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Lets grade the money management skills here

October 23rd, 2009 at 08:17 pm

A family member of mine has been trying to change her image from a high maintance, consumer-ish type girl to a smart, financially savvy woman.

She has been trying to project this image for about 2 years. I could never really tell if she was trying to project this around me- or to me- because those are my values - or if she really understands the concepts behind what she says she wants. I know the family knows I am a hard ass about saving money, thats kind of my reputation. But she has been quick to say she bought this on sale, or that at a discount store...and I have never really known if she was "fronting" to earn respect, or if she has genuinely changed.

She has done some pretty big doozys over the last few years in regards to mis-handling, being immature about money- and once labeled- it's very difficult to change peoples perceptions.

Anyways- recently she was put to the test. Her car was totalled in a wreck and she was forced to get a new one. I watched this whole thing go down intently. This was a big test for her. Would she be smart or blow it? Does she really want to be frugal or just be trendy? Let's judge:

She was given her brand new car in high school and has driven it for almost 10 years now. (thrifty!)

She has wanted a replacement car for a few years now but has always said it is stupid to get a new car when the one you have works fine. (thrifty!)

She went to a car show a few months ago "to see what kind of car she would want when the time comes for a new car." (thrifty!)

She insists her fiance start driving her car to and from work an hour away "because her car has better gas milage", while she used his brand new truck to go back and forth to her own work. (thrifty? spoiled? I cant tell.)

Her fiance totals the car going to work and goes to the hospital for minor injuries. The car is towed to an impound lot. Once out of the hospital they go directly to a dealership to look at new cars. She skips informing her insurance company of the wreck- she skips finding out about her coverage options- if she can get a rental car or money for the car. (bad)...and a few days later it is determined the car has no value, and she does not have rental car insurance either.

She does not come home with a new car that night. (thrifty!)

She has narrowed her choice down to a certain American brand and model. The dealership tells her there are no '09's left and she can only buy a '10 model. She refuses to believe them. (thrifty!)

It actually turns out to be true. An internet search reveals that cash for clunkers has cleared out the inventory. A family member finds her one '09 with 3k miles on it for 10k below an '10 price. She turns her nose up at it and says "she does not want to buy someone elses car." (BAD!)

She finds out that her car that has been sitting in impound for 3 days is charging her by the day. She is furious no one told her. (just funny)and has it towed to the house.

She negotiates a deal for a fully loaded brand new '10 for $38,000.00 -no money down- 0% financing for 3 years. (good credit=thrifty...)

She earns $45k a year, her fiance $50k a year, and they both live at her parents house under the agreement that it is the best way for her to save money for a house and their wedding next year. Her fiance contributes $800 a month to the wedding fund- and she was paying $600 a month on her student loans, arguing that her student loans make it impossible for her to save money herself for a house or wedding.

It is unclear where the rest of her money goes. It is unclear how much money they have saved for the wedding or a house. She has no other bills besides car insurance and clothes.

Recently it was determined that she cannot pay both student loans and her new car payment so her father is currently paying her student loans. I dont know if this is a long term or temperary arrangement. (bad)

Overall- what do we grade her at? Maybe a C+? She seemed to have good intentions- but when it came down to doing the responsible, smart thing (buying a used car)- she just couldnt do it.






19 Responses to “Lets grade the money management skills here”

  1. momcents Says:
    1256326276


    Where does her $45K a year go if she is living at home with her parents and only has a $600 student loan payment?

  2. monkeymama Says:
    1256326813

    I give her a F for buying a $38k car on $45k income. Seriously??????????????

    She does seemed good-intentioned, and rather thrifty in many regards. But one totaled car threw her brain out the window, it seems!

    On the flip side, this is the hardest thing for people to *get.* I know plenty of people who do okay financially, but only fail in this one area. You don't know how many people have told me their $30k-$40k vehicle was FAR cheaper in the end than my $10k vehicle with maybe $500/year repairs. IT doesn't help that I drive my cars longer, anyway. (Nor that they also have $500/year in repairs!!!! Usually more because they don't have a trusted mechanic). But that's a pretty darn common belief.

  3. gamecock43 Says:
    1256326822

    yes your right. I just did the math. Thats only 8 grand a year. She was talking like it ate up half her paycheck. Maybe she has substantial savings.... but then why the $0 down?
    I kind of want to call her...I think she would defend her purchase to me- knowing I wouldnt approve. And I could ask her why she put nothing down. But that would only be feeding my own gossipy judgement- not asking her for her sake- and that would be bad of me to do. So I was thinking of staying out of it (except to post this blog).

  4. Ima saver Says:
    1256326891

    I guess I would grade her a C. She should have taken the low mileage car for $10,000 less.

  5. Joan.of.the.Arch Says:
    1256327003

    28% of income going to new car. Plus gas, plus minor maintenance, plus insurance. That is a big percentage of income going to transportation, especially for someone relying on parents' graciousness.

  6. gamecock43 Says:
    1256327151

    I thought that was a high %! But wasnt sure. There dont seem to be hard rules about % of income going to a car purchase like there is houseing. Cardinal rule: house payment should not exceed 30% of take home pay. What is the rule for cars?

  7. monkeymama Says:
    1256328218

    Ramsey's rule, which I find generous, is that car value should not be more than 50% of your income.

    Car purchases shouldn't be based on monthly payments. Should be based on the purchase price. Wink Though I know I have seen income guidelines out there.

  8. Broken Arrow Says:
    1256329113

    Well, I feel awkward judging other people's lives and actions. I'm not there, and I don't know what hardships they've had to face.

    However.... Big Grin That being said, and if this was more like an arbitrary exercise in constructive thinking, I'd give this scenario a D.

