feel the need to always have a car with that new car smell but when we buy we do buy new. For my wife, amortized over a ten year period, it seems reasonable. For me it comes down to the fact that I’m putting a lot of miles on per year and the idea of buying cars more frequently than I already do is not a concept that I look forward to. Could I buy a used with say 50K miles on it and save some money? Yes, I could but then I would be back looking for a car most likely a year to a year and a half earlier. Since we do not like having debt of any kind excluding our mortgage, we do not finance our cars unless there is 0% financing. Even if there is 0% financing it usually comes down to that or a rebate and most of the time crunching the numbers shows that taking the rebate is a better deal. We make car payments to ourselves to replenish the money we take out of savings to fund the purchases.

Kind of a balanced scorecard on the car front but I haven’t added one major transgression – a third car. My father in law had a 2009 Mustang convertible that he was selling. He knew that I had been looking longingly at that car and when he decided to sell he gave me a deal that was kind of hard to pass up. The car has about 45K miles on it and it is garaged during the winter months since it is not a snow car. It is superfluous and impractical, adds about $700 to my insurance and about $600 to my gas consumption but damn, it’s fun to drive with the top down in the summer.

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Am I a saver or a spender – housing

Throughout our adult lives, I thought my wife and I had been pretty diligent about saving money and living within our means. As I began to read some of the blogs out there, I’ve been both amazed and impressed with the level of spending discipline that some people have shown and am beginning to rethink how well we’re actually doing. I’ll attempt to document the pros and cons of how we’re doing in some of the major categories, beginning with one of the major expenses people have in their lives…

HOUSING

My wife and I bought our house in 1994 at about the same time we got married. Our income would have been described as middle class – I was an accountant, she was a teacher. We were both stunned at the amount of money that mortgage companies said we were qualified for. When we figured out what the monthly payment would be on that we wondered what we would have left for food, savings or other expenditures. The house we ended up buying was about 50-60% of what that original figure was.

Fast forward to 2013. We’re still in the same house while many of the people in our area took advantage of housing booms (remember those?) and upgraded from the 2,000 sq. ft homes into the McMansions that seem to be everywhere these days. They have re-upped for 30 year mortgages and have refinanced along the way to put the equity into increased spending. Our mortgage has been refinanced a couple times but it has been done to lower the rate and decrease the years. That has led to a payoff date of 2017. While not spectacular we did shave seven years off the original payoff date. The mortgage works out to under 6% of our income so we have definitely not upgraded our housing as our income has grown.

The one thing that has gnawed at me a bit is that we haven’t taken advantage of the extremely low rates out there. Our mortgage is at the point where we’re paying much more principle than interest and the balance is less than $50K so there aren’t a lot of favorable products out there that make sense to me. I guess there are worse problems to have in life so I won’t beat myself up too much over it.

HOUSE #2

I grew up in a small house on Lake Winnipesaukee in New Hampshire. Through a combination of bad genes and smoking both of my parents passed away before I turned 30 which means the house was left to me.

Although I will never be mistaken for a sentimental individual this is not a house I can sell. I grew up there, my family and I love the house and my wife’s family lives in the same town. My wife is a teacher so she and the kids move up there for the summer and I take long weekends plus some vacation time to maximize my time there. The financial part of brain understands that selling that house, which is mortgage free, would bump up our bank account quite significantly. I guess that if our financial situation became dire it would be an easy solution but for now I am content mentally putting it more on the liability side of the balance sheet rather than the asset side.

Because the majority of the estate passed on to me was this house, that means the taxes, insurance and all the other stuff that goes with home ownership gets added to our monthly expenses. I have not taken the time to break out all of these costs separately from the rest of our expenses but if I was to hazard a guess I would say it adds up to about 5% of our gross income.
Because we have never increased our first home costs to keep pace with our growing income it means that we’ve been able to maintain a total housing cost (mortgage, insurance, taxes) of about 13.5% of our gross income. After the mortgage is paid off in four and a half years, the cost of housing will move below 8%. At this point I’m comfortable having housing make up that portion of our gross income.

I know there are many ways we could improve our current home ownership cost – sell the second house or relocate to an area of the country that has lower property taxes just to name two. When retirement time comes we are planning to become the prototypical snowbirds and will use two main criteria in choosing our winter home. First will be a state where home prices are at a discount to those in New Hampshire. We will be targeting a home that is about 50% of what we sell our current house for so that we can add that equity to our retirement nest egg. The second criteria will be a low property tax state. Income taxes will not be a concern because we will make sure that we spend more than the required 50% of the year in New Hampshire to keep the state tax man at bay. My wife and I have had passing conversations about where this location may be and the general thinking is that it will be in the Carolina area – North or South to be determined. We’ve still got some time to figure it out.

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Kicking off the blog

About six months ago I began to think with more regularity about retirement, or more specifically if my wife and I will be able to retire when we’re 60.  There’s no magical formula or master plan behind that timeline just a desire to be able to end the commuting, the 50-60 hour work week and the need to schedule activities and vacations around work.
 
Coinciding with these thoughts was my discovery of the blogosphere and the untold number of people writing about similar themes with many of those people having much more ambitious plans than I do. Folks like Mr. Money Mustache and Retire By 40 put me to shame with their goals and the actions they’ve taken to accomplish them. However I’d like to have a place of my own where I can document my successes and failures, pass along things I’ve already learned and gain some insight from the tremendous knowledge base that’s out there planning and saving.
 
I hope you’ll follow along on my journey and I’d love to hear how others are progressing on their own path to financial freedom.
 
 
 
 
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