Financial planning and aviation

EdFred said:
Doesn't matter what the length of the note is (assuming the same interest rate). If you have a 30 year note, but pay it off at 10 or 15 year payment levels it will be paid off in 10 or 15 years.
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Agree to disagree... I prefer the 15 and press for 8 or less.

All in all, you build equity very quickly (avoiding some of the troubles that many folks were in when the market crashed) and the interest costs are less.
 
AggieMike88 said:
15-year fixed notes... And there are some good deals for these if you shop hard enough...
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I depart from the Gospel of Dave on this one. I've got a 30 year that I'm working to retire in less than 10. But for a few extra basis points, I like the idea that, if things go to hell in a handbasket, I can work at Starbucks and still make my mortgage payment.
 
AggieMike88 said:
Agree to disagree... I prefer the 15 and press for 8 or less.

All in all, you build equity very quickly (avoiding some of the troubles that many folks were in when the market crashed) and the interest costs are less.
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Interest is based on the remaining balance, a $100k loan at 4.25% is

491.94 over 30 years and
752.58 over 15 years

If you pay 752.58 anyway on the 30 it's still paid off in 15. If you want either of them paid off in 8 years, regardless of the length of the note 10/15/20/30, you have to pay 1230.59/month. The issue is people don't stick to paying the 1230.59 every month, but the math is correct.
 
Along with a few other practical considerations that don't fit into DR's little book. Many of us were active in the financial planning industry long before he came on the scene (and to his credit popularized many sound concepts) but this ain't a one-size-fits-all issue. Chicken Little isn't the only book in the library.



Sam D said:
I depart from the Gospel of Dave on this one. I've got a 30 year that I'm working to retire in less than 10. But for a few extra basis points, I like the idea that, if things go to hell in a handbasket, I can work at Starbucks and still make my mortgage payment.
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flyingcheesehead said:
Ugh...
I guess the banks have settled on something around 36% of your gross income being the number that's allowable for a house payment. But what's realistic in terms of an airplane? How much do kids cost?

Thanks for any insights!
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A boss of mine once said that if he had it to do over, he'd have 4 airplanes and 1 kid, instead of the other way around. ;)
 
tonycondon said:
a serious answer before this thread degrades.
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Thank you! :thumbsup:

our monthly mortgage payment is about 25% of net income. that or less is probably a good number to aim for if you aren't interested in being a complete slave to your job for the next 30 years thanks to your mortgage/car payment/kids/college and still trying to scrape up a little extra to go flying once a month.
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25% of net, or gross?

We hit one of those mortgage calculator things when we merged our finances and have been saving the difference between our rent payment and the supposed mortgage payment ever since (as well as the $500/mo or so we're not paying on our cars any more). So, hopefully by the time we get the house we'll be used to that payment and have a somewhat-reasonable down payment.

Gary said:
Not an easy question to answer, everyone will be different. What is your goal for them (singular or plural). Do you plan to give them the "toys" of childhood, good elementary/high school, vacations to see some of the world, cars, a paid for college education such that they start life even with no debt?
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"Them" will be two. Then the man-to-man defense still works, and four-seat airplanes are much cheaper than six-seaters. ;) Not sure what the "toys of childhood" is supposed to mean - Yes, we'll buy them toys, hopefully ones that help them learn and develop. We have many good school districts in our area, so we're planning to just buy in one of them and send 'em to public schools. The vacations thing is part of the plan with the airplane - I know that I was MUCH more interested in learning about things I could actually see, so I'm planning on using the plane to take them to see things they're learning about in school. Hopefully we'll be able to do an international vacation or two, or at least send them on some overseas school trips - Attitudes of those who have never left this country are... Well, I'd rather not send this to spin zone, but I believe at least a little international travel is essential. (I spent first grade in the Netherlands.)

Ted DuPuis said:
What you have working in your favor is that you're in an area with reasonable property values and cost of living. Buy the house first, pay it down. Better yet, pay it off. I don't know what you want in a house, but you will use your house a lot. Buy one you'll enjoy. I've found a house isn't too bad expense wise, but I don't like buying fixer-upper houses.
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Yep. And one thing I'd rather not do is buy a "starter house." I abso-friggin'-lutely HATE moving. So we are looking at ones that we'd like to stay in long-term, which obviously pushes it toward the more expensive side. (Selling and buying and moving costs money too, though.)

