Moving up in the world - circumstances changing
October 29, 2011 8:13 AM   Subscribe

Circumstances changing! Some financial help and advice needed!

Hello all,

I'm struggling with some sizeable decisions and would appreciate some input or different points of view.

Currently, I'm on a low-ish paid job and living 7miles away from work with my parents. I don't pay rent, so my only serious outgoing is the car (a Nissan 350Z), and loan repayments from the loan I used to buy the car. I'm not struggling for money but I'm not saving a great deal either. However, I was lucky enough to receive £2000 back from my bank after claiming a PPI refund. I also have about £3000 in an account that my parents set up for me a while back.

It's very possible that I'm about to be offered a new job, on significantly more money than I am on at the moment (a 10k rise), however I would be working 30miles from home.

The my new salary would enable me to get a mortgage (using a first time buyer scheme) for a flat I've been looking at on a new build estate. Ive spoken to the mortgage people and on my new salary they would be more than happy to offer me a mortgage for the flat (or something even bigger). The £5000 I have saved already, plus a little more saving (to bring it up to £7000 would be enough for the deposit.

But I can't seem to make a decision on I would do about the car.

The job pays well enough for me to keep the car - but possibly not with mortgage repayments as well.

A) Do I sell the Zed to buy something really nice but more economical?
B) Use the £2000 I have already and buy something cheaper and economical, sell the Zed to eliminate the loan repayments (almost entirely). This would require more time saving to get a deposit together.
C) Same as above but keep both cars
D) Use the £2000 to get the Zed LPG converted. Still have a nice car, costing less to run :wacko:

The loan still has about £7k to pay off (£160 a month)

I appreciate I should probably wait until I know about the job - already had 3 interviews and there are no other candidates in the running - but the thought of having to sort this mess out is giving me headaches.

So, hive mind, what do you think?
posted by anonaccount to Work & Money (9 answers total) 1 user marked this as a favorite
E) live with your parents and suck up the commute for two years until you have more of a downpayment
posted by mozhet at 8:44 AM on October 29, 2011 [2 favorites]

Woah. If you are basically working a job to make car payments you can only afford because you are living rent free with your parents, you flat out cannot afford this car. Even with a 10K raise. Without a shadow of a doubt sell the Zed - for the loan repayment savings, the car babying savings and dear god, the insurance savings. If there is any chance of being able to sell it for the 7K loan remainder, dump that puppy.

This is important because you cannot buy this flat in your current financial condition. The people all around you who are losing their homes? Yeah. On our side of the world that's less about predatory lending and more about people who overextended in the very same way you are about to. If you "maybe" can't make your mortgage payments with your car payments, you can't make your mortgage payments with enough cushion to make this a secure purchase. You need enough room in your budget to both make all your payments (car, mortgage, home insurance, council tax, utilities, mobile, internet and perhaps you'd like some telly?) and save. People lose their jobs. Interest rates rise. And I know you were not alive for this, but under Thatcher in the last economic crisis, interest rates rose to 13%. This could happen to you, so make sure you know about fixed and variable rates and terms and can afford what may come.

Overbuying (and by this I mean purchasing at the budgetary margins) isn't working out so great for a bunch of people, so you know - underbuying has a lot of advantages. At the same time, do not waste your first time buyer discount on something you won't be happy with for a good medium term. It is a huge savings you will never get again.
posted by DarlingBri at 8:44 AM on October 29, 2011 [3 favorites]

You may or may not have got this sorted but I think there are a load of other things you need to think about before you can work out what car you can afford to run if you were to proceed with buying property.

As leaseholder you will have to pay for things like service charges, ground rent, more service charges because the useless people at the property management company underestimate service charge down payments and when they get round to getting accounts for your property drawn up they realise they spent more money than they thought, which they get from you as additional service charges. You'll also need to pay council tax, electricity, any repairs or maintenance on the flat etc. You will need to commute to work, buy food, buy clothes, pay a TV license, your phone and whatever you do for fun....

If it is a newly built property you will also have to budget for a load of fitting out type stuff like the toilet roll holder, lights etc.

What I am trying to say is that you need to draw up a budget, which includes all these costs and considers your take home pay. Perhaps your parents or friends who have bought property can help.

