Back in January I laid out five goals for this year and beyond. Now that it’s six months later, let’s take a look at where we stand!
1. Sell my car by the end of 2015. I haven’t done this yet, but I want to get it done by the end of the summer. My idea was to sell my Honda Civic and use the proceeds to pay off the rest of the loan on Marge’s Toyota Corolla.
I’ve sort of forced my hand by paying almost the entire Corolla loan using a credit card in order to meet a, erm, minimum spending requirement… But don’t worry, I paid it all off immediately with cash from savings. So once the Civic is sold, those savings can be replaced.
Then we can reap the benefits of downsizing to one car: Over $600 a year saved just in car insurance, no more registration fee, a whole lot less in maintenance expenses, and a lump sum of money to invest somewhere productively.
How old is my car? So old that I took this photo of it with a film camera in 2005.
Fun fact: On the day this post goes live, July 27, we will be wrapping up our annual trip to the campsite seen above! And we will be driving that very car. The campground is in New York’s beautiful Thousand Islands region, and we’ve been visiting it every year since, yes, 2005.
2. Pay off Marge’s car by the end of 2015. See #1. There is about $988 left.
Squid chicharrons in Lima
3. A litany of 2015 Expense Category Goals. I wanted to spend less than $1,000 each for the year in gas, dining, takeout food and clothing.
Halfway through the year, those totals are $480.58, $555.31, $381.78, and $477.13, so we are on track with everything except dining. Dining expense normally wouldn’t be a problem to get under control, but we have a ten day trip to Japan in October, so that could be tough. There’s just so much sushi there!
4. Pay off our mortgage and student loans in 2017. This one has been massively re-thought.
At the beginning of the year, rental properties weren’t really on our mind. But at some point this year, it was all we thought about. We made an offer, that offer got accepted, and apparently my last update about all that was back on May 19!
It’s a gorgeous two-family house that should be no problem to rent out. We haven’t closed on it yet, but our accepted offer was $134,000. To help finance the purchase, we took out a home equity line of credit because we didn’t have 25% of the price in liquid cash. Since we have paid off nearly 50% of our home mortgage, we could take out a sizable HELOC, $25,000, and avoid having a PITI party.
So, needless to say, with the addition a nearly $100,000 rental property mortgage, plus the $25,000 HELOC, debt priorities have changed. Add to that the fact that I will be re-prioritizing all of our savings towards maxing out retirement contributions before making any debt paydowns.
That said, after making the retirement contributions, I may either pay down the student loans or the HELOC first. The student loan balance is lowest, so it would provide the most immediate gratification to pay it off, but the interest rates aren’t the lowest, so we’ll see…
5. Retire by age 43 in 2025. We come back to the rental property topic again.
Previously I stipulated that retiring at age 43 would be ideal because I would have put in 20 years with my employer, and would get a jump in my pension up to 40% of my final salary. I’ve been running the numbers on rental properties, and while rental income can help to add to your net worth during your working years, where rental income really shines is during your retirement years.
Say your annual expenses are $50,000 in retirement. If you’re renting out just a couple apartments and clearing $1,000 profit a month, just that $12,000 a year makes a huge dent in your expenses. That $1,000 a month could easily flip an unfeasible retirement into a feasible one.
My point is, considering that my pension would already be taking a hit of around 27% if I started taking it at 55 instead of 62, just a few rental apartments could generate income equal to my pension! And rental income is (mostly) passive.
Playing with the numbers further, we could achieve QT (Quittin’ Time) at age 40 with this rental property. It would be even easier with a second property. Rentals seem to make a big difference. Of course, we actually have to close on this one and rent it out first to see how we like it.