What is Brian and Janna’s best path to home ownership?

magnifying glassHere we have Brian and Janna. They have a 16 month old child, two dogs, and a desire to buy their first home. Janna is a licensed marriage and family therapist; Brian is a city-employed landscape architect.

Brian recently transitioned from the private sector to his new job with the city, allowing him less travel, lower cost insurance, and a higher salary. Brian currently brings home $1,558 biweekly. He’s listed his health and life insurance premiums in the budget below even thought they’re deducted from payroll, so we’ll add $140 per paycheck back in and call his income $1,698 every two weeks, or right at $3,400 per month. His two extra paychecks per year (because he’s paid biweekly) are available for savings.

To increase his income, Brian would have to change his job title – moving toward management and away from design work, which he loves.

Janna, although licensed, has to complete a certain number of hours in practice before being able operate independent of her mentor (for lack of a better word). She bills her time at an average of $80 per hour, but half of that goes to overhead (rent, insurance, etc associated with the practice) and to her supervising therapist.

She’s also an adjunct professor at her alma mater, teaching an average of one class per semester.

All said and done, Janna nets about $600 per month.

Brian and Janna have no debt – which is why I’m waving my hands at the small difference between my estimate of their monthly income and their average outflows (listed below). It’s obviously all balancing – just not progressing as quickly as they’d like.

They’re living fully “buffered” (Rule 4), and they have a three month emergency fund. Awesome.

The Goal is Home Ownership

Brian and Janna would like to buy a home in the $150,000 to $175,000 range, with 20% down, as quickly as possible. Look over their budget, then help me help them figure out how to get into the house.

The Budget

Category Budgeted Brian’s Notes Mark’s Notes
Charity $500 Brian didn’t specify where this goes.
Savings & Rainy Days
House Downpayment $0 to $400 Goal to buy a house, but funding currently depends on wife’s income.
Christmas $60 Gifts for immediate family only
Term Life Insurance $70 For both of us
Vacation $150 Saving for out of town wedding next summer
Child’s College Fund $0 Would like to fund more
Pension $270
Other $0 to $100 Depends on wife’s income; need to fund more and more consistently
Groceries $500 Eat local and organic when possible
Restaurants $160
Recreational Beverages $50
Rent $625 Landlord pays trash and water
Renter’s Insurance $13
Electricity and Gas $150 Could you switch to CFLs and save here? Adjust to hotter summer temps and cooler winters?
Phone $97 $20 stipend from employer Could you save money with Ting?
Internet $57
Cable $0 No TV (Applause)
Car Gas $200 Any possibility of bike commuting,car pooling, or working from home some of the time?
Car Insurance $88
Car Repairs $50
Car Registration $20
Car Replacement $0 Would like to fund more
Medical Cafeteria Plan $167 I’m not familiar with these. Would it be irresponsible to drop it?
Health Insurance $283
Household Meds $5 to $10
Personal Care Items $0 to $20
Household Items $20 to $100
Clothing $100 Gotta get this down. This is easy money.
Haircuts/Massage/Etc $50 I’d beat up on this category as much as possible.
Kid Stuff $75
Gifts $15
Love Money $30 Flowers for my wife Way to show me up.
Blow Money $20
Education $0 to $10 Professional/personal development
Childcare $300 Part-time nanny; might increase to $750 for full-time preschool in the next 18-24 months
Pets $110 2 dogs – food, meds, vet
Entertainment $0 to $20
Budget Total $4,235 to $4,895

The Ugly Math

The $35,000 down payment goal (20% of $175,000) would take 11.7 years to reach if you freed up $250 per month (and saved the money in a savings account). Which is to say: it’s a big goal that’s going to take a long time without major changes to the finances.

If we factor inflation into the equation, your money will be worth about 30% less in ten years (3% inflation per year), which means you’d need to save up about 30% more to make the equivalent down payment. That takes your required monthly savings up to $325 in order to achieve a 20% down payment on a $175,000 house (inflation-adjusted equivalent) in 10 years.