    I think the individual in this scenario really wants to do the right thing and handle things right, but in the end, still made the wrong choice.

    For example, I'm a little shocked that she would turn up a perfectly good '09 with only 3000 miles on it! Seriously, that's crazy. Why, especially when it's also $10k less?

    And besides, the first avenue to consider (but certainly not the only one) is to check out used car lots for ones that are roughly two years old with perhaps 20,000 to 30,000 miles on it, and be able to get it for half the price of what they paid.

    Finally, a financially savvy individual should have been able to have a rough idea of just how much car payment they can afford each month. Instead, she found out the hard way, and her poor father is now floating her student loans.

    No, I'm sorry, but this is terrible. However, I would not flunk her because at least she is trying, and lord knows that I wasn't always savvy myself. Maybe I'm still not. Big Grin

    What's really scary about this whole scenario is that, despite a combined income of nearly $95k, and the fact that they still live with their parents, they still can not swing this. Where do they live by the way? In a HCOLA? Imagine what would've happened if they, for some reason, they had to go out and make it on their own....

  9. gamecock43 Says:
    1256329270

    They live just outside of San Diego.Yeah- seeing the numbers and hearing your opinions is making me realize even more how much this is going to sideline her future goals.

  10. Caoineag Says:
    1256329823

    C average. Started with good intentions but really can't afford what she bought. I just hope I get a better grade when we finally have to replace our car.

  11. monkeymama Says:
    1256330297

    With the HCOLA thing, I give her a F-. Puts it in even more perspective!

    I think BA is way too nice. But, to be clear, yes I am passing judgement on her financial choices. I don't see ANY good coming from it. On the flip side, like I Said, it's very common thinking - she is certainly not alone. Discussions like this hopefully help others to avoid the same pitfalls. Because that's really the only good that can come from this discussion.

  12. ceejay74 Says:
    1256331021

    Eh. I believe SHE believes she's thrifty. LOL.

    I'm with you fellers--how can she not afford her car payments when she doesn't pay rent and isn't contributing to the house or wedding funds?? The two of them make almost as much as my household, and we manage a whole lot more bills and expenses than they do while also saving and paying down extra debt.

  13. wowitsawonderfullife Says:
    1256342140

    Ramsey says car value must be 50% of income or less? Are you kidding? That seems really high. Can someone explain why we should pay that much for a rapidly depreciating item?

  14. baselle Says:
    1256353710

    I'd say a D in the car buying, an F in personal money management, but a B in Sales and Marketing to the Bank of Mom and Dad. I make in the high 40s. That translates into about $3200 net/ month by myself. Multiply it by two... and without rent that's easily $6500 net of money to blow every month. With that coming in, I could rip $20 bills in the shower as a weekend hobby (didn't somebody define sailing as that?) and still not run out of money. Of course I'd put that in a budget line... Big Grin

  15. dmontngrey Says:
    1256401967

    A $38K car? EEK! I can relate to the money coming into that house and what I wouldn't give for just a $600 loan payment each month...
    I couldn't give anything higher than an F here. Having some thrifty ways mean nothing with one large non-thrifty decision. Still shaking my head here... This stuff baffles me.

  16. lizajane Says:
    1256403295

    I guess a C- here. Doesn't a new car depreciate about $10K once you drive if off the lot? (so "they" claim) Maybe it's only $5K, but still. I think she could have done a lot better buying a used even-older car, paid to have it detailed so it wasn't "somebody else's", kept the insurance and taxes down, and if would have been just fine. But I don't, and never have, thought like a high-maintenance consumer-ish person, so maybe this was as thrifty as she could get.

    As for giving her my 2 cents worth, I think I'd stay out of it unless she comes to ask what you think. I don't really understand why she feels the need to justify herself to you, unless she thinks that you don't think very much of her, and wants to prove her worth. Maybe she admires the way you handle things and wants to be more like you, so she does get a B+ for effort in all the thrifty things she did. It's a start.

  17. LuxLiving Says:
    1256405831

    She flunks, I give her an F-.

    What's she going to do with a wrecked car in her parents front yard???

    Why not arrange for a junkyard to buy it and then have it towed directly there? OR have the junkyard who originally had it make her an offer with no tow fees involved either?

    $38,000.00 for transportation from point A to point B? FAIL!

    I also give her boyfriend and her parents a failing grade.

    fail. Fail. F-A-I-L. FAIL!!!

    Do not go to the head of the class. Go directly to debtor's jail (as one thread over on the forums was mentioning reviving!) Well, maybe to a financial awareness class? Did they teach her nothing in that school?

    [Yes, I'll allow as how I might be just a little tiny bit opinionated. Smile]

  18. crazyliblady Says:
    1256434328

    I would grade her at F. She has no rent/mortgage, utilities, or presumably, food unless they eat out. From my perspective, they ought to each be able to put $1000+ each into this fund, plus pay for the student loan, and still have money left. She doesn't sound very smart. She could have gotten the car with 3000 miles on it and had a significantly lower car payment on a still fairly new car.

  19. whitestripe Says:
    1256942571

    if she has been trying to project a thrifty image for a few years and makes a point of it around you, i would think you are atleast a little bit entitled to have an opinion about her choices.

    it very much annoys me when people do something by impulse or for their own personal satisfaction, and then defend their choice by saying it was a better deal bla bla bla. if you WANT a brand new car, by all means GET ONE, but don't go around in the mean time saying you're a savings queen.
    argh. how frustrating, and i don't even know this girl! i admit i buy things that i don't exactly need, but i also admit that the reason i buy them is because I WANT them.

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