Unexpected raise while househunting-- should I change my budget?

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clace
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Unexpected raise while househunting-- should I change my budget?

Postby clace » Sat Jun 17, 2017 6:36 pm

I've been house-hunting with the intention of keeping my monthly housing costs in line with what I'm currently paying in rent. I've been considering both condos and houses in the range of 360k - 500k (since my downpayment is flexible). However, I've just received a 25% raise (after having received another 25% raise less than a year ago) and I'm debating whether I should look for a more expensive home. My concerns are (1) this would lock me into a level of "lifestyle creep" before I've had a chance to live with the higher salary and (2) there may be other things I'd rather spend the raise on.

Here's an overview of my finances:
Me: 29, single/no kids
Income: 80k --> 100k, bonus 5k --> 15k
401k, Roth, employee stock all maxed: 27k/yr
No debt

Assets:
Retirement (various): 185k
Taxable: 60k -- could sell for downpayment, cap gains are only 7k
Employee stock : 15k
Cash: 10k
Downpayment gift: 200k, up to 290k if needed

Current Monthly Expenses:
Rent/Utilities: 1650
Necessities: 550
Discretionary: 500
Giving: 100

I've been rather frugal in certain areas and would love to be able to change certain things, within reason.
Vacations: I haven't taken a major trip in 6 years
Major purchases: Have had the same laptop for 7 years, nearly all of my furniture is hand-me-down/Ikea
Health/fitness: Mental health/fitness is a major problem area and I'd like to do therapy, trainer, classes etc
Other: Get a dog, attend more plays/concerts, etc.

Do you think it makes sense to raise my home budget (and by how much?) or should I stick to my original plan? Bonus question, should I put my taxable account toward a downpayment? Thank you!

kithwang
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Re: Unexpected raise while househunting-- should I change my budget?

Postby kithwang » Sat Jun 17, 2017 6:39 pm

no. That's extra money for repairs and emergencies.

JGoneRiding
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Re: Unexpected raise while househunting-- should I change my budget?

Postby JGoneRiding » Sat Jun 17, 2017 6:47 pm

I would totally keep your realistic budget the same and go ahead and spend the extra on the rest of life. Controlling housing costs to enjoy life with vacation and a dog sounds like a really great plan.

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HomerJ
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Re: Unexpected raise while househunting-- should I change my budget?

Postby HomerJ » Sat Jun 17, 2017 7:02 pm

My wife and I are rich and on track for early retirement because we DIDN'T increase our housing budget just because we got a raise.

You should save half that raise going forward, and spend the other half on vacations and a new laptop.

Vanguard Fan 1367
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Re: Unexpected raise while househunting-- should I change my budget?

Postby Vanguard Fan 1367 » Sat Jun 17, 2017 9:02 pm

It does sound like as a single that if you can find a house that you are ok with with your lower budget that you have other things you would like to spend the money on. To get that happy wife happy life I had to get her a pretty nice house. But if you have only yourself to please and you are happy with what you can get with the lower budget then you should consider staying with the lower budget. :sharebeer

bhough
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Re: Unexpected raise while househunting-- should I change my budget?

Postby bhough » Sat Jun 17, 2017 9:07 pm

Don't increase your budget. Your future self with thank you.

Don't use taxable for downpayment. Let it grow. I don't know what downpayment gift means, but use that. I personally would buy a $300,000 house and get a 15 year mortgage for $100,000. A house payment close to $1000/month is a blessing that will prevent alot of stress over the next several decades for you.

mega317
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Re: Unexpected raise while househunting-- should I change my budget?

Postby mega317 » Sat Jun 17, 2017 11:39 pm

Well of course if you ask should I spend X or more-than-X we're all going to say X. But I would like to ask how did you determine X. Why is "keeping my monthly housing costs in line with what I'm currently paying in rent" the least expensive option here? I'm asking because every time I moved and started renting in an unknown area I didn't do a lot of deep analysis. I set the craigslist search to a number that I wanted to pay, and then dialed it up until I found something I liked. I would not want that rent number I ended up with to be the basis for future housing decisions. So I'm saying what would your options look like if you aimed for 10-20% LESS? (There is also a continue renting option that you didn't ask about so I won't discuss further.)

BanditKing
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Re: Unexpected raise while househunting-- should I change my budget?

Postby BanditKing » Sun Jun 18, 2017 3:01 am

Don't buy more house than you need. A good BH rule-of-thumb. Take the 25% raise and consider it "found money" and save it to add to your emergency fund and for household repairs. Don't let the raise add to your lifestyle creep outside of joining a gym and maybe taking a roadtrip for a couple weeks once you've bought the house and get settled in.

rikki
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Re: Unexpected raise while househunting-- should I change my budget?

Postby rikki » Sun Jun 18, 2017 6:35 am

I vote for keeping the house budget the same as you estimated before your raise (congratulations on that by the way). A comfortable and manageable residence doesn't need to be large or have all the bells and whistles to feel like home.