(Unless you could earn 3% per year on your down payment savings! Maybe Betterment could help.)

So, this gives me two thoughts:

First, I suppose this is why there are programs that allow people to buy homes with less than 20% down. I bought my house back when the world had lost its mind, and I did some wonky 80/20 financing where the 20% was called a “home equity loan.” Terrible loan, terrible interest rate – we’ve covered this all before.

Point is, I’m ignorant about your lower-down payment options. I have a friend who got himself a great loan recently with less than 20% down, and he bought his way out of Private Mortgage Insurance. His break-even on buying out the PMI is something like two years, so as long as he stays in the house a good long time, he’s coming out great without having had to save up the full 20%.

I hope commenters will chime in with their own stories of how they got reasonably priced loans without a full 20% down payment.

Second, I’m all for the 20% down payment. I think you’d find the purchase less stressful if you had such a big chunk to put down. But the numbers are telling us you’ll need to be saving something north of $500 per month to come up with that down payment in, say, 5 – 6 years.

How will you come up with an extra $500+ per month. Same as the rest of us: through increased income and/or reduced expenses.

There’s more upside in Janna’s income than Brian’s, for the time being. If Janna could accelerate her clinical hours and start pocketing a higher percentage of the $80/hr she can bill, I see the family’s income potential shooting up over $100,000 per year. If you take the budget laid out above and change the income to $100k+, it’s not very hard to get to $500/mo in house savings.

Reducing expenses is the trickier, more emotional piece for most of us. I see some places I could cut back in your budget, but that’s me.

The two of you have to come together, decide how much the goal matters to you, and weigh all other purchases against the value of the goal (sort of like we did with Carrie the other week).

With every discretionary category, you have to ask yourselves:

Is that more important to us than getting the house?

In many cases, you’ll say Yes. Some of your expenses will be more important than accelerating the home ownership goal. In other cases, you’ll have to answer the tough No, and push that money toward your down payment category.

I hope the discussion is helpful, and wish you the best with your goal to get into a house!

Update: Brian emailed me this as a follow-up to the post.

“Charity – $500 is 10% of gross and represents an important part of our life. We’ll choose giving over a house.

Christmas – Big family – 15+ including siblings,some with spouses, etc. We budgeted $720, but won’t be spending even close to that since the much larger half of the family decided to forgo gifts and do a secret Santa thing instead. Should be able to roll many hundreds of dollars into savings, and cut this way back in 2014, too.
Dogs – We don’t spend $1200 on the dogs, but we budget that so we have a healthy veterinary category in case something serious happens. We have an emergency fund, but it feels better having a cushion designated for the pets, same as our car repair fund.

Cafeteria Plan – As others said, this is pre-tax money for medical expenses. We estimate conservatively but do use it all. In 2014, a portion of our childcare expense will also be run through this plan; something we didn’t do this year.
Childcare – Little one will attend a part-time preschool next year. $144 per week; comes to about half per hour what we pay now and will give “Jenna” more time to build her practice.
MFT – Great to see feedback from other LMFTs here. The $600 per month is net. We hold back money for taxes and other business expenses like licensing, CEU’s, conference travel, etc. in a separate off-budget account. Those numbers are not reflected in what Mark posted. Starting in January she will be adding a sales component to her job that has the potential to boost her income significantly. She is about half way to the required # of hours, but expects to knock out the other half in 12-18 months based on her new availability. Once she meets the requirements, she will be able to accept more clients and expect a slightly higher percent cut. She will still have overhead expenses for the office space, billing, marketing, etc that is handled by the group practice.
House – Good input from all sides. Kind of hard to hear that some think we can’t ever buy a house, but that’s what it feels like, so it shouldn’t hurt to say it out loud. I appreciate the honesty. A lower price point probably isn’t reasonable based on what I know of our local market. Moving out of town would bring the price down, but add other expenses and possibly reduce quality of life. Something to consider regardless.
We’ll be saving everyone’s comments and reviewing them more in depth over the holidays. Hopefully cuts here and there combined with the income changes will drastically alter the picture and we can cut a few years off Mark’s projections.”