As far as a plane, my question is why wouldn't you just keep on renting for now given what a good club you have?
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Well, it's a great club but it's also an hour and a half drive to get there. I haven't flown any of the club planes since I picked up the Mooney, and I'm trying to find some partners to buy a plane and keep it in my current hangar which is 15 minutes from home. (The plane could be the Mooney, or if the Mooney sells first it could be something else.)

Pay off your house quickly, then save up money and buy a plane with cash if you really want. I believe with used planes like what we fly if you can't afford to buy it with cash, you typically can't afford it.
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Well, I somewhat disagree here. I don't have a ton of money sitting around at the bank, but I'm making pretty good money now. I haven't had any problem paying all the bills on the Mooney, but it'd be probably at least another decade before I could afford to pay cash for it.

denverpilot said:
The question and idea of a percentage of income for the mortgage is flawed. If you're making $10K a year, no percentage works to own an aircraft. If you're making $1M a year, the percentage can be pretty high. ;)
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True that - I guess I'm wondering what people here are doing, since I'm guessing we don't have a whole lot of 10K/year income aircraft owners here. ;)

You're a spreadsheet guy... Toss some what-ifs (as wild or conservative as you like) into one, and start playing with the income and outflow numbers. Start it with real-world numbers today for your situation and keep that copy, or link it to the dream versions, and adjust and track annually. It won't take you more than an evening to arrive at reasonable numbers.
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The only problem is it'd be GIGO. I don't have enough knowledge of the numbers to put in it to get outputs that have any resemblance to reality.

Ghery said:
I don't know what our kids 'cost' to raise. Never kept track. I know that college was about $10,000/yr/kid, but that was over 10 years ago. Resident tuition in a state university helps there. Then there was the wedding for our daughter. I don't know what that cost, all I know is that it made a year of college look CHEAP.
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Ugh. Yeah. Her parents are contributing a LARGE sum of money to the wedding, but I'm pretty sure we'll be kicking in a decent chunk too.

I don't own a plane. I belong to a club.
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If my current club were closer, I'd maybe just stick with that. I've gotten awfully spoiled with the Mooney, though - 170 knots is significantly faster than the 130 (182) or 140 (DA40) that I was getting before. It allows for trips to work a little better - I can leave after work on a Friday and get to most places east of the Rockies in time to get a good night's sleep.

If there were better clubs in the Milwaukee area, I'd certainly consider that, too - But there just aren't. I'm looking at partnerships now. There is a 1/4 share of a Lance for sale, but they want too much for it. If I can get 2-4 others in the Mooney I can just keep it.

Sam D said:
I depart from the Gospel of Dave on this one. I've got a 30 year that I'm working to retire in less than 10. But for a few extra basis points, I like the idea that, if things go to hell in a handbasket, I can work at Starbucks and still make my mortgage payment.
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This! Like EdFred says, it doesn't really matter what the actual term is, if you pay it off before it's done. However, a longer term allows the flexibility of cutting the payment back to a lower amount for a while if there are major issues with employment or home maintenance.

wabower said:
Along with a few other practical considerations that don't fit into DR's little book. Many of us were active in the financial planning industry long before he came on the scene (and to his credit popularized many sound concepts) but this ain't a one-size-fits-all issue. Chicken Little isn't the only book in the library.
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Wayne, do you have any suggestions for additonal resources?

I'm also interested in pursuing a more aggressive savings and investment strategy than letting it all sit in the bank earning a tiny fraction of a percent in interest.
 
N747JB said:
And you can potty train them in a much shorter amount of time!! :D:D
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Oh, whack the ankle-biter with a rolled up newspaper they'll be just as fast a learner as the dog. ;) ;) ;)

(No, I don't train dogs that way.)
 
Kent,

Call my long-time friend Jay Drzeweicki in Appleton. You'll like him, he's a good student of the game and would be happy to sit down and talk about all that stuff with you.


flyingcheesehead said:
Thank you! :thumbsup:



25% of net, or gross?