You could and probably should spend more on discretionary expenses that will increase your quality of life. Travel, fitness and other forms of self-improvement, and pet companions all should be considered part of a happy life.

It sounds like you are doing very well.

grok87
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Joined: Tue Feb 27, 2007 9:00 pm

Re: Unexpected raise while househunting-- should I change my budget?

Postby grok87 » Sun Jun 18, 2017 6:51 am

clace wrote:I've been house-hunting with the intention of keeping my monthly housing costs in line with what I'm currently paying in rent. I've been considering both condos and houses in the range of 360k - 500k (since my downpayment is flexible). However, I've just received a 25% raise (after having received another 25% raise less than a year ago) and I'm debating whether I should look for a more expensive home. My concerns are (1) this would lock me into a level of "lifestyle creep" before I've had a chance to live with the higher salary and (2) there may be other things I'd rather spend the raise on.

Here's an overview of my finances:
Me: 29, single/no kids
Income: 80k --> 100k, bonus 5k --> 15k
401k, Roth, employee stock all maxed: 27k/yr
No debt

Assets:
Retirement (various): 185k
Taxable: 60k -- could sell for downpayment, cap gains are only 7k
Employee stock : 15k
Cash: 10k
Downpayment gift: 200k, up to 290k if needed

Current Monthly Expenses:
Rent/Utilities: 1650
Necessities: 550
Discretionary: 500
Giving: 100

I've been rather frugal in certain areas and would love to be able to change certain things, within reason.
Vacations: I haven't taken a major trip in 6 years
Major purchases: Have had the same laptop for 7 years, nearly all of my furniture is hand-me-down/Ikea
Health/fitness: Mental health/fitness is a major problem area and I'd like to do therapy, trainer, classes etc
Other: Get a dog, attend more plays/concerts, etc.

Do you think it makes sense to raise my home budget (and by how much?) or should I stick to my original plan? Bonus question, should I put my taxable account toward a downpayment? Thank you!

I would spend some of the raise on health/fitness. "You" are the most important, "things" less so.
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

newbie_Mo
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Joined: Sun Oct 25, 2009 5:28 pm

Re: Unexpected raise while househunting-- should I change my budget?

Postby newbie_Mo » Sun Jun 18, 2017 7:21 am

You didn't mention what king of house you will get for 350k to 500k. That alone will dictate your lifestyle.

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Watty
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Re: Unexpected raise while househunting-- should I change my budget?

Postby Watty » Sun Jun 18, 2017 7:49 am

Banks will lend you a lot more than most people would reccomend spending on a house.

Even with the large down payment the price range you are looking at is already a big stretch for your income even after the latest raise. There is no way that I would spend more than even the lower end of your current range since you would risk being house poor.

Instead of thinking of things in dollar terms you can also look at the "opportunity cost"(google this) of what you would have to give up. For example spending an extra $100K on the house does not cost you $500 a month, it costs you a very nice European vacation every year. When you think in terms like that you can decide which is more important to you.

A great thing about spending money on something like a vacation, gadgets, classes, or even a more expensive car is that it is a one time expensive. Even if spending the money on something like that turns out to be a poor choice it is soon over with and you can easily recover from it.

You can't count on the bonus for a long term commitment like a house since there will be years when there is little or no bonus.

clace wrote:Employee stock : 15k


That is about 20% of your non-retirement account money. It would be good to sell the employee stock as you get it, you already have a lot of your future tied up with your employer. People have gotten into a lot trouble when they have a lot of employer stock and the employer runs into trouble. The only reason to hold for a while would be if holding it for a year got you a lot better tax rate when you sold it.

Dottie57
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Re: Unexpected raise while househunting-- should I change my budget?

Postby Dottie57 » Sun Jun 18, 2017 8:48 am

bhough wrote:Don't increase your budget. Your future self with thank you.

Don't use taxable for downpayment. Let it grow. I don't know what downpayment gift means, but use that. I personally would buy a $300,000 house and get a 15 year mortgage for $100,000. A house payment close to $1000/month is a blessing that will prevent alot of stress over the next several decades for you.



This. Keeping your house payment small is a real blessing. It allows for a very good life and very good investment. Don't blow it by increasing the housing cost.

ResearchMed
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Joined: Fri Dec 26, 2008 11:25 pm

Re: Unexpected raise while househunting-- should I change my budget?

Postby ResearchMed » Sun Jun 18, 2017 9:02 am

grok87 wrote:
clace wrote:I've been house-hunting with the intention of keeping my monthly housing costs in line with what I'm currently paying in rent. I've been considering both condos and houses in the range of 360k - 500k (since my downpayment is flexible). However, I've just received a 25% raise (after having received another 25% raise less than a year ago) and I'm debating whether I should look for a more expensive home. My concerns are (1) this would lock me into a level of "lifestyle creep" before I've had a chance to live with the higher salary and (2) there may be other things I'd rather spend the raise on.

