Balance Living Life & Savings

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HardHitter
Posts: 495
Joined: Wed Jan 08, 2014 11:41 pm

Balance Living Life & Savings

Post by HardHitter » Sun Sep 30, 2018 10:04 am

We are expecting some significant changes in the coming year or two (first child, potential second house, etc.) and I wanted opinions in where I am "falling short" and where I can balance both saving for retirement & upcoming purchases.

- Age:
Early 30s

- Household Income:
Dual Income: $220K.
Likely to drop to single income of $170K

- Retirement:
Currently only maxing out 401K and will continue to do so until retirement. I had one years worth of Roth IRA contribution, but had stopped due to income limits. This is where I want the most focus on feedback since we will need to be saving for both our retirement on one income. Current retirement between 401K+Roth IRA is $180K

- Savings (Cash):
Currently have $200K of cash on hand. ($20K sits in checking/savings for bills/emergency, $180K sit in 1.9% savings) This nest will keep growing as we continue to save for a down payment on the next house.

- Debt:
$170K ($148K mortgage, $22K auto loan)

- House Equity:
$800K

- Monthly Savings (after mortgage/bills paid):
Dual Income - $6,321
Anticipated Single Income: $2,635

At the moment, we are putting a lot of our savings towards the cash pile since we will need a significant amount on a down payment. This is likely coming at the sacrifice of retirement contributions outside of maxing 401K. Would appreciate feedback if things need to "shift around". Should probably base it on the single income numbers to be conservative.

bloom2708
Posts: 4997
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Location: Fargo, ND

Re: Balance Living Life & Savings

Post by bloom2708 » Sun Sep 30, 2018 10:23 am

You have $800k + $200k now for your next house. How much house are you buying?

Why so much house? With the higher income you should be doing 2x $5,500 in back door Roth. With lower income you can do direct Roth x 2 x $5,500 each year.

Sacrificing retirement for too much house is something we help people try to avoid. Get enough house and then stop house shopping.

Make sure numbers work on the one salary.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

22twain
Posts: 1595
Joined: Thu May 10, 2012 5:42 pm

Re: Balance Living Life & Savings

Post by 22twain » Sun Sep 30, 2018 10:27 am

HardHitter wrote:
Sun Sep 30, 2018 10:04 am
potential second house
Just to make clear, would this house be in addition to your current house (in which you have $800K of equity), or a replacement for it?
My investing princiPLEs do not include absolutely preserving princiPAL.

HardHitter
Posts: 495
Joined: Wed Jan 08, 2014 11:41 pm

Re: Balance Living Life & Savings

Post by HardHitter » Sun Sep 30, 2018 10:39 am

bloom2708 wrote:
Sun Sep 30, 2018 10:23 am
You have $800k + $200k now for your next house. How much house are you buying?

Why so much house? With the higher income you should be doing 2x $5,500 in back door Roth. With lower income you can do direct Roth x 2 x $5,500 each year.

Sacrificing retirement for too much house is something we help people try to avoid. Get enough house and then stop house shopping.

Make sure numbers work on the one salary.
I live in a HCOL area. The current house I have is a 2/2.5 1700 sq ft townhouse. Was lucky enough to buy at the low of the market.

Housing we are looking at are going to be 3/2.5 1300 sq ft single family homes. For something in a decent area you are looking at $1.2-1.5M. If you want good schooling, you're going to be spending $1.7M+. Both price points are bare minimum homes and would require fixes over time.

HardHitter
Posts: 495
Joined: Wed Jan 08, 2014 11:41 pm

Re: Balance Living Life & Savings

Post by HardHitter » Sun Sep 30, 2018 10:44 am

22twain wrote:
Sun Sep 30, 2018 10:27 am
HardHitter wrote:
Sun Sep 30, 2018 10:04 am
potential second house
Just to make clear, would this house be in addition to your current house (in which you have $800K of equity), or a replacement for it?
As per my post above, this is where we have a decision to make. If we stay in the HCOL area, we will need to sell current house to use the equity as down payment for the new house. Even if we paid all cash for our house, our monthly expenses would skyrocket due to property taxes ($400K assessment to now a $1.5M+).

Alternative option is to move 2 hours out of the area where we can get way more for our money. For a $1.5M 3/2.5 1300sq ft fixer upper here, we can get a private community, 4/3.5 3000sq ft move-in ready house for $800-$900K with 9-10 rating public schools in comparison to the 5-6 ratings here. We would be able rent current house out and would cover current and new mortgage + property taxes. This includes fees taken out with hiring a property management company to manage the rental. We would buffer our emergency fund to account for months the property may not rent out. If things didn't workout (e.g. didn't like the new area we moved to, lost job, etc.) we can always move back into our current townhouse, sell the other house and hope we gained some equity.