We hit one of those mortgage calculator things when we merged our finances and have been saving the difference between our rent payment and the supposed mortgage payment ever since (as well as the $500/mo or so we're not paying on our cars any more). So, hopefully by the time we get the house we'll be used to that payment and have a somewhat-reasonable down payment.



"Them" will be two. Then the man-to-man defense still works, and four-seat airplanes are much cheaper than six-seaters. ;) Not sure what the "toys of childhood" is supposed to mean - Yes, we'll buy them toys, hopefully ones that help them learn and develop. We have many good school districts in our area, so we're planning to just buy in one of them and send 'em to public schools. The vacations thing is part of the plan with the airplane - I know that I was MUCH more interested in learning about things I could actually see, so I'm planning on using the plane to take them to see things they're learning about in school. Hopefully we'll be able to do an international vacation or two, or at least send them on some overseas school trips - Attitudes of those who have never left this country are... Well, I'd rather not send this to spin zone, but I believe at least a little international travel is essential. (I spent first grade in the Netherlands.)



Yep. And one thing I'd rather not do is buy a "starter house." I abso-friggin'-lutely HATE moving. So we are looking at ones that we'd like to stay in long-term, which obviously pushes it toward the more expensive side. (Selling and buying and moving costs money too, though.)



Well, it's a great club but it's also an hour and a half drive to get there. I haven't flown any of the club planes since I picked up the Mooney, and I'm trying to find some partners to buy a plane and keep it in my current hangar which is 15 minutes from home. (The plane could be the Mooney, or if the Mooney sells first it could be something else.)



Well, I somewhat disagree here. I don't have a ton of money sitting around at the bank, but I'm making pretty good money now. I haven't had any problem paying all the bills on the Mooney, but it'd be probably at least another decade before I could afford to pay cash for it.



True that - I guess I'm wondering what people here are doing, since I'm guessing we don't have a whole lot of 10K/year income aircraft owners here. ;)



The only problem is it'd be GIGO. I don't have enough knowledge of the numbers to put in it to get outputs that have any resemblance to reality.



Ugh. Yeah. Her parents are contributing a LARGE sum of money to the wedding, but I'm pretty sure we'll be kicking in a decent chunk too.



If my current club were closer, I'd maybe just stick with that. I've gotten awfully spoiled with the Mooney, though - 170 knots is significantly faster than the 130 (182) or 140 (DA40) that I was getting before. It allows for trips to work a little better - I can leave after work on a Friday and get to most places east of the Rockies in time to get a good night's sleep.

If there were better clubs in the Milwaukee area, I'd certainly consider that, too - But there just aren't. I'm looking at partnerships now. There is a 1/4 share of a Lance for sale, but they want too much for it. If I can get 2-4 others in the Mooney I can just keep it.



This! Like EdFred says, it doesn't really matter what the actual term is, if you pay it off before it's done. However, a longer term allows the flexibility of cutting the payment back to a lower amount for a while if there are major issues with employment or home maintenance.



Wayne, do you have any suggestions for additonal resources?

I'm also interested in pursuing a more aggressive savings and investment strategy than letting it all sit in the bank earning a tiny fraction of a percent in interest.
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we're under 25% of NET, closer to 20% really.
 
denverpilot said:
Oh, whack the ankle-biter with a rolled up newspaper they'll be just as fast a learner as the dog. ;) ;) ;)

(No, I don't train dogs that way.)
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trying to figure out what the parents in the crowd find more offensive, the DINK saying how easy it is to train kids, or referring to them as ankle-biters.
 
tonycondon said:
we're under 25% of NET, closer to 20% really.
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Nice. Definitely helps to have two engineers in the family. ;) My brother and sister-in-law are in that position too, and are moving into their new house next weekend... In California! What an in$anely expen$ive place to live.
 
tonycondon said:
trying to figure out what the parents in the crowd find more offensive, the DINK saying how easy it is to train kids, or referring to them as ankle-biters.
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Almost makes ya wanna necro-post in some of those threads where Nick was talking about how he'd be training his kids a few years ago, huh? :D
 
flyingcheesehead said:
Almost makes ya wanna necro-post in some of those threads where Nick was talking about how he'd be training his kids a few years ago, huh? :D
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LOL yea.

and yes there are two ways to get the % of net down, one is to lower the mortgage payment, another is to raise the net income.
 
tonycondon said:
trying to figure out what the parents in the crowd find more offensive, the DINK saying how easy it is to train kids, or referring to them as ankle-biters.
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Don't care. ;) Anyone who knows me knows that I love kids. Been callin' those little tax write-offs (and saying the tax benefits shouldn't be there) ankle-biters for at least a decade.

