Stacy and her boyfriend would like to downsize to one vehicle. But they’re collectively $14,500 underwater on their car loans.
Stacy owes $11,000 on her car, but its trade-in value is $7,200. She’s paying a 12.74% interest rate and her payoff date is 2021.
Her boyfriend is in worse shape. He owes $18,500 on his vehicle, but its trade-in value is $7,800. He’s paying a 21.5% interest rate and his payoff date is 2022.
Theoretically, they could sell Stacy’s car to a private party, and she could pay off the rest of her loan. But the boyfriend’s car is not in great shape, and probably won’t survive for the next couple of years. And neither of them have found better refinancing deals.
What should Stacy and her boyfriend do?
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Rachel earns $65,000 per year. She’s 27 years old, contributes 20 percent to her retirement account, and holds $5,000 in savings.
She owes $19,000 on a car loan, at a 4 percent interest rate, and $170,000 on student loans, all with different interest rates, but the highest at 7.9 percent.
She’s hesitant to consolidate her student loans, because she’s currently on a government plan that gives her flexibility, and she doesn’t want to switch into a plan that requires her to make a fixed monthly payment.
She’d like to know if she should use her savings to invest, or repay her loans.
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Misty is 40 and has no retirement savings. She lives overseas and is able to save about $20,000 per year. She plans on living overseas for a couple more years before returning to the United States.
Her employer doesn’t offer any retirement benefits or match, and her health insurance accounts are not HSA eligible.
She’d like to contribute to index funds. Is this a good strategy? Does the fact that she lives overseas change her considerations?
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Nicole is from New York and is living in Abu Dhabi. She’s been living there for three-and-a-half years and makes good money. She’s repaid her student loans and has a lot of cash saved. She’s single.
She wants to become financially independent. What should she start doing now?
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Karen is 32 and lives in Los Angeles. Her take-home pay is $4,300 per month. She supports her parents financially, which costs $1,200 per month; she also lives with them.
She paid off $60,000 in student loans in 5 years. She’s has $100k in a high-yield savings account and $100k in 403b. She holds $12k in student loan debt from graduate school.
She wants to make 20 percent downpayment on a home with the cash that she’s saved. She’d like to live there, but also have the potential to rent out this home if, at any point, she decides she doesn’t want the burden of a mortgage anymore. She’d like to keep her mortgage to $2,000 per month.
Given that the housing market is so high, should she buy a home? Or should she wait for a market crash and keep saving in the meantime?
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Former financial advisor Joe Saul-Sehy and I tackle these questions in this episode. Enjoy!
Resources Mentioned:
- The E-Myth, by Michael Gerber
- The Goal, by Eliyahu M. Goldratt
- Steal Like an Artist, by Austin Kleon
- Originals, by Adam Grant
- Why You’re Not as Busy as You Think – Interview with Laura Vanderkam
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Joshua Phua
Can you provide a link to the article that describes real estate and stocks making about the same amount? I’d like to dive deeper into that. Thanks!
Erin @ Team Afford Anything
Hi Joshua! I asked Paula about this, and she provided these two articles (not the exact one that was cited in the episode, but hopefully still helpful):
This says real estate outperforms slightly, but it’s an interesting analysis: https://seekingalpha.com/article/4101909-stocks-vs-real-estate-one-wins
Also says real estate outperforms slightly, but it’s looking at REITs: https://idealrei.com/blog/real-estate-vs-stock-market
I’ll post the other one here if we can find it. Thanks!
Erin @ Team Afford Anything
Here’s a follow up explanation from Joe:
I should have clarified…doing an examination of individual real estate properties vs. the S&P 500 I’ve never seen anyone perform. Even Zillow, who tracks individual properties, is widely regarded as kinda a shot in the dark and not really accurate. When I mention real estate, the closest barometer of that market (cash flow + land value) is the NAREIT Index, which has returned slightly higher than the S&P 500. While not the same as an individual house in Fort Worth, Indiana, if we’re talking wide swaths of real estate + income stream, a REIT gives us the only reliable number I know of.
Interestingly, when I started my career the NAREIT was slightly lower….so depending on the actual points in time you’re looking at, real estate or stocks will help you reach your goal. Better yet, if you look at them year over year they usually don’t correlate closely, making them WAY more fun to own together than separately. Two great tastes that taste great together.
The important point I was trying to make: there are two asset classes that smoke inflation over time consistently….real estate and stocks. Others like commodities or collectibles can do the job sometimes but not reliably. Bonds will lose often enough to make it a difficult argument….so stocks are real estate are the most reliable answer.
Joshua Phua
Great, thanks! Appreciate the responses.
Hoogidei Boogitei
I’m interested in hearing more calls from more people who are self described “financial disasters”!