Leemiller
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Re: Balance Living Life & Savings

Post by Leemiller » Sun Sep 30, 2018 11:03 am

A sub 200k income in a HCOL may mean a condo or townhouse is what you can afford, especially on a single income. You are really stretching here even with cash because as you said other expenses will be high. A house that needs work in a HCOL will be extremely expensive and your neighbors will make more money. There is a big spread in housing cost in our neighborhood and some of our neighbors clearly feel the stress of their bigger purchase versus their income.

I’m not clear on how moving out two hours is an option unless you are self-employed or 100% telecommute?

HardHitter
Posts: 495
Joined: Wed Jan 08, 2014 11:41 pm

Re: Balance Living Life & Savings

Post by HardHitter » Sun Sep 30, 2018 11:30 am

Leemiller wrote:
Sun Sep 30, 2018 11:03 am
A sub 200k income in a HCOL may mean a condo or townhouse is what you can afford, especially on a single income. You are really stretching here even with cash because as you said other expenses will be high. A house that needs work in a HCOL will be extremely expensive and your neighbors will make more money. There is a big spread in housing cost in our neighborhood and some of our neighbors clearly feel the stress of their bigger purchase versus their income.

I’m not clear on how moving out two hours is an option unless you are self-employed or 100% telecommute?
I agree that if we stay on a single income, there isn't a way we would afford to move into another house. Don't want to stress out on the mortgage.

The reason for moving out is because
1. Can get more house for less money (this will address the problem of wanting two kids, but only have a 2 bedroom house)
2. Numbers work where rent from town house will cover mortgage+prop tax for both homes
3. Can take advantage of great public schooling vs needing to save for private school due to poor school system in current area
4. I can work from home and thus able to help out more around the house if there is some "down time"

Only negative is we have no friends/family/support system in that area.

ImmigrantSaver
Posts: 221
Joined: Tue Nov 22, 2016 6:24 pm

Re: Balance Living Life & Savings

Post by ImmigrantSaver » Sun Sep 30, 2018 2:43 pm

I would stay put till first child needs to go to school. Save like crazy meanwhile and reassess then. No need to lose the support system for an extra bedroom you don't immediately need.

Jags4186
Posts: 2596
Joined: Wed Jun 18, 2014 7:12 pm

Re: Balance Living Life & Savings

Post by Jags4186 » Sun Sep 30, 2018 2:47 pm

Just move somewhere else. You don't make so much that those types of jobs don't exist elsewhere. Even if you take a $20-$30k lower salary for similar position you can get your home purchase price cut in half and significantly less stress.

jehovasfitness
Posts: 553
Joined: Mon Jan 22, 2018 2:26 pm

Re: Balance Living Life & Savings

Post by jehovasfitness » Sun Sep 30, 2018 3:14 pm

Jags4186 wrote:
Sun Sep 30, 2018 2:47 pm
Just move somewhere else. You don't make so much that those types of jobs don't exist elsewhere. Even if you take a $20-$30k lower salary for similar position you can get your home purchase price cut in half and significantly less stress.
This

sambb
Posts: 2191
Joined: Sun Mar 10, 2013 3:31 pm

Re: Balance Living Life & Savings

Post by sambb » Sun Sep 30, 2018 4:31 pm

For earlier financual independence you will have to earn more or move to lower cost of living, or plan on working longer, or have a limited lifestyle financially, but you will definitely do ok.

MotoTrojan
Posts: 2585
Joined: Wed Feb 01, 2017 8:39 pm

Re: Balance Living Life & Savings

Post by MotoTrojan » Sun Sep 30, 2018 4:54 pm

Backdoor Roth sounds like it is in play for you (no tIRA assets).

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Nestegg_User
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Re: Balance Living Life & Savings

Post by Nestegg_User » Sun Sep 30, 2018 6:20 pm

I just don’t see the need to convert existing house into rental... when you are that “close” cash flow wise... and you could loose the home equity deduction, as well, if rented out too long

your retirement savings are way too low for that income, so don’t expect retirement anytime soon, especially in a VHCOL area

HardHitter
Posts: 495
Joined: Wed Jan 08, 2014 11:41 pm

Re: Balance Living Life & Savings

Post by HardHitter » Sun Sep 30, 2018 8:04 pm

Nestegg_User wrote:
Sun Sep 30, 2018 6:20 pm
I just don’t see the need to convert existing house into rental... when you are that “close” cash flow wise... and you could loose the home equity deduction, as well, if rented out too long

your retirement savings are way too low for that income, so don’t expect retirement anytime soon, especially in a VHCOL area
Could you clarify when you mean that we are "that close" cash flow wise? Close to what?

Lastly, I knew we were behind retirement saving wise. Trying to figure out how to "catch up" and have it be routine like it has been for the 401K max.