36 Responses to “What is Brian and Janna’s best path to home ownership?”

  1. Liza (@sunnycyclist)

    A medical cafeteria plan is like a flexible spending account: set money aside tax-free, then use it for qualified medical expenses. If you know what your medical costs are, this is an excellent way to pay for them. However, these plans are usually use-it-or-lose it, so you have to be careful to only set aside what you know you will use that year (this rule may be relaxed in 2014 to allow some rollover funds).

  2. Court

    I’m Mark’s friend who bought out of Private Mortgage Insurance on my loan. Just looked at my loan paperwork, and it cost $2500 to do that. Basically, when you do that, you are just prepaying the PMI. The price I was quoted on the PMI before I made that decision was $97/mo.

    So, the break even point on that was 26 months.

    But, I actually didn’t pay the $2500 out of my own pocket. I found the house myself and asked the Seller’s Real Estate agent for a discount on their commission since I didn’t have a seller’s agent, which they gave me. They agreed to give me 2% of the purchase price back for closing costs.

    The prepaid PMI was one of the closing costs so that was taken care of by the 2% back so really it didn’t cost me anything.

    My purchase price was $209,900 and I put 10% down.

  3. JayBee

    FHA loans are a good option, and FHAs are allowed for live-income properties, which is something that I would recommend for this couple. They should consider this a “property ladder” process.

    A live-income property has many benefits, the biggest being that it confers income. Yes, you have to be a landlord, so there is a learning curve, too. But from an investment strategy, building wealth, and getting started on the property ladder, it’s a good option.

    In our city, which reads similar in the budget to their expenses, I have found high-quality, two-apartment houses (in great condition), for $110-130k. The FHA down payment is 3.5%, which is $3850 to $4550. It does have expensive fees, but after a couple of years (demonstrating credit/ability to pay), it’s relatively easy to move it to a traditional mortgage (refinance).

    Ideally, you’d be able to cover the mortgage yourself (in case you don’t have a renter, etc), and then you’d want to sock some of the renter’s money (income) away for repairs/etc, and then apply a portion or all of it to the mortgage — paying the mortgage down faster. A friend of mine split each month — 50% went into savings for repairs, etc, and 50% went to the bank. She paid off the house in 7 years!

    For the next three years, she continued to put 50% into “repairs” and 50% into savings for a down payment. The apartment rented for $800/mo — so she was able to save $400/mo, and in three years, had a $14000 downpayment to put on a forever home — and she used it as a 10% down on a $140k single family home.

    So in 10 years, she not only owned a property that she could gain income on (once she moved out, $1600/mo) plus the assert of the house itself, but she could then purchase another house with the income from those houses — the income from one of the apartments paid her mortgage payment on her new house, and the income from the other apartment was socked away.

    In my opinion, this is the best way to get on the property ladder, because if you then want to buy your dream house or forever home, you have an asset that will then bring you more income when you move out.

    Based on our circumstances, we are working on this process. We need a full tax cycle (ie, 2014 taxes) to demonstrate the health of our business and our ability to maintain a mortgage with it. We already have a savings for the downpayment part-way there (3.5%). And we have started to identify properties and price points that will work for us.

    It does mean revising the american dream a bit. I don’t feel ashamed of living in small apartments, so that helps, and to me, the idea that we can also provide safe, healthy housing for other families, while also benefitting our own is a really positive one. It makes me happy.

    End of the day, I think it will be a great opportunity for us. And I share it in the hopes that it will be for this couple, too.

