Thursday, January 03, 2008

When the money rules don't apply

According to MP Dunleavy in her follow-up article to buying a new house, she says there are times when the money rules don't apply. Sounds like the typical mindset of many Americans, that they deserve the new car, bigger house, vacation, eating out, etc and they deserve it now.

Now in the article MP suggests they didn't do the math before they lept but they thought about it afterwards. I have to say that's a for sure reciepe for disaster, looking after you leap.

First they bought a house about 2x what their current mortgage is. Not a big deal if they were selling their first house, but they aren't.

Second they spend $5k/year in repairs on their current home. But somehow, MP suggests this $5k in repairs is no longer their worry. Hmm..interesting because renters ususally don't pay for repairs. Nor does she mention how she'll pay for it. Instead she says her new house doesn't need repairs. For now, I would say she'll love her new house, until something breaks and she hates it.

Third, her husband found a part-time job to cover the extra costs. Sounds to me like she is expanding their budget to fill all areas of their incomes instead of using the extra money to pay off debt, save for retirement. Getting caught up again in the two income trap.

Fourth, if you read her Women in Red updates here is the most recent. MP still has $7700 in consumer debt, and her retirement is at $16k for a couple in their 40s. They are only saving 8% of their income for retirement while saving instead of fancy vacations. I also don't see a 6 month cash Emergency Fund in place. This is a must for someone whose about to become a landlord. Also since she has a new baby, I also don't see any college savings, which is not necessary, I'd put over taking an annual vacation to Spain.

If I were a financial planner, I'd tell her she's crazy. She hasn't got the cashflow or cash on hand to whether any issues that may arise from landlording. She is still in debt, and way behind on her retirement savings. They need to stop going on vacations and start paying off debt seriously, and get into saving for retirement.

She previously stated she makes $80-90k/annually, but looking at her vital statistics they sure havn't saved like they have made that much.

So do the money rules not apply? Or is she just making excuses to have them not apply?


Anonymous said...

You wisely illustrated the problem I think exists with many people who have financial blogs these days -- they're not the people that anyone should want to take advice from. Instead, they're examples of what not to do -- low incomes but not getting more education or working to get a promotion to change that; spending more money on toys than saving or investing for the future; and acting on impulse instead of sound financial reasoning. One really needs to be wellread on financial matters (by reading the WSJ, financial magazines, books by money experts) so that you know when you come across that kind of blog that it's a crock of you-know-what!


Living Almost Large said...

I wonder how she feels attacked when she published her vital statistics. People will question when she lays it all out there. And yes she is a financial writer so why shouldn't people question her?

If it were anyone else on the WIR message board they'd be torn to shreads for doing something so dumb. But MP Dunleavy can get away with it.

Anonymous said...

LAL-I read MP's column and the WIR posts. If a financially savvy person (supposed, as MP) can make a complete fool of herself, it is no wonder that America has a housing crisis.

I think the initials M P must stand for: Money Poor or something like that.

The number one rule when buying a home is NOT to fall in love with it. Buy with your head NOT your heart.

Living Almost Large said...

It stands for Mia something. But I can totally understand how it ruined the housing market. I agree that it's insane to buy houses purely on emotion.

Jim ~ said...

Purchasing a house is very emotional because you must feel a connection to it. I think she got caught up in emotions though without selling the first house. If you think her situation is bad and she gives out advice, look at Dave Ramsey's past and ask yourself if you would take advice from that guy when he started out.

My wife recently graduated with her masters and is very focused on getting a different, bigger, vehicle when she gets a germinate job. I continue to remind her that those student loans payments must come out of her income before a car payment gets added. We also need to sell her current car so we know what kind of cash on hand to work with. Only time will tell what will happen in the end.

Living Almost Large said...

Jim, it's very hard. Life is hard choices. I think it's harder in your 20s with all the pressure from others keeping up with the Joneses.

Honestly, I want a new car too, we'll see how that plays out.

minimum wage said...

and her retirement is at $16k for a couple in their 40s.

Aw, that's nothing. My retirement is at zero, and I'm in my 50s.