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corn18
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Joined: Fri May 22, 2015 6:24 am

Re: Balance Living Life & Savings

Post by corn18 » Sun Sep 30, 2018 8:12 pm

HardHitter wrote:
Sun Sep 30, 2018 8:04 pm
Nestegg_User wrote:
Sun Sep 30, 2018 6:20 pm
I just don’t see the need to convert existing house into rental... when you are that “close” cash flow wise... and you could loose the home equity deduction, as well, if rented out too long

your retirement savings are way too low for that income, so don’t expect retirement anytime soon, especially in a VHCOL area
Could you clarify when you mean that we are "that close" cash flow wise? Close to what?

Lastly, I knew we were behind retirement saving wise. Trying to figure out how to "catch up" and have it be routine like it has been for the 401K max.
Stay in your townhouse for now and save as much as possible. In 3 years, you'll know more and can make a decision then.

HardHitter
Posts: 495
Joined: Wed Jan 08, 2014 11:41 pm

Re: Balance Living Life & Savings

Post by HardHitter » Tue Oct 02, 2018 8:38 am

corn18 wrote:
Sun Sep 30, 2018 8:12 pm
HardHitter wrote:
Sun Sep 30, 2018 8:04 pm
Nestegg_User wrote:
Sun Sep 30, 2018 6:20 pm
I just don’t see the need to convert existing house into rental... when you are that “close” cash flow wise... and you could loose the home equity deduction, as well, if rented out too long

your retirement savings are way too low for that income, so don’t expect retirement anytime soon, especially in a VHCOL area
Could you clarify when you mean that we are "that close" cash flow wise? Close to what?

Lastly, I knew we were behind retirement saving wise. Trying to figure out how to "catch up" and have it be routine like it has been for the 401K max.
Stay in your townhouse for now and save as much as possible. In 3 years, you'll know more and can make a decision then.
Seems like this is going to be the plan. Just want to make sure we also enjoy life.

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wabbajack
Posts: 238
Joined: Sun Mar 25, 2018 8:05 pm
Location: Indianapolis

Re: Balance Living Life & Savings

Post by wabbajack » Tue Oct 02, 2018 9:02 am

HardHitter wrote:
Sun Sep 30, 2018 10:39 am
I live in a HCOL area. The current house I have is a 2/2.5 1700 sq ft townhouse. Was lucky enough to buy at the low of the market.

Housing we are looking at are going to be 3/2.5 1300 sq ft single family homes. For something in a decent area you are looking at $1.2-1.5M. If you want good schooling, you're going to be spending $1.7M+. Both price points are bare minimum homes and would require fixes over time.
You may have to recognize that your income relative to your area is insufficient to get into a single family home. People get down on condos and townhouses, but the reality is that they are what makes sense. Particularly in a denser and higher COL area. Just going by your numbers, you are also paying more to move into a SMALLER single family house. Is there a good enough compromise for a townhouse in an 8 school district?
Leemiller wrote:
Sun Sep 30, 2018 11:03 am
A house that needs work in a HCOL will be extremely expensive and your neighbors will make more money.
This. There is a social cost to moving into a neighborhood where everyone else is better off than you.

Texanbybirth
Posts: 991
Joined: Tue Apr 14, 2015 12:07 pm

Re: Balance Living Life & Savings

Post by Texanbybirth » Tue Oct 02, 2018 9:06 am

HardHitter wrote:
Tue Oct 02, 2018 8:38 am
corn18 wrote:
Sun Sep 30, 2018 8:12 pm
HardHitter wrote:
Sun Sep 30, 2018 8:04 pm
Nestegg_User wrote:
Sun Sep 30, 2018 6:20 pm
I just don’t see the need to convert existing house into rental... when you are that “close” cash flow wise... and you could loose the home equity deduction, as well, if rented out too long

your retirement savings are way too low for that income, so don’t expect retirement anytime soon, especially in a VHCOL area
Could you clarify when you mean that we are "that close" cash flow wise? Close to what?

Lastly, I knew we were behind retirement saving wise. Trying to figure out how to "catch up" and have it be routine like it has been for the 401K max.
Stay in your townhouse for now and save as much as possible. In 3 years, you'll know more and can make a decision then.
Seems like this is going to be the plan. Just want to make sure we also enjoy life.
With your first child on the way, "enjoy life" will (hopefully) take on a whole new meaning. No need to move at the same time, only adding to your stress, not to mention the significant remodeling you say you'd have to do. Don't move away from your support system at such a critical time in your young family's life. Focus on increasing your savings (not necessarily the % saved, but keep plugging away money into the savings account and retirement), and giving yourselves a better financial position in say...3-4 years when moving "for good schools" is really applicable.

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