Have also heard some experts discuss that if you don't have your two year old trained at least as well as a well-behaved dog by the time they turn three, you probably should stay home and work on that, rather than subject the rest of us to their behavior in public. I didn't come up with it.

Parents will be offended no matter what. You could say the kid was the next Einstein and some frazzled soccer mom who hasn't slept in five years will take it wrong.

Mention taking their dependent tax write off away to pay for the education system for their five offspring, and watch their overprotective Costco-loving heads explode. ;)

It isn't the kids that usually are the problem. I can't count how many times I've muttered, "Great. Your bumper sticker informs me that your kid is an honor student, and you don't know what a turn signal is, or how to properly use one." ;)
 
A coworker and myself are closing on homes within one day of each other. We make roughly the same $. Her home is 3 times what mine is. Her kids just left the nest and she doesn't care for and feed a Bonanza. Probably wouldn't have spent anymore on the house if we didn't have a plane but it certainly factored into the home buying conversation. We're at about 10% if our income on the mortgage. No kids though, but there's room for that. We also drive beaters except for my truck that was an unexpected expense.
 
flyingcheesehead said:
Yep. And one thing I'd rather not do is buy a "starter house." I abso-friggin'-lutely HATE moving. So we are looking at ones that we'd like to stay in long-term, which obviously pushes it toward the more expensive side. (Selling and buying and moving costs money too, though.)

Well, it's a great club but it's also an hour and a half drive to get there. I haven't flown any of the club planes since I picked up the Mooney, and I'm trying to find some partners to buy a plane and keep it in my current hangar which is 15 minutes from home. (The plane could be the Mooney, or if the Mooney sells first it could be something else.)

Well, I somewhat disagree here. I don't have a ton of money sitting around at the bank, but I'm making pretty good money now. I haven't had any problem paying all the bills on the Mooney, but it'd be probably at least another decade before I could afford to pay cash for it.
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I tend to agree on the starter home question. My first house that I bought in PA was a 4 bed, 2.5 bath house. There were a few times that I wished I hadn't bought it and had gone with something smaller, but those times were very few compared to the times I was glad to have it. When we moved to Ohio last year, it proved to be a good investment - it sold quickly for a nice profit. On a 30-year mortgage the payment with escrow was about 25% of my gross income when I started, which got to be a smaller percentage as my salary went up. Paid down 13ish years in a 6 year period.

I'd missed along the line that you were no longer convenient to the club, so that does change dynamics somewhat. That said, I think having a house payment, plane payment, and risk of big airplane expenses is a bad combination to have. There's also the question of what you want in a plane and how much to spend on it. For how much you love the Mooney, I'd be more inclined to work out a payment deal with your Aunt and buy it from her, and then see if you can find partners in it. That might allow you extra flexibility and to achieve your goals. Otherwise, you might want to just bite the bullet and drive to the club while you pay down the house and get to where you could perhaps remortgage to buy the plane or the like if you really wanted to finance. Interest rates on a house should be more favorable than a plane.
 
denverpilot said:
The question and idea of a percentage of income for the mortgage is flawed. If you're making $10K a year, no percentage works to own an aircraft. If you're making $1M a year, the percentage can be pretty high. ;)

Income is the critical variable. The bank's calculator is a sales tool trying to max you out, guaranteed.

You also forgot to add a large percentage to a retirement fund. The chances your generation and mine will see much from Social Security are low. The chances government will keep their deal on tax-free withdrawals on Roth investments are also low. The chances tax rates will be the same for 401K and regular IRA investments, also low. One ultra-conservative method for dealing with this is to assume the investments will make 0% and take their income as gravy.