    Also, restaurants and flowers. You can show love in a lot of ways — find free ways to do it. :D

  4. Cate

    A few thoughts – flex spending accounts are “use it or lose it”, but many cafeteria plans are set up like savings accounts and roll over to the next year. These accounts are used to either pay for or be reimbursed for medical appointments and prescriptions. We low-ball our amount each year, and use the reimbursements for out of pocket as “income” (since it’s taken out before taxes. They may also want to look at getting on a childcare flex plan (assuming the part time nanny is accredited), so those dollars are also taken out pre-tax. His HR person (or the company that oversees the flex/cafeteria plan) should be able to show him the take home difference based on his tax bracket.

    Because they don’t say how many hours Jenna is going to have to complete until she is able to operate independantly, that is a major gap in information. Once she is fully accredited, her income should increase dramatically from $600 a month because she could bill at a higher rate, which could then go towards saving the 20% downpayment for the house.

  5. Eric Williams

    I’ll start by saying that we have a very similar family dynamic. My wife and I have a 21 month old. That being said, I’ll attack some low hanging fruit.

    Food: We budget $600 per month and buy mostly organic food and we also eat out quite a bit (not so much organic when we eat out). If you add up all of your food/drink categories, your spending $877 (Groceries/ restaurants/ beverages/ cafeteria plan).

    We recently re-financed and our bank doesn’t offer escrow, so another mind game you could play is to be saving how much your property taxes would be on a piece of $175,000 house. That will be an added expense if you haven’t already figured that in. Our property tax is our third largest expense every month.

  6. Travis

    They should be able to pull some money out of their food and fun money accounts since it’s just the couple and a toddler. It would help to know where she is coming along with her internship since her employability will go up quite a bit when she finishes her hours. She will also have continuing education and licensing requirements throughout her career that they need to make sure they budget for (my wife is a licensed MFT).

  7. Hannah

    I make very little working part time while attending school. I decided it was and still is important to me to eat local and organic as well, but my monthly food spending is never over $150, and frequently lower than that still. You could consider buying in bulk and taking a day on the weekend to make healthy meals for the week or possibly cutting out meat for some of your meals. I hunt and butcher my own, and while that’s not for everyone, it has been very cost effective for me. Maybe you know a local farmer you could work out a services trade with? Or go in with another family or friends to buy a whole animal from a local farm and have high quality meat stored in your freezer for the year?

  8. Bill Kiele

    Follow-up on Travis: The conferences are the real money-eaters for an LMFT, so you want your one conference per year to be AAMFT supportive, and states are upping the CEU requirements. Watch out for office upgrade-itis, too. I learned for marriage reasons it’s good to have someone else be a biz manager rather than me, unless your wife is good with the books. Mine isn’t, but I know that if she goes back to prvate practice, she’ll have a biller and a CPA. Right now, she’s working in a social services shop as THE Licensed MFT and Supervisor-rated therapist. Consider a salaried position with a non-profit. You see a different slice of life, but it gets you hours for about the same NET pay.

  9. Ryan

    Is 3% inflation the right assumption? What really matters is not the cost of the CPI but the cost of a house, so the inflation calculation should be based on house price inflation. What that will be depends on whether you think we’re going to have another boom or whether house price patterns will return to pre-1990 behavior, in which house prices barely advanced faster than the general consumer price level. Given that the Fed targets 2% inflation (and, for the foreseeable future, is missing that target on the low side), something close to 2% is probably a better assumption.

    That said, wages typically rise faster than inflation, so it’s not clear whether inflation is even necessary to incorporate into these calculations. As the potential homeowners’ wages increase, if they keep the share of income that they save constant they will probably beat inflation. Better yet, if they keep consumption constant and let savings absorb an increasing share of income, they will hit their savings goal ahead of schedule. The point is that if the relevant time horizon is long enough that inflation is an issue, wage growth will probably take care of it.

    • mark

      All great points, Ryan, and I appreciate the comment!

      Unfortunately for Brian and Janna they probably still need to be in the ~$500/mo savings range to reach their down payment goal within five years (give or take).

