Well, it's been a Monday...
At first I thought, someone's put the decimal in the wrong place. So I checked the "calculate your bill" feature on the Water Department's website, and sure enough, the "usage" amount came out to $350 worth of water.
I promptly sent the Water Department an email, asking what was going on. I crossed my fingers and hoped that it was a meter-reading problem. However, they checked the meter, and let me know this morning that it was a leak. Since there is no sign of an 18,000 gallon leak inside the house, I began to suspect that my "worst case scenario" had happened far ahead of schedule - the water pipe from the street to the house was leaking.
My inspector did a great job checking out the house. Including pointing out to me that since the pipe entering the basement is galvanized metal, it would probably spring a leak sooner or later. I assumed that would happen somewhere far into the future, but it turns out it happened probably about a week after I moved in. I checked with the town, and the previous water bills for the property were normal, so I can't accuse the seller of knowing about it either.
I met with a plumber this afternoon and heard the damage - $2,300. I have about $7,000 in an emergency fund - which is for if I lost my job, not to pay for repairs. But I can cover the $2,300 without too much strain.
But this $2,300 comes with some other issues . . . First, I am having an arborist come by to trim some branches, since my homeowner's insurance company informed me that they won't insure me if the branch doesn't come down. I have one huge tree in front of my house (the arborist thinks its about 120 years old), with roots all over the front yard. According to the arborist, if the efforts to replace the water pipe damage too many roots, the tree could die - and the cost to remove the whole tree would run about $6,000.
I know, I know. These are the things people warn you about when you buy a house. But why did they have to come true just because I ignored those people?? Plenty of people buy homes and don't have these issues.
The part that's stressing me out is the fact that I can (almost easily) afford the plumber without too much hassle to my life, but what else is going to happen? Now that my worst-case, something-costing-over-$3,000 (including the tree-trimming) has happened, I no longer have the peace of mind of thinking "if something super expensive happens, I have some savings to cover it so the world won't end."
Any advice on what to do with my finances after paying for this? Should I stop making student loan payments and put the $500/month towards re-building my savings instead? (I have paid enough extra on the student loans that I don't HAVE to make any payment until April 2013, and even then, my minimum payment is only $140). Should I continue to pay the student loan as I've planned so that it'll be out of the way next January, allowing me a LOT more peace of mind and a higher savings rate?
If I want my dog to have a few hundred acres like this to run in one day, I'm going to have to start saving!
It's funny how things in life work out. If I didn't have a dog, I would probably be living in a studio apartment in a nice part of town paying $900/month in rent right now. Instead, when I moved into the city, I needed a place with a yard and roommates that would be willing to let my dog out for me when I'm working late.
So instead of $900/month in rent, I'm paying only $325. I share a house with two really conscientious roommates who have dogs for my dog to play with. I get more social interaction than I would living on my home, plus two people with more time than I have for cleaning the house.
As far as renting goes, I don't think that I could find a better situation. It's far from perfect - the house itself has some major heating and cooling issues - but I think it's unlikely I'd find another place that would work as well for me. However, now is a great time to buy, and in this city it would be easy to buy a house even with only a year of work under my belt.
But is it a good idea? I don't think that home prices will go down, but I think that compared to my rent now, I definitely will lose money on renting. Am I going to stay in the city for a long enough time to make buying worth it? Who knows!!
I am happy staying where I am for another year maybe, but if I'm in the city for the five to ten years needed to make a house worth it, then now is the time to buy! Not only are houses cheap, but my income is still low enough to qualify for some down payment assistance programs from the city.
The cons are pretty big though - a higher monthly payment, inflexibility if I need to move for work. The scary commitment of a mortgage. The responsibility for maintaining a house, and screening tenants.
The pros are also less tangible than the cons - more control over who I live with, being able to settle in more permanently (decorate, start a garden, etc.)
This week, my rational brain is winning out, and I understand that spending the next few years renting at this low rate will allow me the freedom to move wherever I want, and buy a much nicer house with the money I've saved up. But next week, the irrational desire to own my own home may take over!
So, I'm setting a goal to reach $6,000 in cash savings by December. $2,000 of that is for a trip to Spain, so the real savings will only be $4,000. I already have some cash saved towards an emergency fund, but I'm not including that in the $4,000. I am also not lowering my monthly payments to my student loan, or the amount I put towards investment accounts each month (cutting both of those to the minimum would make this way too easy!) I make enough money and have low enough bills that I should have met my emergency fund goal by now. I haven't.
If I decide after a few months that buying a house is the way to go, then the more cash I have saved, the better. If I decide to keep renting, having the extra cash certainly won't do me any harm.