Only then should you worry about the car question because the budget will tell you what car you can afford to run.
posted by koahiatamadl at 8:49 AM on October 29, 2011

I live in the US, and mindsets and transit options here are...different. I imagine the used car market is as well.
With those disclaimers, here is what I would do. First I would not change anything until I had the new job and worked it for at least 3 months (6 would be better) to make sure the job and I were compatible and it wasn't going anywhere. Then, I would try to find a house to buy close enough to the new job I could either walk or bike and sell the car. Use the proceeds(if any) from that to help with the downpayment (deposit?). Live without a car for a while (long as I could stand it) buy something cheap (maintenance and initial purchase). Live with that as long as I could while split evenly the amount of money I was saving on not having a car or a cheaper car into a car fund and into savings until i reached a decent amount then the rest into either a retirement account (don't know if they have those in the UK similar to the US-it has tax implications here) or paying ahead on the mortgage (this may only make sense on the mortgage setup in the US-30 year fixed and right now the interest rates are so low it doesn't make that much sense to do it over a retirement account).

If you couldn't afford to buy anything that close to your new job, could you rent? this only makes sense long term if you can rent for cheaper than you can buy and have the discipline to save and invest the difference. In some areas of the US (New york city and los angeles especially) this can really pay off big over the long haul. Good luck and remember this is the good kind of problem to have!
posted by bartonlong at 8:51 AM on October 29, 2011 [1 favorite]

And I agree with the people who say that you can probably not actually afford to buy the flat at the moment.
posted by koahiatamadl at 8:52 AM on October 29, 2011 [1 favorite]

I am not saying this to give you a hard time, okay? I am saying this in the voice of a trusted friend, who wants what's best for you. Just keep that in mind, yes?

It sounds to me like you are proposing going from a set-up where you are financially overextended on a salary of £X to a set-up where you are financially overextended on a salary of £X+10k. This pattern is a good one to get into if you want to be financially overextended all your life. That is a very stressful, scary and unhappy way to live. It's also very insidious, because human minds adapt to higher standards of living and little luxuries very quickly. As soon as we have them, we wonder how we ever lived without them and it is very, very tough for us to give them up or cut them out. Don't set yourself up to live like that, okay? Set yourself up to have eff-you money.

So, I don't think you have the financial stability to buy a house right now. In your shoes, I would be looking at a different set of option than the ones you laid out. Something like this:
1. Sell or trade-in the Zed for something more fuel-efficient/cheaper, something that I could pay for with the trade-in value or proceeds of the Zed (if there are any . Have no car payment. Live with my parents for another year while banking half or all of my raise at the new job.
2. Sell the Zed, move into a shared flat close to work with roommates, walk or bike to work, bank proceeds of Zed sale (if there are any once the loan is paid off) and half or all of raise. Have no car payment.
3. Um...there is no three. Those are basically the two options I would consider, to be honest. There is a version of two where you buy a cheap car, if you want to do that.

My financial motto (stolen from a book about preparing for college) is, "Live like a student while you're in college, so you don't have to live like a student when you're out of college," i.e., make sure your finances match your reality. When you're just starting out, live with your parents and drive a boring car. Then, in a couple years, you get an apartment with one or two roommates. Then, a couple years after THAT, you buy the house.

I really enjoyed saying Zed in this answer. I'm such an ugly American.
posted by Snarl Furillo at 9:41 AM on October 29, 2011 [1 favorite]

Nthing all the comments to sell the car. If you cannot afford to live in your own place and have a low-paying job, you have no business buying a mid-tier sports car.

Get a used fuel-efficient car that is within your means. Within your means being you being able to buy it outright without a loan. Yes, that means it will most likely be a piece of shit car. However the harsh reality is you cannot afford more than that in your current situation. It sucks, but thems the breaks.

Then start saving your money. I'm not familiar with the rent vs buy situation where you are, but here in America many people are living with their parents to save money until they can either afford a place on their own, or have a job that pays enough to let them move out and keep saving towards a place. You don't describe how much this job pays (just that it pays somewhat more than your current one) but the real question is, is this new job a career? Is there long-term growth potential? If not, then you need to start thinking long-term and consider perhaps investing some savings into furthering your education in a manner that will open up an actual career path.
posted by Elminster24 at 9:34 AM on October 30, 2011

Work and save money.
posted by dgeiser13 at 11:13 AM on November 2, 2011

And live with your parents and drive a beater.
posted by dgeiser13 at 12:42 PM on November 2, 2011

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