    • CW

      I don’t agree about wages rising with inflation. There are plenty of people who haven’t had a raise in years – or, worse – have had to take jobs for far less money.

    • Jeff

      The “official” inflation rate may be in the 2% range, but it doesn’t include food or fuel (gasoline and heating oil). The government made the decision decades ago to remove them from the calculations for obvious reasons.

      The actual inflation rate in North America is well north of 5%.

      • CW

        It feels worse than that. I know that milk, bread, and other basics are 5 times higher than they were 20 years ago – at least what we personally used to pay and what we pay now. And, the same for our house. The only thing that went down is interest rates, as far as I can tell.

  10. Sweal

    They are lucky to be able to buy a home under 200,000 in their area. My boyfriend and I make nearly the same amount of money (minus having a child), but the least expensive condo I’ve seen around here is 300,000 for a 1 bedroom. Ah Santa Barbara CA – just moved here for a county job. Great benefits, scary housing AND rental market.

  11. kyle

    We used a USDA loan. Youd be surprised what qualifies as “rural” living. Its possible to go through the entire process with 0% down! Even closing costs can be wrapped in if the conditions are right. Fixed interest too.

  12. Dawson

    Ill chime in. My wife and I are buying are first home right now. We are set to close at the end of December. Ive only been married since February but I decided four years ago in January of 2010 to start saving for a home. I used a mutual fund with the intention of it being a 3-5 year vehicle. I started by dumping $4500.00 in it, because I had some extra money at the time. I set up an auto-draft for monthly contributions from my checking account of $350. It seemed like a lot at first, but I decided it would be worth it. After just a couple months, it became just a normal “bill” and i hardly noticed. And i only make 20-30k per year. We rented a small and cheap apartment for our first 10 months of marriage. The investment has paid off though. I redeemed all my shares for nearly $35,000.00 about a month ago and were using 30k plus a few extra $ for a downpayment of 15% on our new home. We did the same PMI buyout of $1700 or so and we have to live in the house for about 28 months or somewhere around there for it to be worth it. The seller however, as with the case above, agreed to $2500 in closing costs coverage.

    Obviously, your situation is a bit different, and the market is different today. I got into the stock market at a really good time and the returns show. Its not a guarantee that it will be the same for the next 4 years.

    We also eat organically and out monthly food budget isn’t that high.

    Heres what i would budget monthly if I were in your shoes:
    Giving: 500
    Down Payment: 400
    Christmas: 20
    Term Ins: 70
    Vacation: 130
    College: 0
    Pension: 270
    Food: 375
    Restaurants: 17
    Beverages: 40
    Rent: 625
    Utilities: 140
    Phone: 50
    Internet: 57
    Gas: 170
    Car Ins: 88
    Car Repairs: 40
    Car Registration: 8
    Med Flex: 167
    Health Ins: 283
    Household Med: 5
    Personal Care: 10
    Household Goods: 40
    Clothing: 20
    Haircuts: 0
    Kid stuff: 65
    Gifts: 0
    Love Money: 20
    Blow money: 0
    Education: 5
    Nanny: 300
    Pets: 100
    Entertainment: 0

    Total: 4000

    Income: 4000

    You’ve got to get your income up. This is cutting everything to the bear bone just to save $400 each month. 1: Get a good raise in 2-3 months. or 2: Get a second job delivering pizzas. Or 3: Move up in position and pay with a new company.

    Wife working full-time too helps but adds cost of childcare plus loss of time spent parenting. I dont like that.

    I can’t type any more. People can add on if they wish…

    • JayBee

      This is such a great post because it shows that “it can be done!” even if you earn very little! Way to go!

      I’m going to talk to my accountant about good mutual funds so that we can do this. We need to look at our IRAs and redo those, anyway, so I think it’ll be a good opportunity to consider a mutual fund for saving for a home.

      Congratulations on your new home!

  13. Laura

    Is that christmas category just for december, or $60 a month? $720 seems like a lot for presents for just the immediate family.

