Thursday, January 17, 2008

MP Dunleavy Wraps Up 2007

MP Dunleavy writes about her 2007 year financials. I was highly critical of her choice to purchase a second house for $225k at the end of 2007. Turns out, it was a bad move. She doesn't think so, but the numbers well they aren't looking any better.

Her Networth for 2007 started out at:
Consumer debt: $8,500.
Emergency fund: $3,300.
Long-term savings: $40,000.
Retirement: $12,300.
Home equity: $40,000.
Net worth: $87,100

MP Dunleavy ended 2007 with:
Consumer debt: $5,900.
Emergency fund: $2,100.
Long-term savings: $0.
Retirement: $17,400.
Home equity: $85,000.
Net worth: $98,600.

Basically she gave up a long term cash position to have greater home equity? Not a smart move. Also in the article she said that the value of her first home had dropped because of the slow market, but she had just bought a new house $15k over the list price. Hmm...makes me wonder how much her home equity is really worth.

Now she also wrote that she only saved $5k for retirement when she made $72k from her regular job and A LOT extra from her book. So basically she saved less than 5% of her earnings for retirement. Bad idea, considering she's 41?

So you want idea of what not to do? Don't do this. Basically if the renters don't pay rent, she'll be screwed. She has no cash on hand to handle any accidents, unexpected bills. Even if she only uses cash, where's the cash to pay for a month of double mortgage? Or a repair to a house she's not living in? She makes about $100k/year and she has $2100 in her Emergency Fund? This is a reciepe for disaster.

I also think her home equity is an overstated number. But if it makes her feel better. I'd rather have $85k in an IRA or 401k than in home equity. Equity which even she believes has gone down, yet she still purchased another home.

But hey maybe New York isn't going through a housing downturn. Maybe the houses will be her retirement savings. That is if nothing goes wrong and she doesn't have any repairs that cause her to go into foreclosure.

But she's a great poster child of what people of any age should not do. Do not overextend yourself and buy more house than you can afford. Do not live without an emergency fund. Do not count on housing prices to bail you out. Do not try vacation when you can't save for retirement.


Anonymous said...

If she had called in to Suze Orman's show during the "Can I Afford It?" segment and asked about buying that second house, Suze would have said DENIED the minute she got a look at their Net Worth statement. They shouldn't have bought that house for all the reasons you articulated.


Fabulously Broke in the City said...

Agreed with Anon.

It's fine to buy a second house.. IF she could afford it!

But to me, it sounds like a magic bullet to create more income, when she should really be just cutting back and being more frugal (if she wants to save more)..

And why hasn't she cleared her CC debt already? She has the long-term savings to do it, no? It's just such a small percentage, and considering she's paying interest on it... :\

Sounds to me like she made a v. bad decision. If she wanted to use the money, I would've used it to clear down her mortgage.

Living Almost Large said...

I don't exactly know why, I think the long term cash saving was supposed to be an emergency fund. They live on one income, which is freelance writing and just had their first child this year.

Hence they need the cash on hand. Too bad it's going to a second house. Also her husband picked up a part-time job for $500/month to cover the difference of the new and old mortgage.

However you'll soon see where that goes too..