You're a spreadsheet guy... Toss some what-ifs (as wild or conservative as you like) into one, and start playing with the income and outflow numbers. Start it with real-world numbers today for your situation and keep that copy, or link it to the dream versions, and adjust and track annually. It won't take you more than an evening to arrive at reasonable numbers.
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What this guy said, and remember that 36% mark is for GROSS income, not net. Remember all this other stuff that has to come out too:
Taxes
Healthcare
Retirement (i suppose optional)
Car payments (focus on the last three and this won't be an issue)
Food
Phones/Utilities
Unforeseen house/car/etc repairs (ties to the last three)
SAVINGS
SAVINGS
SAVINGS

Then add the following for kids:
More food
More healthcare
Childcare (grandparents are a cheap alternative)
College plan (optional)

I've heard that when preparing for a plane purchase at the lower end (say ~50k or less) have about 1/2 in an account for unforeseen repairs, the first annual and just general customizations to get it to be your plane. I'm sure that's a very very conservative figure but it is a benchmark and I've certainly heard enough stories to see it has it's merit.
 
I'll add my vote to for the longer term loan if you can get the same or similar interest rate. Make the bigger payment, but there is something to be said for only having to make the smaller payment. Gives you just that much more cushion before you start making late payments if something goes wrong.
 
And how would you do this in Southern CA where the cost of a home is more than double that figure but income doesn't scale with it?
 
sferguson524 said:
And how would you do this in Southern CA where the cost of a home is more than double that figure but income doesn't scale with it?
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you can sleep in a plane but you can't fly a house?

choices have consequences?
 
sferguson524 said:
And how would you do this in Southern CA where the cost of a home is more than double that figure but income doesn't scale with it?
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I would choose to live someplace else.

Oh wait, I do! :D
 
The funny thing is my fiancee' and I have been discussing moving to a more "rights friendly, less libtard state" and arizona has been bandied about a bunch.
 
tonycondon said:
trying to figure out what the parents in the crowd find more offensive, the DINK saying how easy it is to train kids, or referring to them as ankle-biters.
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Why do you need to tow your airplane everywhere? Can't it move under its own power? ;)
 
Cheap housing has been central to being able to afford my life's discretionary expenditures. I also have chosen to have one child (with the option for 2 once the wife gets done with school and into the workforce). Life's a choice. According to my peers, my housing and transportation choices are akin to a humanitarian hardship; an outright cruelty imposed on my family. I mean, choosing to live in a sub-2000sqft dated dwelling and driving a 13 year old Jeep *gasp*. People get on that housing mouse wheel and then wonder why they're panting all month.

There's no requirement people spend effectively half of their net incomes on housing choices. I don't begrudge that choice, but quit yer bishin' already if you CHOOSE to live that way. I find most Americans' definition of "adequate and desirable" housing choices rather pretentious, regardless of their income level.
 
sferguson524 said:
And how would you do this in Southern CA where the cost of a home is more than double that figure but income doesn't scale with it?
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I'd move - And your income probably is quite a bit higher than it'd be in a cheaper state, maybe just not double.

CA is on my list of places to not live, along with MA, NY, Chicagoland, etc. for that very reason. Too freakin' expensive. Milwaukee is a decent sized city and I'm reasonably far out in the 'burbs that I don't have to deal with much in the way of traffic and other city annoyances (and I don't have any clients downtown), but my hangar is at the GA reliever airport and is only 15 minutes away, and I pay $275/mo for it and it's one of the newest/nicest ones on the field.
 
Ted DuPuis said:
I'd missed along the line that you were no longer convenient to the club, so that does change dynamics somewhat. That said, I think having a house payment, plane payment, and risk of big airplane expenses is a bad combination to have. There's also the question of what you want in a plane and how much to spend on it. For how much you love the Mooney, I'd be more inclined to work out a payment deal with your Aunt and buy it from her, and then see if you can find partners in it. That might allow you extra flexibility and to achieve your goals. Otherwise, you might want to just bite the bullet and drive to the club while you pay down the house and get to where you could perhaps remortgage to buy the plane or the like if you really wanted to finance. Interest rates on a house should be more favorable than a plane.
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Hey Auntie!!! How about a wedding gift for Kent!