    • JayBee

      I don’t know how other people do it, but my christmas budget includes *everything* for christmas, not just gifts.

      And truthfully, we don’t “really” give gifts — at least not purchased ones. DS and I make cookies, sweets, and decorations — so we include some as gifts for our family members. It means I’m spending less money overall, and that helps us out a lot.

      Even so, my christmas budget includes everything:

      * christmas foods for us and to make gifts — special ingredients and special items like a turkey which is more expensive than our normal weekly budget;

      * events — we mostly look for free ones, but the winter festival is a fund-raiser for the school, so we definitely save up to attend and participate in the activities, and we also have traditions at the local botanical gardens (going with family to see the decorations) — and that’s about $35 for our family to go in (we go to three different venues of this sort), and then christmas concerts are often fund raisers as well (for churches and musical groups), so while low cost, they do cost money. . .);

      *decorations — we make our own out of found and recycled objects, but we often need a few supplies like ribbon and glue, and we also go out to a christmas tree farm and pick up a tree for about $20;

      * transportation — we often do a lot of travel/visiting family and friends during December, which means we need to save up for fuel and road tolls. I also save up for parking, parking tickets and speeding tickets — just in case we get one. I haven’t had one in years, mind you, but I earmark $100 towards this.

      Most of our festivities come in around $500 for the whole thing — and remember that’s not *buying* any gifts for anyone. And if I did buy gifts for my 14-person list (and that’s *just* family), with the $220 left over after all of this, that would come to just about $15 per person, per gift — so nothing extravagant. If I just spent $720 on gifts, it would comes in at $51 per person per gift — still not exactly extravagant.

  14. Julie

    My suggestion is to find a bank that will be helpful to you in the house buying process. We were first-time homebuyers in 2010. Our realtor suggested we switch banks from the nationwide bank we were with to a local small-town bank because they were offering a $4000 grant for first timers. It turned out much better than we expected. Our loan officer there took the time to consider all of the different options we had based on the small amount we had available for a down payment (about $5000, if I remember right). We looked at USDA rural development with 0% down and FHA. Both of them have some stricter requirements for the house you buy that would have resulted in extra work for the sellers of the house we bought. And, the PMI couldn’t be bought out. We ended up with a 5% conventional mortgage and bought out the PMI. I believe the price of the PMI could be part of the 5% we put down. The purchase price of our house was $140k and after the grant and our 5% as well as some additional money by the seller given as “closing costs” for some repairs, our mortgage ended up right around $130k. I have no doubt that the nationwide bank we had been with would not have worked nearly as hard with us to find an option that was best in our given situation.

  15. Bonnie

    If you need $500/month, you can easily get that from your charity category. It seems to be high considering you have a big goal to work towards If you cut it in half and then found the rest of the money from your other categories, you’d be on the right path. $500 is awful high with your income, basically Janna is working to give money away.

  16. CW

    Love money awfully high. You don’t have to spend to show love.

    $500 charity must be tithing. If it’s your religion, that’s your deal. From a purely financial perspective, it looks like you are really hurting yourself – and foregoing a home.

    Entertainment. What do you want more? Fun now or a home sooner?

    We are a family of 4, eat partially organic and all high quality. Daily fresh vegetables, fruits, and meats. No junk. All from scratch. Some restaurants. Total food about $900-$1100/month. We do not ever add drinks to meals. Always water. Only organic milk for 2 in the family and, on rare occasion, OJ. Food is a hard issue, but we have cut out a lot by comparing what costs us more and converted our food choices to stay healthy, but pick the cheaper options when we can. Still difficult, but beverages are very expensive. Your $50 is $550/year.

    I wouldn’t even have the college fund in the budget at this point. Until you have a house and fund all that is involved with that like property tax, higher insurance, repairs, future maintenance, appliances, lawn & lawn equipment, etc., and until you have more in retirement, I wouldn’t even consider it. As I’ve heard many times, you can get a loan for college, but not for retirement. And, you will be far ahead to get your home paid for before worrying about college that may or may not need to be funded. Think changes in laws, scholarships, alternative education, working, etc.

