I’m chucking money at the WK2 in order to get this rig paid off by April. Once I defenestrate this car payment, I’ll be close to living off of $21,000 a year, all in. That cost of living is still $3,000 too high for me to buy a house. Like a toy Giulia, we’ll do a little break down.

These were my month-to-month expenses during 2018:

Abode, Auto, and Ancillary (AAA)

Abode: $825 month ($9,900 year)

  • Rent - $754
  • Utilities - $52
  • Electricity - $19

Auto: $443 month ($5,316 year)

  • Car Payment - $373
  • Fuel - $40
  • Parking - $30

Ancillary: $295 month ($3,540 year)

  • Food - $210
  • Phone - $47
  • Gym - $38

*** Total: $1,563 month ($18,756 year) ***

Once the Jeep is paid off, my new total will be $1,190 month ($14,280 year). After that, my car purchases will come out of the Savings portion of my Discretionary Income.

What this doesn’t include are my Incidentals. Those are the mandatory items I pay for during the year but not on a month-to-month basis.

Incidentals

  • Emergencies (Urgent Care, Fire, White Fudge Oreos, Etc.)
  • Insurances
  • Registrations
  • Maintenance
  • Repairs
  • Taxes
  • Fees
  • Clothes
  • Supplies
  • Cleaning
  • Other and Suchlike

My Cost of Living (CoL) is made up of the combined totals from AAA and Incidentals annually. The AAA for 2018 was $18,756. I need to sit down and review my 2018 Incidentals but I believe they were around $7,500. Add the two together and my current Cost of Living is around $26,256 a year.

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The Jeep will save me $5,000 annually including the lowered insurance premium. Cutting the last $3,250 a year WHILE adding in some new expenses will take me another two years.

My Discretionary Income is what is left over and becomes my savings and investments which support tithes, gifts, and eventually major purchases such as cars and a home. They don’t count towards my CoL, but they are the other half of my complete finances.

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  • Mandatory [AAA + Incidentals = CoL]
  • Discretionary [Rest of Income]

The only real difference between a purchase coming out of my Incidentals versus at my Discretion is whether or not I need the purchase. If I need it then it comes out of my Incidentals and that counts towards my Cost of Living for the year. If I don’t need it and still end up getting it, then it’s coming out of my Savings and impacts my future (but I do leave room for myself to be happy and passionate rather than miserable and miserly).

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Part Deuce and a Quarter

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Yes, I still have plans to nab a Caddy Wagon and a GranCabrio. As long as the CTS is paid in full, I can keep the $18,000 CoL goal for 2019 and 2020. Bad news is that the Maserati would put me over by around $4,500 WITH the car being paid off and about what I’m expecting in upkeep. That would place my CoL at $23,500 a year with a paid off Kia, Jeep, Jaguar, Cadillac, and Maserati. Again, I’m currently at a CoL of $26,256 a year due to having a car payment.

*We’ll talk about the Incidental Value of Vehicles in another post.

The house problem is this, even if I did a 15 year mortgage on $140,000 at a 4% annual rate, the interest alone for the first three years would be around $5,000 (a hefty car payment). Add in the spike in incidentals like insurance, fees, taxes, utilities, furnishing and my CoL will end up rocketing by over $10,000 during the first few years (but rapidly declining afterwards while creating a positive investment).

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Getting my CoL down to $18,000 means I can take on that initial jump to a CoL of nearly $30,000. That jump comes from mortgaging six figures on my own but I’ll still have enough discretionary income to get the house paid off in under 9 years and minimize the time inside that zone.

In a shell station, I’m still working out how much I need to save and how quickly I need to pay off a house. But the potential to own a home and NOT pay rent or a mortgage would allow me to drop my CoL to $18,000 but with an AAA under $900 a month. That gives more room to my incidentals which is the part of finances which tends to be the troublemaker.

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The CoL is also important because at $18,000 it takes a 5% annual return on $360,000 to allow for 100% of my income to become discretionary. However, in 20 years that figure will probably be closer to a 3% annual return which would require $600,000 to do the same work.

Daunting but doable.