(now go show her this post - surreptitiously)
 
When we purchased 3 years ago, the plan was to buy something affordable on the lower of our incomes, which was (and still is) my wife. Her income is creeping up to mine (WooHoo - She starts new position in about 2 weeks) and she will only work 3 days to my 5!

Well, based on my Gross projected monthly income (I'm hourly currently, but most of my career has been salaried), my principal and interest payment is about 16%, which is in line with the advice given.

I've had some MAJOR setbacks in life and my family and friends remind me of how I fought and come very far (and have never filed bankruptcy) and my credit score is...well let's just say that I have no problem getting credit IF I wanted to buy whatever gizmo I fancied.

Even with our stellar plan, rearing 2 children requires finanicial discipline. The most stressful time in the last few years was when I was using a less revealing accounting platform (Mint) and I failed to spot trends when I took a job awhile ago with (what I thought was) a small pay-cut. That pay-cut was a bad idea!

So, I said all that to say that accounting is STEP 1 to any financial plan. I read somewhere that an inordinate amount of adult Americans balance their checkbook by looking at the ATM reciept showing remaining balance (now they've transferred that to doing it online), and that is sad.

I'll let you in on STEPS 2 and 3 after I find and make them work myself. Otherwise, I'm underqualified.
 
Kent, are you at Timmerman or Crites?

I have no advice for you other than love in a small house and drive old cars. I now practice the latter and soon hope to practice the former.
 
Jaybird180 said:
When we purchased 3 years ago, the plan was to buy something affordable on the lower of our incomes, which was (and still is) my wife. Her income is creeping up to mine (WooHoo - She starts new position in about 2 weeks) and she will only work 3 days to my 5!

Well, based on my Gross projected monthly income (I'm hourly currently, but most of my career has been salaried), my principal and interest payment is about 16%, which is in line with the advice given.

I've had some MAJOR setbacks in life and my family and friends remind me of how I fought and come very far (and have never filed bankruptcy) and my credit score is...well let's just say that I have no problem getting credit IF I wanted to buy whatever gizmo I fancied.

Even with our stellar plan, rearing 2 children requires finanicial discipline. The most stressful time in the last few years was when I was using a less revealing accounting platform (Mint) and I failed to spot trends when I took a job awhile ago with (what I thought was) a small pay-cut. That pay-cut was a bad idea!

So, I said all that to say that accounting is STEP 1 to any financial plan. I read somewhere that an inordinate amount of adult Americans balance their checkbook by looking at the ATM reciept showing remaining balance (now they've transferred that to doing it online), and that is sad.

I'll let you in on STEPS 2 and 3 after I find and make them work myself. Otherwise, I'm underqualified.
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What do you do now? I must admit my method is less than ideal. I look at money once a month when I pay bills and just cross my fingers between those points.
 
jesse said:
What do you do now? I must admit my method is less than ideal. I look at money once a month when I pay bills and just cross my fingers between those points.
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Quicken 2013
 
jhausch said:
Kent, are you at Timmerman or Crites?
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Timmerman. I'm living in Germantown these days, it's the closest airport to me (15 min home to hangar) and I know the people pretty well. 02C, UES, and ETB are each about a half hour away, HXF maybe 35 minutes. If I were to move, it'd be to either 02C or HXF due to having a good aviation community and cheap fuel on the field.

UES is on my "avoid" list due to the crappy chain FBO (Atlantic).
 
jesse said:
What do you do now? I must admit my method is less than ideal. I look at money once a month when I pay bills and just cross my fingers between those points.
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There is another way? :-)
 
Not sure if it was answered but how much percentage of income do most people use for flying?
 
cocolos said:
Not sure if it was answered but how much percentage of income do most people use for flying?
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You'll find a wide variety depending on the particular individual. It also comes down to how much flying you have cause to do. I tend to suggest people should buy a plane they can fly as much as they want. In our case, we want to fly about 50-100 hours a year for our personal travels.
 
how much money does flying take? all of it.
 
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