    Have you considered a Net10 phone? We try to use our cell phone as little as possible and only do long calls at home. We pay only about $18/mth for each phone for 150 minutes. There are a LOT of deals out there for home phones like voice over internet and cellular modem (like Verizon) for as little as $15/month for unlimited usage. Look at Verizon, Wal-Mart, Vonage, etc.

    Clothing – I don’t necessarily see a problem, depending on your current scenario and future needs. We buy almost all second hand. However, if you are saving up for a new ski coat or pants, NEOS boots, high-tech clothes of any kind, ski gloves, etc, you could easily need that money. We save $50/month/person. We don’t actually use it, but it is like a savings goal for stuff that is not regular or that I would not want to buy used. Believe me, I scrimp and keep clothes forever (think decades). I even buy my swimsuits used for 50 cents to $4. But, until you get a good handle on this category, I don’t think it is unreasonable, depending on what you already have in your wardrobe and what you are lacking. Now, if you have burgeoning closets, buy all new, buy expensive, and have all the tech gear you need – definitely, rethink this category.

    Wow, lot on dogs. So much more than for cats! We only need $5/mth for one cat. I definitely would not want to consider a 3rd dog if you are trying to save. I know absolutely nothing about it, but might want to consider pet insurance? Is there any way to lower this amount? Of course, you don’t want to get caught without money for a vet bill. Have you decided on a limit for that? We insisted that our kids set a limit. If the vet bill is higher and the prognosis is grim, we will make the hard decision if the bill will be higher than the limit. It is an end-of-life living will we made for our pet so that emotions don’t bankrupt us. Please, no comments on this. Just a thought if you want to use it. Many pet owners would spend their last dime for their pet. I just can’t do that. He wouldn’t have lived if we had not taken him in, (his entire family disappeared within a couple weeks due to wild animals), so we have given him plenty over the years – and lots of love and affection.

    • JayBee

      Dogs cost a lot more, financially speaking, as well as in terms of time (walking/exercising them properly, making sure someone lets them out if you are out all day, etc).

      But, part of the reason we don’t have any pets — no money for pets.

      • JayBee

        And added — I am not saying “get rid of” your pets. Our last pet (whom we could afford) passed away in 2007. Since then, people have asked us about getting another pet, but we had our son (so that’s enough work), and now he’s old enough for us to have a pet, but we honestly don’t have the time or money for a pet. So we don’t have any pets.

      • CW

        That’s where we are. Kids want a dog, but we see how much they cost. I know people who have to spend $175 – $300 for boarding for a week every time they go out of town, which they have to do. Plus, a friend of mine added up the costs for her dog for one year, and it came to $3,200. I know plenty of people who have had a $2,000 vet bill. I can’t imagine finding that kind of money in my budget when we don’t have other things we need or want. But, I also recognize once you have them, it would be difficult to let them go. So, you have to be very realistic about the budget category. Not budgeting enough would be worse. Facing reality is the only answer. Still, I know people who are jobless that go ahead and get a dog. I can’t even fathom that!

      • JayBee

        Yes, it’s a fascinating process.

        I was very much considering getting a cat a year ago, but then when I priced out caring for one, it was just not the right thing for us. If I hadn’t been thinking about budget, though — I probably would have gotten a cat! And cats are less expensive than dogs by a lot!