Here's an overview of my finances:
Me: 29, single/no kids
Income: 80k --> 100k, bonus 5k --> 15k
401k, Roth, employee stock all maxed: 27k/yr
No debt

Assets:
Retirement (various): 185k
Taxable: 60k -- could sell for downpayment, cap gains are only 7k
Employee stock : 15k
Cash: 10k
Downpayment gift: 200k, up to 290k if needed

Current Monthly Expenses:
Rent/Utilities: 1650
Necessities: 550
Discretionary: 500
Giving: 100

I've been rather frugal in certain areas and would love to be able to change certain things, within reason.
Vacations: I haven't taken a major trip in 6 years
Major purchases: Have had the same laptop for 7 years, nearly all of my furniture is hand-me-down/Ikea
Health/fitness: Mental health/fitness is a major problem area and I'd like to do therapy, trainer, classes etc
Other: Get a dog, attend more plays/concerts, etc.

Do you think it makes sense to raise my home budget (and by how much?) or should I stick to my original plan? Bonus question, should I put my taxable account toward a downpayment? Thank you!

I would spend some of the raise on health/fitness. "You" are the most important, "things" less so.


Grok87 makes a very important point.

Also, about your housing budget specifically: Was there something you very much wanted that you decided to forgo to keep to the price point you selected?

If not, then please do NOT "increase your budget".
If there was, then... how important was that to you?

Can you include "that" (extra bedroom/office? extra bathroom? private gardening? or?) for a small extra bump in the budget, *not* using most of the extra?

Keep in mind that there almost always is "something else one would have liked" when househunting, so don't let that drive your decision now, unless there was already something that was truly important, and you needed to drop it to keep to your budget.

RM
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FoolMeOnce
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Re: Unexpected raise while househunting-- should I change my budget?

Postby FoolMeOnce » Sun Jun 18, 2017 9:58 am

You are 29, single, with no kids. That can change quickly over the next five years (unless you aren't interested in family life). You might be looking for a family home, or a home in a new city, in short time. I'd keep the budget the same and save the raise, and perhaps treat yourself to some spending increases.

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blaugranamd
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Re: Unexpected raise while househunting-- should I change my budget?

Postby blaugranamd » Sun Jun 18, 2017 10:13 am

Unless you're looking in a very expensive metro and your current budget is a severe compromise from what you want, I would not change a thing. We all run into this issue from time to time: new or increased income and our first thought is "what do I spend it on?" and that usually defaults to whatever we're in the process of considering already or a big ticket item commensurate with the degree of extra money coming in. Don't think "I need to spend more because suddenly I can."
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KyleAAA
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Re: Unexpected raise while househunting-- should I change my budget?

Postby KyleAAA » Sun Jun 18, 2017 7:46 pm

No, I think $500k is already borderline for a $115k income never mind what it was before. I'd be looking more in the $300-350k range at that income and invest the rest.

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JonnyDVM
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Re: Unexpected raise while househunting-- should I change my budget?

Postby JonnyDVM » Sun Jun 18, 2017 8:09 pm

I would try to stay 2.5-3X gross income max. Life is much easier when your monthly mortgage payment is 20% or less of your income.

500k house on 115k is way too much house IMO except in places like SF where the housing market is insane.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

CoAndy
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Re: Unexpected raise while househunting-- should I change my budget?

Postby CoAndy » Tue Jun 27, 2017 1:17 pm

I would not increase your housing budget. I would keep it where it is and in regard to your raise, I would invest half of it for retirement, and use the other half on lifestyle upgrading.

mouses
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Re: Unexpected raise while househunting-- should I change my budget?

Postby mouses » Tue Jun 27, 2017 1:29 pm

Vanguard Fan 1367 wrote:.To get that happy wife happy life I had to get her a pretty nice house.


OP, please don't make a decision based on the assumption that a potential spouse is out for money.

Just because you have more money, doesn't mean you should spend it. Take a look at places you're feeling a pinch and perhaps spend some more money on those. Myself, I would look at the mental health, dog, vacation issues, and save the rest.

am
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Re: Unexpected raise while househunting-- should I change my budget?

Postby am » Tue Jun 27, 2017 1:35 pm

A house costs so much more than the monthly mortgage payment. Buy as little house as you can! You will thank yourself later.

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Pajamas
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Re: Unexpected raise while househunting-- should I change my budget?

Postby Pajamas » Tue Jun 27, 2017 1:40 pm

If you are choosing a house based on how much you can possibly spend on it, then sure, why not?

If you are choosing a house based on what you need, then how much you can possibly spend on it should only be an upper limit in case you can't afford what you need.

Sounds like you are fairly conservative financially, though. Why are you even buying a house since your rent is so cheap? Are you dissatisfied with where you live now? Why take on the added expense and hassle of owning a home while you are young and single? Spend more time walking your dog and exercising instead of mowing the grass and changing filters.


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