I need to start practicing some more frugal habits - this became apparent to me when I looked at some items like my grocery spending in June. There are people out there with whole families eating healthier than I do for less than I have been spending. Cutting my grocery budget and cooking healthy meals at home instead of eating out is a big part of my plan to save more cash.
I have added a couple of goal meters to my sidebar to measure how much I'm putting away in my trip-to-spain fund, how much of the $4,000 in cash I save every month, and how far along I am in paying off my student loans.
Photo by BobMarley753 on Flickr
After my last post about my renewed focus on building up a more comfortable emergency fund, life proved just why I need one.
My roommate called me at work yesterday and let me know that my dog had cut her foot playing in the yard, and that he'd bandaged it up and would take her to the vet if I needed.
Now, my dog is fairly accident prone, and she has cut her foot twice before in the year and a half that I've had her. I just imagined it was like the other cuts, and just needed a bandage to keep it clean for a few days.
I picked up some vet wrap and gauze on my way home from work, got home, had dinner, and then proceeded to change out the bandage my roommate had rigged from some paper towel and tape (pretty effective!)
Turned out that 6 hours after getting cut, the paw was still bleeding pretty heavily. The night ended with some stitches from the emergency vet, and a bill for about $600.
Now, I'm not happy to pay out $600, but it was really nice to be able to pay that much and not worry about how I was going to pay my rent/mortgage this month due to an unexpected vet visit!
Of course, I have pet insurance too, so that should cover a good chunk of the costs. It can take a couple of months to be reimbursed though, so I'm glad that I don't need to wait 'til then to pay my credit card bill!
My first financial goal that I need to meet in 2011 is to build an emergency fund for myself. My plans to buy a house would completely derail this fund, as I would need to use all of my cash, plus cash in my mutual funds, in order to pay closing costs and buy appliances, etc.
I recently read this article, about how only a little over half of Americans have more in their emergency funds than the balance of their credit card debt. The article doesn't say, of the Americans with more money in their funds than they owe in credit cards, whether these emergency funds are even sufficient to cover emergencies. A $500 fund is not going to cut it if you have to get some major car repairs in order to keep your car running and get to work.
Personally, my credit caard debt right this minute is about $1,000 ($600 is reimburseable expenses from work), and my cash balance is about $4,000, so at least I am breaking even there. However, my funds available for "emergencies" is still not as high as I'd like.
Right now, my rent is only $325/month, I don't have a family to support or pay medical bills for, I have parents that I could move back in with on short notice if I lost my job. So, I would be fine with an emergency fund of $5,000 or $6,000.
If I owned a house, not only would the purchase use up all of my cash, but I would really require a larger emergency fund to cover the new emergencies I could be responsible for as a homeowner, such as leaking pipes or a broken A/C.
So, the only reason I would consider buying a home now is that interest rates are so favorable, plus I have parents that could bail me out if I needed a short term loan to cover costs like that. I was also planning on having renters pay me enough to make my portion of the monthly mortgage payment even less than my rent now. Still, it's a scary idea because it risks such a lot of money.
The conclusion is that I am pausing the house hunt for now, and I'm going back to building my emergency fund and paying off my student loans as quickly as possible. The house idea is not off the table, but I think that these lower rates will be around for awhile yet (famous last words?) and I don't need to rush into anything now just because I can get a mortgage for below 5%. (But it's so tempting!)
Plus, my roommate is planning on buying the house we are renting now, which should lead to all kinds of improvements in our living situation - like a heating system that works more efficiently, and actually keeps us warm.
You can follow along with my progress on paying off my student loan on my balance-tracking page here.
Every time I receive a paycheck, there are 4 places that I can put the money:
2. emergency fund
4. towards my student loan
Of course, number 1, spending, is where I would like the least amount of money to go.
But how to decide how to split up the rest?
I just started working in October - my emergency fund is struggling to get off the ground. Plus, I'm undecided on how much I need, as I have a month-to-month lease, and if I lost my job, I could move back in with my parents tomorrow.
Then I start thinking about how the more I put towards retirement now, the more time I will have to enjoy the effects of compounding!
But, my student loan rate is about 6.8%! There is a good chance that money I put in the stock market now will, on average, earn a higher rate than this, but it is a little too close for comfort. If my rate were 4%, I think I would definitely stick to making the minimum payments for now!
For now, I am paying much more than I need to towards the loans (my minimum payment is $200/month) because I just hate the idea of still having this debt sitting out there 6 years from now. It only took me one year to rack it up!
I basically split my extra earnings - about 40% to emergency fund, 30% to loan, and 30% to investments/retirement.
If you were in my position, how would you handle these options? Would you put 100% of your money to student loans, to get rid of debt ASAP? Or would you put 100% to building the emergency fund, and get that built quickly, then move on to investments and extra student loan payments once the emergency fund is at your target level?