Welcome to my very depressing day! My 11-year old
car has a cracked thermostat cover, which translated to no heat for the last two
weeks, and getting to part with $485 today.
But if that seems bad, it’s also the first time an
emailer has me really depressed. Others email me and I respond with what I would
do in their situation. I have no idea if they ever take the advice or if they
were just looking for a quick way out – there never is one.
But this person is in it deep. I emailed him back
to first decide if he wanted some painless solutions that’ll just have him in
the same financial nightmare in a decade when he’s retired, or if he’s prepared
to do what it takes. In other words: Not have a life for the next 18 months to
work his way out of a huge hole. Today, I’m actually hoping he doesn’t email me
back because this isn’t solvable for five more years. OK, I didn’t mean that,
but I can explain why I said that in frustration:
He has a vehicle financed for eight years. Yes, you
heard that right: EIGHT years. AND it’s one of the fastest depreciating
vehicles around AND it’s a pig on gas. Right now, after two years of payments,
his balance is $44,000. The most optimistic sales value today is half of that.
Yup – he’s $22,000 in the hole – and won’t be at a balance that equals the
value for another five years.
That’s bad enough, but the payments are $650 and
$350 gas and $130 insurance and around $70 maintenance. That’s $1,200 a month.
So he has to earn $2,000 of gross income, pay taxes, EI, CPP, etc. to have
$1,200 left over.
So if $2,000 of his pay is gone right off the top,
plus rent, plus food and normal bills, where is the ability to pay off or to
pay down a $30,000 credit card, or $25,000 line of credit? With what money?
Saving $50 on food won’t cut it. The car can’t be sold in order to drive a
$3,000 vehicle for a couple of years, and there aren’t savings on utilities,
cable TV or a $50 cell plan.
How exactly am I supposed to help this person? Oh
boy, this is depressing. And he didn’t get ripped off on the vehicle – he did
this to himself. Again, I’m not anti-new vehicles. I’d love to own one and
would love you to drive a new vehicle. But only if you can afford it – and certainly
never on the eternal eight year finance plan. The definition of afford it is to
be able to write a cheque for the purchase! An eight year loan is not in the
definition of being able to afford it!
I’m going to live for the day when someone emails
me for help the day BEFORE they put themselves into a situation where there’s
no way out!
George Boelcke – Money Tools & Rules book –