        It’s true that facing reality is the only answer, and this couple seems to be doing that by budgeting accordingly. :)

      • CW

        Our true cost of one cat. We got a kitten 7 years ago. At the time, we also owned a toad. And, we have purchased a terrarium and some fish food for the occasional snake or salamander visitor from our lawn. All that was also put in our pet category. We took the cat to the vet for its first set of shots, neutering, and deworming and have kept it inside ever since. That cuts down on all sorts of vet visits. Far less danger. He has been sick twice – once due to dehydration which we solved by buying a water fountain and feed him only one special urinary tact food. One other time from swallowing a string. I have kept detailed records and, in 7 years, we spent $1217 in the pet category, which is $14.49/month or $173.86/yr. It would be less if we had not bought the terrariums for occasional use. And, if we had started out with the water fountain, which I highly recommend making from a fish tank water filter (much cheaper than the cat-specific ones), and one less vet visit. Nevertheless, I feel we are both frugal and lucky. If you have an outdoor cat, their life is much shorter and more expensive. We have only purchased a couple toys – we usually make them from scraps of other things.

      • CW

        Oh, yeah, we also bought 2 litter boxes, 2 sets of bowls (he was allergic to the first one (and we had a vet visit for that and medicine), and a scratching pad and refills for it that will last us several years. If you plan to buy a cat tree, cat be, or anything else, that raises the cost. Instead, we have arranged our room to let the cat jump up high and perch on shelves, hutches, etc – to give him a path around the room that he must exercise to use. We would make a bed ourselves, but he has so many favorite spots, it’s not necessary.

      • JayBee

        I didn’t notice that the pet food was mentioned. :) It might not be that expensive, but it is an expense.

        We also travel a fair bit, and would have put pet sitting fees in there.

        Also, saving $1200/yr at a minimum would be better for us than spending it on an animal. :) (Yes, our income is that low.)

      • CW

        If you are referring to the cat’s expenses, yes, food was included in that. And, we get friends to watch him while we are away. But, the $1200 was for 7 years, not one year. So, that is an average of $171.42/year – mostly in the 1st and 3rd year (in our case), so usually far, far less. It isn’t nothing, though – I agree.

        Nevertheless, the budget being scrutinized here by Mark has a pet category for 2 dogs at $1320 per year, which I believe might be on the low side for 2 dogs, especially if there are emergency vet bills or sitting fees. And, yes, I agree, that is a lot if money is tight and you are trying to get ahead.

  17. James

    I think their budget is pretty reasonable.

    To buy a home they will need to use their emergency savings or have Jenna earn more income, or not work and avoid child care.

    Can this couple afford to own a home even if they bought one?
    Without more income I don’t think so.

    The payment on a $140,000 mortgage is between $650-$700. Not including taxes, insurance, utilities they are not paying for now, and home maintenance (fix the roof etc). There are also a lot of expenses to set up a house – lots of things to buy. Usually more furniture, house maintenance tools etc.

    • CW

      That is what I was thinking, but didn’t say. The income does not seem to justify the price of the home they are thinking about. It would be a huge danger zone. Between the upfront costs, the monthly obligations, the insurance increase, the property tax, and the for sure things that will break-down, I don’t see any wiggle room for that kind of investment. Plus, the kid will get bigger and more costly. I don’t see that in the budget, either. Not trying to be harsh or judgmental. Just worried the couple will bite off more than they can at all reasonably cover.

  18. Dan McCurry

    I would look at the kind of home you want. Then calculate what the payment, utilities, upkeep, insurance, etc. will cost you. If your current monthly rental costs plus your monthly savings can’t be made to at least equal the costs of the home then you better keep renting for now.

    Believe me, there are many advantages to renting. One, for example, is that renting reduces financial risk and allows you to diversify your investments. A home tends to become all consuming, sucking every otherwise investable dollar out of your budget.

    • CW

      Definitely. If you couldn’t rent the house for more than what you pay for it including all the other necessary expenses associated with home ownership (including a $6,000 furnace, $500 water heater, $10-$15,000 roof, etc), then it is very, very risky. The hope is that one day you will own it. But, mean time, there are huge pitfalls. And, if you don’t have plenty of income to cover it, then it could be a nightmare. Some people pay more for property tax than others do on their mortgage. So, you might end up feeling like you never stop having payments even after it is paid for. Some rent is cheaper. Just have to look at each situation and not forget all the extra costs.

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